Budget Chicanery Has Already Doomed the Super Committee

Many are wondering if the super committee will fail.  That is not what matters.  The fact that the super committee was created by the Budget Control Act in August is the real failure.

Last spring, many people associated with the financial markets made it clear that politicians in Washington needed to address the massive federal debt problem in a very serious way or the U.S. economy could slip back into recession.  Standard & Poor’s downgraded the outlook on Treasury securities to negative while maintaining the AAA rating at that time.

Our level of debt was exploding and the administration was rapidly approaching the statutory limit of the government’s ability to issue debt.  Financial markets were looking for passage of legislation that would have a significant impact on reducing the growth of federal debt in exchange for allowing the government to increase the debt ceiling.  The figure often cited by financial analysts was $4 trillion in deficit reduction in exchange for an increase in the debt limit of about $2 trillion which would last through the end of 2012.  $4 trillion was the minimum amount of deficit reduction over ten years that would be needed to be considered to be significant.

The House of Representatives passed a budget, known as the Ryan Budget, that would have saved over $6 trillion over the next decade.  While not perfect, it was a serious effort that would have had a significant impact.

The Senate offered nothing.

In fact, the Senate has not proposed nor passed a budget in over 930 days.  This made it impossible to conduct serious negotiations.  The Senate Democratic majority decided to run out the clock on the debt limit rather than offer a serious proposal to let Americans know how they planned to achieve the savings.  They didn’t want anyone to know how little in spending they wanted to cut. Their strategy was to offer nothing and waste time until the limit was reached.  Then they would claim there was no choice but to increase the debt limit by enough to last through the next presidential election with a promise to reduce the deficit at a later date.

The House Republican majority that was elected just a few months earlier pressed for a larger package on the order of the $6 trillion Ryan Budget. However, with no other proposal that the Senate could prove had any votes to pass the Senate, negotiations went nowhere.

Ultimately, the Senate and President Obama got what they wanted in the Budget Control Act (BCA) that passed in early August.  It included just enough cuts promised in the future over the next decade in unspecified programs to receive an increase in the debt limit that should last long enough to get all of the politicians through the next election without having to be forced to give details.

The entire size of the package was just $2.1 trillion over ten years.  Roughly $900 billion would come from discretionary spending limits and the other $1.2 trillion was to be named later by the newly created super committee.

If the super committee is unable to reach agreement by November 23, the BCA imposes a sequestration in narrow areas of defense discretionary spending and some mandatory spending, but none affecting entitlement benefits that are consuming ever greater portions of the budget.  The only mandatory spending affected is for administrative expenses and reimbursements.  The sequestration would cover any amount up to the full $1.2 trillion not achieved by the super committee.

Further, none of these cuts would go into effect until 2013, after the next election.  However, all of the new debt allowed under the increased debt limit increase is likely to be used up by January 2013 requiring Congress to pass more legislation to increase the debt limit yet again.

Interestingly, the $900 billion in savings from discretionary spending caps put in place by the BCA are not hard limits.  They are more like suggestions.  Spending can be increased by simply shifting funding to exempt categories.