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Economic Currents

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Q & A: Super Committee Decisions Due Next Week

Posted November 18, 2011 | Categories: Q&A, Blog
1. We have been hearing about the Super Committee and their work on a deficit reduction plan due next Wednesday. What is the Super Committee?

The Super Committee is the Joint Select Committee on Deficit Reduction that was established by deal reached last July to raise the federal debt ceiling. That deal called for reducing the deficit by $2 trillion over 10 years with $1.2 trillion in that deficit reduction to be decided on by a new bipartisan committee of six Democrats and six Republicans. The plan due from the committee on November 23rd is supposed to be voted on by congress with an up or down vote, no filibusters or amendments are possible.

Q2. Has the committee released any details of its plan?

Well the committee meetings are private, so we are only seeing limited releases at this point. The Democrats on the committee initially offered a plan that was similar to President Obama's "grand bargain" to cut 2.5 to $3 trillion by slowing the growth of medicare and medicaide along with more than $1 trillion in new tax revenues. Of course republican members of the committee immediately rejected that plan because of the increased tax revenues.

Q3. So the committee is stuck in the same rut that the entire congress was in last summer?

Not entirely, republicans have recently released a plan that would allow for 2-300 billion in new tax revenue over the next 10 years, so there may yet be room for compromise. But the devil is in the details, Democrats do not like the republican proposal because it makes the Bush tax cuts permanent meaning that top tax rates are permanently lower. The latest moves have been to agree on the amount of new revenue to be raised, and then force the tax committees of congress to figure out how to raise that revenue through what could be a major revision to US tax code.

What happens if they do not reach an agreement

If the committee does not come up with a plan, or if both houses do not approve their plan by Dec. 23, automatic spending cuts would kick in. Those cuts would include roughly 500 billion in cuts to military spending and a similar amount from non-military spending. Medicaid and other safety net spending would be exempt. An unfortunately consequence of automatic spending cuts is that they are likely to occur earlier and in larger amounts than would be true of any deficit reduction plan. In other words, larger cuts in federal government spending in early 2013 when the US economy is likely to be in a weak position from the coming Euro area recession.

-- Carl Bonham

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