November 2011 | See all news in this issue

Slashing the federal budget…

Just as Washington can’t seem to agree on the way to kick-start the economy, there continues to be basic disagreement over the path to deficit reduction. As discussed here last month, the Congressional “supercommittee”, which was established as part of the August deal to avoid a government default, has less than a month to come up with a plan to slash $1.2 billion from the deficit—either through spending cuts or revenue increases. If this special panel can’t come up with a deficit-reduction plan, then there will be automatic spending cuts that would most heavily impact the defense budget.

However, the committee’s 12 members apparently have yet to reach a consensus on even the outline of how to get the job done. Despite two months of closed-door meetings, the six House members and six Senators haven’t even agreed on their objective—whether to hit the minimum savings target of $1.2 trillion or to go for $4 trillion or more. Furthermore, they haven’t come up with a plan for “scoring” the cuts they propose—that is to agree on how to measure how much is actually being saved. For example, there is no agreement on whether to count $1.1 trillion of planned savings from troop draw-downs in Iraq and Afghanistan over the next 10 years.

Can the supercommittee come up with a plan in the time remaining? They will have to because no one in Congress wants to let the automatic cuts kick in. However, it’s likely that the panel’s proposal will lack specifics and may well contain “agreements to agree” some time next year…thus once again putting off final decisions on deficit reduction.

Will there be tax reform?

Despite a spate of tax reform proposals from both sides of the aisle, there is little likelihood that the supercommittee plan will include any significant changes in the tax code. Once again, the partisan impasse in Congress coupled with the time needed to fashion any re-writing of the complex federal tax laws will make it impossible to do much more than suggest changes for the tax-writing committees in the House and Senate to consider next year.

A presidential election at the end of next year will ensure that any tax reform plan must wait until 2013.

See all news in this issue