Time is Running Out, CBO Director Cautions Supercommittee

On Wednesday, October 26, 2011, the Joint Select Committee on Deficit Reduction held its fourth public hearing, entitled “Discretionary Outlays, Security and Non-Security.” The committee heard testimony from Congressional Budget Office (CBO) Director Douglas Elmendorf for the second time since it was empanelled in August.

Dr. Elmendorf offered multiple projections of discretionary spending over the next ten years, projecting what the deficit impact will be if the Super Committee meets its goal of creating at least $1.5 trillion in deficit reduction, as well as if the committee fails, triggering automatic across-the-board cuts. Dr. Elmendorf emphasized that while discretionary spending is certainly an important piece of the conversation, it is mandatory spending that is “overwhelming” GDP. He went on to say that without reforms to Medicare, Medicaid and Social Security, it will be difficult to achieve the needed savings.

Super Committee Co-Chair Sen. Patty Murray (D-WA) said that the Super Committee “is not there yet,” but emphasized that progress is being made and said she is “hopeful” that the committee will be able to meet its November 23, 2011 deadline. Murray also reminded her colleagues that non-defense discretionary spending constitutes less than one-fifth of all federal spending and that the debt-ceiling deal that established the Super Committee already cut $800 billion from the deficit. She asked Dr. Elmendorf what the impact of additional discretionary cuts will be, and he responded that Americans will see a decrease in all services, ranging from national security to police and fire departments to highways.

Super Committee Co-Chair Rep. Jeb Hensarling (R-TX) emphasized the need for the Super Committee to tackle Medicare, Medicaid and Social Security. He listed a number of discretionary programs that have continued to increase their spending, even as the overall economy and family incomes have shrunk.

Sen. John Kerry (D-MA) was the only Super Committee member to speak in terms of specific proposals, questioning Dr. Elmendorf about the potential impact of a $3-$4 trillion deficit reduction, rather than the $1.2-1.5 trillion required by the Budget Control Act. Sen. Kerry said that if the Super Committee only achieves the minimum required, it will be forced to reconvene in a year or two to address the same problems. He said that a meaningful solution requires at least $3 trillion in deficit reduction based on a three-to-one or two-to-one cuts-to-revenue model. During the hearing, several news outlets began reporting that the Super Committee Democrats are expected to produce a plan creating $2.5 to $3 trillion in deficit reduction over the next ten years.

Other Democrats on the committee focused their questions on the impact of increased revenues and the need to reduce defense spending. Dr. Elmendorf emphasized that while increased revenues could have a positive impact on the overall budgetary picture, it would very much depend on what policies were instituted to generate such an increase. Sen. Max Baucus (D-MT) asked about the current levels of defense spending, saying it currently exceeds every other period in history, with the exception of World War II, and questioning whether the Appropriations Committee is misusing designated “war funding” for other purposes. Dr. Elmendorf said Sen. Baucus was correct about the current level of spending and said that sometimes it is difficult to draw clear lines between what constitutes war spending and what does not. Rep. Chris Van Hollen (D-MD) also emphasized that if Congress were to repeal the automatic, across-the-board cuts to defense spending, the deficit would increase.

Republicans challenged Dr. Elmendorf on the CBO’s election to include the Obama Administration’s announcement that it would not implement the CLASS Act into its projections but not the Administration’s announcement that it will be reducing the U.S. role in Iraq and Afghanistan. Sen. John Kyl (R-AZ) said that CBO was “drawing a distinction without a difference.” Dr. Elmendorf countered that the CBO treats mandatory spending (including the CLASS Act), differently than discretionary spending (including defense spending). Sen. Rob Portman (R-OH) also asked about the role of uncertainty in hindering economic growth, and Dr. Elmendorf said that it is certainly impacting every sector of the economy.

Dr. Elmendorf said that in order for the CBO to conduct a full analysis of the Super Committee’s proposals, it will need to receive them by early November. The Super Committee has until November 23, 2011 to present its proposals to Congress, and Congress has until December 23, 2011 to pass the proposals or automatically trigger across-the-board cuts. If the cuts are triggered, the process, known as sequestration, would begin in January 2013.

The Super Committee will hold its next public hearing on Tuesday, November 1. The Committee will receive an overview of previous deficit reduction proposals, hearing testimony from Erskine Bowles and former Sen. Alan Simpson (R-WY), co-chairs of the National Commission on Fiscal Responsibility and Reform and authors of the “Simpson-Bowles plan,” as well as Alice Rivlin and former Sen. Pete Domenici (R-NM), co-chairs of the Debt Reduction Task Force and authors of the “Rivlin-Domenici plan.”

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