With time and compromise slipping out of reach, the congressional "super committee" may punt its toughest deficit decisions to next year rather than strike a deal that would enrage both parties' political bases heading into the 2012 election.
The Joint Select Committee on Deficit Reduction has until Nov. 23 to agree to a package that would reduce deficits by $1.5 trillion over the next decade.
Achieving that goal would require painful compromise — both parties would have to give up political weapons they have hoped to wield over the next year. But failure could roil the financial markets as the holiday shopping season begins and further trash the already record-low approval ratings for Congress.
In an effort to avoid stark failure, a fallback plan is emerging that would push tough decisions on taxes to next year, perhaps into a lame-duck session after the election, according to officials familiar with the panel's discussions.
Under this scenario, the two sides would agree now to a level of revenue from new taxes. They would direct the congressional tax-writing committees to revamp the tax code with fixed dates and goals. The object would be to generate new revenue while lowering corporate rates and keeping the top individual bracket no higher than the current 35%.
The move would allow the two sides to reach the outlines of the deal now, while deferring the most difficult issues until both see who wins the 2012 election. Currently, election politics makes an agreement difficult — each side has used the budget stalemate as a rallying cry and each believes it stands a chance of winning next November and thereby being able to strike a better deal.
If voters deliver a clear verdict in November, Congress might be in a better position to come to terms.
"By kicking it into next year you're basically saying you're going to have this litigated in the next election," said R. Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce.
Even a limited deal,
however, as it is being envisioned by those close to the secretive panel, would require substantial political give on the tax and spending issues that have come to define the modern political parties.
Democrats would have to allow sizable cuts to Medicare, Medicaid and other cherished domestic programs, and Republicans would need to loosen their signature anti-tax stance. Any discussion of an overall increase in revenues would probably violate the "no new taxes" pledge that most Republican members of Congress have signed, although a deal might be able to fuzz up the line enough that Republicans would not have to acknowledge having done so.
In proposals that have been exchanged so far, Democrats offered a package that would be made up of equal parts spending cuts and new tax revenues — but would push the tax component to next year.
Under that plan, a new set of "triggers" would be put in place that would be designed to automatically force tax-law changes if Congress failed to act.
No changes in Medicare or other entitlement programs would take effect until the tax changes were adopted.
The proposal was rejected by Republicans, who said the Democrats' insistence on $1 trillion in new revenue was a level they could not accept. They also said the proposed triggers would not be strong enough incentive to reach a deal. The GOP's own proposal offered $250 billion in new tax revenues, along with lower rates.
A deal presumably would have to fall between those two amounts.
The framework under discussion resembles one that President Obama and House Speaker John A. Boehner negotiated during the summer debt-ceiling debate as a way around the impasse over taxes and spending.
They, too, got stuck on the trigger mechanism — Democrats wanted to force automatic tax hikes and Republicans wanted the repeal of Obama's healthcare law. Boehner has said the failure to reach a big deficit deal with Obama is his biggest regret since becoming speaker.
Just as in the summer, getting to yes will require substantial give — particularly on the ratio of taxes to spending cuts — that could prove out of reach in the current political climate.
Some Republican leaders believe the White House would prefer to see the committee fail so that Obama could continue to run against a "do-nothing Congress."
"It does raise your suspicion," said Sen. Mitch McConnell of Kentucky, the Republican leader. "If the joint committee succeeds, it steps on the story line that they've been peddling, which is that you can't do anything with the Republicans in Congress."
Democrats have their own suspicions — that Republicans do not want any action that might seem to be an Obama success....
A compromise would assuredly result in an uproar on the political left and right, signs of which have already emerged. AARP is running ads warning lawmakers not to dare cut Medicare or Social Security. Top conservatives have made it clear that compromise on new taxes would be politically unforgivable.
Alienating so many important constituencies just as the 2012 campaign season is underway would be a tall order, even if the result could be followed by a grand political bargain.
But with time running short, many in Congress are loath to walk away from the possibility of a history-making achievement. Never before, experts say, has one group of lawmakers been given as much power as the super committee wields. Any proposal the committee members agree to has a guarantee of an up or down vote in both houses of Congress, bypassing the Senate's ability to filibuster.
"At this point it's in our hands on Capitol Hill," said Sen. Richard J. Durbin (D-Ill.). "We have this committee with extraordinary power and opportunity, and I hope they use it."
With a week remaining for the congressional "super committee" to strike a deficit-reduction deal, a top Democrat said his party is not in agreement on an offer.
Rep. James Clyburn (D-S.C.), one of the 12 members of the bipartisan panel, said he is "not as certain" the committee could find consensus between Democrats and Republicans as he was just days ago.
"The fact of the matter is Democrats have not coalesced around a plan," said Clyburn, the No. 3 Democrat in the House, on Fox News Sunday.
"It's at a difficult point," acknowledged super committee member Sen. Pat Toomey (R-Pa.) on the show. "We've got a ways to go."
The committee is deadlocked as it struggles to overcome deep partisan divisions on tax and spending proposals to reduce federal deficits.
The committee faces a Thanksgiving deadline to reduce deficits by $1.5 trillion over the next decade, and most members remained in Washington this weekend as the largely secretive panel continued closed-door negotiations.
Failure could upset the financial markets during the holiday shopping season, and trigger forced cuts that both sides hope to prevent.
The Republican co-chairman of the bipartisan panel, Rep. Jeb Hensarling of Texas, said he remained optimistic despite what has been "a roller-coaster ride." (see video below)
"We haven't given up hope," Hensarling said on CNN's "State of the Union."
But Hensarling acknowledged the committee may be forced to punt its most difficult decisions on tax and entitlement reform into next year.
The panel has considered breaking the impasse with a two-step approach that would establish the outlines of a deal, but propel the partisan debate over taxes into the 2012 election season as committees in Congress hammer out the details. Such a framework was considered by President Obama and House Speaker Johh A. Boehner (R-Ohio), as a way around the stalemate during the summer debt ceiling debate.
"If this was easy, the president and the speaker of the House would have gotten it done themselves," Hensarling said....
"All Western Zioconned and utterly corrupt ZOG governments are insolvent....
"No level of taxation could make them solvent.
"So we must cut the source of our insolvency.
"Government accounting systems are fundamentally flawed....because they are ALL Crooks like the Mafioso Berlusconi.....
"Wall Street scandals are known and published. But this has been happening in government accounts as well.
"Principles of government accounting are riddled with gimmicks.
"Governments make promises that cannot be kept. This runs across government behavior at all levels.
"The truth about pension plans is that they all lack the assets to cover promises. None are fully funded.
"States, counties, cities cannot meet their pension commitments. Current shortfalls can safely be trebled.
'Promises have to be broken on a massive scale on both sides of the Atlantic and austerity decreed. Medicare and Medicaid cannot be spared.
"We have fought two wars on borrowed money.
"The principal source of insolvency is the expansion of the welfare state.
"What has happened was perfectly predictable.
"Defense spending will have to be curtailed to tackle coast-to-coast collapsing bridges, roads, schools."
The top-drawer qualified expert was speaking not for attribution by name, addressing a two-day, below-the-radar conference in Washington last week, attended by corporate chief executive officers, former intelligence chiefs and government officials from 20 countries.
Between the beginning and the end of the Washington palaver, two European prime ministers bit the dust (Greece and Italy) and the euro teetered on the edge of disaster.
But there was no alternative to soldiering on. Italy's 75-year-old playboy prime minister vowed to return. The media mogul is Italy's wealthiest man and no one is betting against him.
Austerity is the new slogan for the 27-nation European Union. But this can only deepen recession and make their billions in debt to Germany that much harder to recover. They long lost their competitiveness against Germany. Hard choices are ahead as their economies struggle to avoid recession and more unemployment.
Tax increases and spending cuts in Greece, Italy, Spain and Portugal spell major trouble ahead for the EU. European societies are aging rapidly, which means fewer people working and paying taxes and ever more people claiming retirement benefits.
The International Monetary Fund says that for the wealthy countries to trim public debt to 60 percent of gross domestic product by 2030, they would have to improve their budget balances by 8 percent of GDP in the next nine years. No one can see that happening.
America's coast-to-coast anti-Wall Streeters have found favorable echoes in Europe where wealth owned by top 1 percent of populations keeps growing to the detriment of those at the bottom of the ladder.
The Congressional Budget Office says, the wealth of the 1 percent of the population with the highest incomes soared 275 percent in the past 30 years. Middle-income Americans increased their income 40 percent in the same period while the lower 20 percent of the population saw an 18 percent increase.
At the entirely off-the-record conference, one high-tech U.S. CEO said we are defense spending ourselves into oblivion. Even today, as we exit one war, he said, "we are continuing to spend 4 percent to 5 percent of GNP on defense" and an immediate "12 percent to 14 percent cut is coming, or $62 billion to $72 billion."
"But the Afghan war on its present course is costing the U.S. $50 billion a year," said a retired general who served in Afghanistan, and "current projections show another $400 billion before all the troops come home, as they will do in Iraq next month."
One brigade combat team runs $1 billion a month in Afghanistan.
"If the Afghans are to reject Taliban," the general added, "we need an immensely compelling strategy worthy of the name. They have no interest in global feuds. But if they are to reject Taliban, we need a credible political choice. We don't even own the night in most places. We are not addressing the cure, only the symptoms."
Underlying the entire effort is a fear that when the last U.S. troops leave at the end of 2014, Congress will do what it did to the South Vietnamese army in 1975. Two years after the last U.S. soldier left Vietnam in March 1973, the United States shut down all further military assistance to Saigon -- turning the country over to the communists.
America's NATO allies are becoming less capable militarily. Only two -- Turkey and the United Kingdom -- are spending slightly more than 2 percent of GNP on defense.
As the European attendees pointed out in Washington, they have fallen below 2 percent and are alarmed when they see that U.S. Defense Secretary Leon Panetta and U.S. Secretary of State Hillary Clinton are refocusing U.S. attention on the Pacific region and different priorities.
Afghanistan and Iraq notwithstanding, the steady rise of China and the resources of India and Indonesia are driving the U.S. geopolitically from west to east.
Deployable ships -- 284 -- are at their lowest level since 1930. The drastic naval cutback is expected to level off at 200. U.S. President Ronald Reagan's objective of a 600-ship U.S. Navy made it up to 535.
Aircraft carriers are expected to be trimmed from 11 to eight as drones and swarms of small suicide boats laden with explosives -- not to mention crewless submarines now being tested -- point to future vulnerabilities, at least in the Persian Gulf.
The cost is also prohibitive: $30 billion to build a carrier task force; $5 billion a year to maintain. Manpower costs are escalating and healthcare is expected to treble over the next 10 years.
As long as Iran continues its barely secret nuclear weapons quest, the U.S. 5th Fleet, with headquarters in the Persian Gulf, will need a carrier on station. It now has two in the region.
The debate in Washington and Jerusalem over whether to bomb some of Iran's nuclear installations has powerful protagonists in both camps. The Israeli lobby in Washington favors U.S. strikes. Those opposing strikes argue the post-bombing retaliatory consequences would be disastrous. And these include three U.S. former CENTCOM commanders as well as three former Israeli intelligence chiefs who retired this year (Mossad, Shin Beth and the Israeli military) but ALL are FAKING their positions and Declarations on purpose....because the decision to go to War has already been taken in the Zioconned criminal Western World of Cowards and Sissies....
By Ellen Brown
It is no great surprise that with only days to go, the congressional "super committee", given the Herculean task of carving an additional US$1.2 trillion out of the federal budget, has failed to reach agreement. Why should six Republicans and six Democrats with diametrically opposed views agree in a few weeks, when congress couldn't shake hands on it after months of wrangling, despite the guillotine blade of a federal default hanging over their heads?
Whether the super committee reaches agreement or not, however, the deficit hawks win. If they agree, either $1.2 trillion gets cut from the budget or taxes go up by that amount; and the committee co-chair has categorically stated taxes are not going up, so that means the budget will be cut.
If agreement is not reached, $1.2 trillion in cuts automatically kick in, split evenly between domestic and military spending. Either way, the economy will wind up with $1.2 trillion less in the way of purchasing power. The result will be to reduce demand, kill jobs, and put more people on the streets.
For the deficit hawks, however, it all seems to be going according to plan. The super committee is characterized as an emergency measure that was rushed through to avoid an arbitrarily imposed August deadline for freezing the debt ceiling, but it has actually been in the works for years.
In 2009, it was called the "Bipartisan Task Force for Responsible Fiscal Action". That plan died when its senate sponsors, Judd Gregg and Kent Conrad, failed to secure 60 votes for passage in the senate. The Gregg-Conrad bill was criticized as railroading through legislation that would unconstitutionally slash domestic services without congressional debate, but its task force would actually have been LESS autocratic than the super committee, which has sweeping powers and needs only a simple majority among its 12 members to prevail.
What has been forced out of the debate is whether cutting the budget is a good idea at all. The Peter Peterson Foundation, which has been pushing "austerity" for years, has finally gotten its way. Hedge fund magnate Peter G Peterson was chairman of the Council on Foreign Relations until 2007 and head of the New York Federal Reserve between 2000 and 2004. He made his fortune with the controversial Blackstone Group, which he co-founded and chaired for many years.
The Peter Peterson Foundation was established in 2008 with a $1 billion endowment to raise public awareness about US fiscal-sustainability issues related to federal deficits, entitlement programs, and tax policies. The money was used to spearhead a massive campaign to reduce the runaway federal debt. Hysteria over the debt then prompted Tea Party newbies in congress to hold a gun to congress' head by arbitrarily capping the debt.
In the campaign to educate us to the debt's perils, we were repeatedly warned that when foreign lenders decided to pull the plug, the US would have to declare bankruptcy; that we were mortgaging our grand-children's futures and selling them into debt-slavery; and that all this was the fault of the citizenry for borrowing and spending too much.
The American people, who are already suffering massive unemployment and cutbacks in government services, would have to sacrifice more and pay the piper more, just as in those debt-strapped countries forced into austerity measures by the International Monetary Fund.
The fear-mongering, however, is a red herring. A sovereign nation can always find the money to pay debts owed in its own currency. The Federal Reserve can buy the debt itself - just as it has been doing. That alternative would effectively eliminate the problem of interest, since the Fed returns its profits to the government after deducting its costs.
Alternatively, congress could reclaim the power to issue money from the banks and fund its budget directly. The US could pay its bills using debt-free US Notes or Greenbacks, just as president Abraham Lincoln did to avoid a crippling debt during the Civil War. Congress could do this without changing any laws.
Congress is empowered to "coin money", and the constitution sets no limit on the face amount of the coins. It could issue a few one-trillion dollar coins, deposit them in an account, and start writing checks.
Neither option need inflate prices. As long as the money is used to purchase goods and services, the result will simply be to increase demand, increasing production. Prices will not increase until the economy reaches full employment, and at that point any excess in the money supply can be taxed back to the government, keeping prices stable.
The key to all this is that our debt is owed in our own currency - US dollars. Our government has the power to fix its solvency problems itself, by simply issuing the money it needs to pay off or refinance its debt.
The US federal debt has been carried on the books since 1835. It has never been paid off during that time but just continues to grow. This has not hurt the economy, which for most of that period has been among the most vibrant in the world.
The federal debt is the money supply. All of our money except coins is created as bank debt. Historically, when the deficit has been reduced, the money supply has been reduced along with it, throwing the economy into recession.
The real problem with a growing federal debt is the interest on it, which will become an insurmountable burden if allowed to grow exponentially. Interest paid on the federal debt in 2010 was $414 billion, or about one-half of personal income tax receipts. That's about as high as we dare let it go. But this problem can be eliminated either by funding the debt through the nation's own central bank, effectively interest-free; or by the Treasury issuing the money outright, interest-free.
The burgeoning debt has been blamed on reckless government and consumer spending; but the debt crisis was created, not by a social safety net bought and paid for by the taxpayers, but by a banking system taken over by Wall Street gamblers.
The banking debacle of 2008 caused credit to collapse, businesses to go bankrupt, and unemployment to soar, drastically reducing the federal tax base. If anyone should be held to account, it is Wall Street; but the bankers were bailed rather than jailed, and the taxpayers got billed for the crime.
We have been deluded into thinking that "fiscal responsibility" is something for our benefit, something we actually need in order to save the country from bankruptcy. In fact, it has simply been an excuse to impose radical austerity measures on the people, measures that benefit the 1% while locking the 99% in a dungeon of debt peonage.
Ellen Brown is an attorney and president of the Public Banking Institute.