United States: Joint Select Committee On Deficit Reduction Update

The US Joint Select Committee on Deficit Reduction (JSCDR) is 30 days away from its November 23, 2011 deadline for producing a deficit reduction plan and referring it to Congress for an up or down vote by December 23, 2011. There is much speculation as to how the JSCDR will arrive at this decision, or if there is even enough support within the Select Committee to agree on a single plan.

There is also concern that there will not be enough time within the next month to effectively develop a comprehensive plan, especially given the complicated nature of potential tax and entitlement changes. The desire does seem to exist among Committee Members to reach an outcome and avoid sequestration. However, there is also a growing belief in Washington that the JSCDR may attempt to stretch its December 23 timetable. Outlined below are three potential paths that the Select Committee may take to discharge its duties under the Budget Control Act of 2011 (BCA).

Grand Bargain

During the first public hearing of the JSCDR, 3 Members (from both parties) said that cuts should be greater than the $1.2 trillion floor of reductions called for in the BCA. For JSCDR deliberations to result in greater than $1.2 trillion in deficit reductions, the group would currently have to be at an advanced stage of mapping out a final proposal that includes both significant cuts and revenue raisers. Unless there has been a great deal of progress shielded from the public, it is improbable that the Select Committee will be able to reach this goal given the short amount of time left to deliberate. Should a majority of the Committee somehow manage to agree on deficit reductions greater than $1.2 trillion, such a proposal will still have to pass the Republican-led House and Democrat-led Senate as well, providing further partisan incentive for the Committee Members to avoid controversial deficit reductions.

Middle Ground

While the BCA instructs the Select Committee to propose at least $1.2 trillion in cuts, even though the group's target is $1.5 trillion, a majority of the Committee Members might instead agree on a smaller set of cuts with subsequent directives to Congress on how to fill in the gaps. Under this scenario, the JSCDR would identify only some of the most non-controversial savings measures (which will most likely include incentive spectrum auctions and agricultural subsidies). Comprehensive directions from the JSCDR would be sent to Committees in both Chambers on how to enact the remainder of the $1.2 trillion deficit reduction plan.

The Select Committee's final report, to be voted on November 23, would then require a provision that ensures that the Congressional Budget Office (CBO) would score the anticipated deficit reduction as actual cuts despite the lack of concrete savings details. This would effectively allow the JSCDR to fulfill its duties under the BCA while passing on the most difficult cuts to various Congressional Committees, with the Senate Finance and House Ways and Means Committees most likely tackling the brunt of the work.

The likelihood of this plan being adopted seems to be on the rise as it gives both the Select Committee and Congress additional time to develop more comprehensive deficit reduction plans. The continued discipline of the JSCDR Committee Members in keeping the status of their deliberations a secret also signals that some type of compromise may be the most desired route for Members.

No Agreement by a Majority of JSCDR Members

If no agreement is reached, sequestration measures would not be activated until the January 2, 2013, giving Congress some leeway on enacting deficit cuts. Should the JSCDR propose deficit reductions that are less than the $1.2 trillion floor that the BCA prescribes, a partial sequestration would be triggered and the spending cuts will be equal to $1.2 trillion minus the amount of any cuts that the Select Committee proposed and Congress adopts. As mentioned in the Middle Ground section above, the JSCDR could also propose less that $1.2 trillion in real deficit reduction but instruct Congressional Committees to enact the remainder of those savings at a later date. This plan would hinge on the CBO scoring those future cuts as real, of which there is no guarantee, otherwise a partial sequestration would occur.

Should no agreement whatsoever arise from the JSCDR, a complete $1.2 trillion sequestration over ten years will begin on January 2, 2013. This would eliminate $109.3 bullion in cuts per year beginning in FY 2013, with half of the cuts ($54.7 billion) from the Department of Defense and half ($54.7 billion) from the rest of the budget. According to the BCA, this sequestration will not only cut FY 2013 discretionary spending, but will also reduce mandatory spending for FY 2013 through FY 2021.

Medicare and Social Security are initially protected from cuts if the JSCDR does not reach any type of agreement, but Medicare fees to providers can be cut by up to two percent. It is difficult to determine how much will be cut from non-defense discretionary spending if the Select Committee does not produce an agreed-upon report, but the following programs are exempt from sequestration: Social Security benefits and tier I railroad retirement benefits, veterans programs, net interest, refundable income tax credits, non-defense unobligated balances, and others outlined here.

Upcoming Actions

The JSCDR has remained a largely opaque organization since its inception, but it will hold its fifth public hearing on November 1, 2011 on the topic of "an overview of previous debt proposals" with the following witnesses: former Senator Alan Simpson, former White House Chief of Staff Erskine Bowles, Former CBO and OMB Director Alice Rivlin, and former Senator Pete Domenici.

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