When the Supercommittee Fails

-- Posted by Neil H. Buchanan

The deal that allowed the debt ceiling to be increased this past summer -- formally, the Budget Control Act of 2011 -- famously included the creation of the so-called "supercommittee," a 12-member House/Senate bipartisan panel that is supposed to write fast-track legislation to reduce deficits by $1.5 trillion over a ten-year period. If the committee fails to do so, automatic cuts of $1.2 trillion are to ensue. (This is the so-called "trigger mechanism.") The committee's deadline is Nov. 23, next Wednesday. At this point, the committee appears to be hopelessly deadlocked -- although that could be a simple matter of brinksmanship. Here, I will discuss an interesting aspect of the discussion of the nature of the automatic cuts, followed by some thoughts on the consequences of a full or partial failure by the committee to produce a proposal.

The news coverage of this complicated legislative dance has described the trigger mechanism's $1.2 trillion in spending cuts as being "equally divided" between defense and nondefense spending. This is accurate but misleading, causing some media outlets to claim that there are $600 billion of potential spending cuts on the table for both defense and nondefense spending. In fact, the $1.2 trillion includes $216 billion in "stipulated reduction for debt service," with $494 billion each in defense and nondefense required cuts over ten years. (See the notes for the table on p. 23 of this document.)

[Update: The November 17 episode of "The Daily Show" included a clip of Sen. Lindsey Graham -- who is supposedly one of the "grown ups" in the Republican Party, falsely claiming that the trigger would require "six hundred billion dollars in defense cuts." Surely someone in Graham's position should know better. A difference of $106 billion -- which overstates the cuts by more than 21% -- seems rather significant.]

The cuts to both defense and nondefense spending, therefore, are $106 billion less than is being reported. (Note also that the domestic cuts can include cuts in Medicare, but not from Social Security.) Furthermore, of the $917 billion in 10-year cuts that were already enacted in the Budget Control Act, $350 billion was for "security spending" (which is broader than just Pentagon spending), $43 billion less than the cuts in nonsecurity spending (with the remainder of the total again being debt service reductions).

This arithmetic is important because of what it tells us about the politics of defense spending in the United States. Some Republicans in Congress have proposed eliminating the automatic cuts in defense spending, should the supercommittee fail. This is unsurprising, given the pro-military spending stance of many conservative politicians. Even the liberal editorial page of The New York Times, however, described the automatic trigger as "an across-the-board cut of $1.2 trillion that would hit particularly hard at defense programs." They give us no basis on which to evaluate what makes such cuts especially onerous for defense. There is no reference, for example, to how these cuts compare on a percentage basis of current military versus non-military spending, or as cuts to the future growth in military versus non-military spending, or any other standard.

It is difficult to see how the cuts to defense could be more onerous than the nondefense cuts, by any standard of comparison, especially when one considers that nondefense spending is under constant attack by budget hawks in both parties, whereas defense/security spending has doubled in the past ten years.

I am not proposing a numerical standard for saying what counts as a "particularly hard" budget cut, but it is worth noting that the political discussion is now coalescing around the idea that the unacceptable part of the trigger is the defense cuts, not the nondefense cuts. That strikes me as yet another indication of the ill health of the political dialogue in this country. In any event, it nearly guarantees that any attempt to avoid the automatic cuts will not spare domestic spending.

No matter the split between defense and nondefense cuts, however, what are the consequences of the near-certain failure of the supercommittee to propose the required bill? I say "near-certain failure" because I have been predicting all along that the committee would never be able to come up with an honest plan that would be in any way bipartisan. Republicans' anti-tax rigidity, even in the face of Democratic proposals that have included only small tax increases relative to spending cuts (some on the order of $1 of extra revenue for every $10 in spending cuts) suggest that the only possible bipartisanship would involve a Democratic defection on the committee to support a bill with no new revenue. It thus still seems wholly unlikely (but not impossible) that the committee will accomplish its stated purpose.

While I am still confident in my prediction that the committee will not be able to come up with an honest bill that actually cuts $1.5 trillion in deficits over the next ten years -- not that that is a worthy goal, by the way; but it is the self-imposed standard of success -- two possibilities now seem to have emerged, neither of which I had anticipated. One, as I mentioned above, is to simply abandon the original plan for trigger cuts, at least for defense spending. The other is to propose a bill with vague and illusory deficit cuts. One trial balloon that was floated, for example, would have the committee include specific, big cuts in Social Security, Medicare, and domestic discretionary spending, but then to include some arbitrary number of dollars of "revenue increases" to be met by revamping the tax code next year or the year after -- with yet another trigger mechanism if Congress failed to fix the tax code as required. (Any bets on the success of that process?)

Either of those possibilities -- which would be considered, by any reasonable standard, failure -- would have serious consequences for financial markets and, ultimately, for the credibility of U.S. policy. As many analysts have suggested, such sleights of hand would very likely result in financial market sell-offs, if not outright panic. Which suggests that the August debt deal was an even worse idea than it seemed at the time.

Had we simply increased the debt ceiling as necessary to accommodate the duly-enacted budget for Fiscal Year 2011 (which, remember, was passed by the current Congress), we could have simply gone through the normal budget process for 2012, which would have included the battles over spending and taxes that would be inevitable in such a process, along with the ever-present possibility of a government shutdown, and so on.

While that is hardly a pretty process, it still compares favorably to the possible consequences of having gone through the ridiculous process of creating a supercommittee, only to admit later that the supercommittee could not do what it was explicitly instructed to do. We will have gone to the extraordinary lengths necessary to create a process that seemed like a Hail Mary pass, only to see the ball flutter out of bounds. As a result, the political process will have lost any remaining credibility.

The debt deal, in other words, was not just a strategic mistake in validating the strategy of the deficit hawks who used the debt ceiling to hold the economy hostage. It was potentially an even larger defeat for Congress -- and for the national and world economies.