Budget-Panel Assignments Will Signal Ability to Find $1.5 Trillion of Cuts

The push to reduce the U.S. debt is shifting to the makeup of the special congressional panel charged with finding further spending cuts and whether its 12 members can consider rewriting the tax code.

Republican leaders at the Capitol are pledging to appoint members who oppose tax increases. Their Democratic counterparts make clear they will name lawmakers who will fight to raise new revenue and protect entitlement benefits that Republicans say should be targeted.

Without both issues open for negotiation, it’s unlikely the committee will be able to find $1.5 trillion in deficit savings to prevent the automatic, across-the-board spending cuts that would be triggered if the panel ends in gridlock or Congress rejects its recommendations.

The committee’s prospects for success probably hinge on whether congressional leaders telegraph a willingness to compromise in their appointments, said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a Washington-based advocacy group.

“The first big test will be who they actually put on the committee,” she said.

Biden-Led Talks

Senate leaders are looking to some of the participants in failed debt talks led earlier this year by Vice President Joe Biden to serve on the new body, according to people familiar with the deliberations of Majority Leader Harry Reid, a Nevada Democrat, and Minority Leader Mitch McConnell, a Kentucky Republican.

Leading prospects for some the chamber’s six slots, three from each party, are Senators Jon Kyl, the No. 2 Republican, and Democrats Dick Durbin, his party’s second-ranking member, and Max Baucus, chairman of the tax-writing Senate Finance Committee. All three served on the Biden-led panel that collapsed over Republican opposition to increased revenue.

Senator Roy Blunt of Missouri is another top prospect for Republicans because Senate leaders value his experience as a former House member who will be able to work with lawmakers from that chamber, one of the people said.

No final decisions have been made, though McConnell and Reid have completed face-to-face meetings with prospective members, one of the people said.

Woman Member

Senator Jeanne Shaheen, a New Hampshire Democrat, said she’s approached leaders about the need to include a woman. Democratic Senators Barbara Mikulski of Maryland and Mary Landrieu of Louisiana have advocated for Senator Patty Murray, a Washington state Democrat and her party’s fourth-ranking Senate member.

Some lawmakers question putting committee chairmen such as Baucus on the panel. “It should be the leaders, it shouldn’t be committee chairmen because they all have their little things to protect,” said Senator Tom Harkin, an Iowa Democrat.

Working against the panel, say skeptics, are the partisan political environment that has helped derail three previous efforts to revamp the nation’s finances within the last year; the 2012 presidential election, which will heighten political tensions; and budgeting assumptions underpinning the new committee that may constrain its tax-related efforts.

“It’s going to be difficult for the committee in this environment to make structural change,” said Senator Lindsey Graham, a South Carolina Republican who advocates overhauling entitlement programs such as Social Security and Medicare.

Bush Tax Cuts

Forces favoring the committee include the scheduled expiration next year of former President George W. Bush’s tax cuts -- which will spur a broader debate over revenue -- and the spending-cut enforcement mechanism that would hit domestic and defense programs, say lawmakers. “I don’t think they’re going to fail,” said Senator John McCain, an Arizona Republican, expressing optimism that panelists will be open to compromise.

Under the debt-ceiling measure that President Barack Obama signed into law yesterday, House and Senate Democratic and Republican leaders have two weeks to decide on the three appointees each can make.

The panel must vote on its $1.5 trillion deficit-cutting plan by Nov. 23. Congress must then accept the recommendations by Dec. 23 or face the triggered round of automatic cuts worth $1.2 trillion.

Appointment Considerations

While party leaders have avoided any public hints about who they will appoint to the panel, officially named the Joint Select Committee on Deficit Reduction, they have been quick to offer parameters that will guide their decisions.

McConnell said last night on CNN that the committee “ought to look at the entire tax code,” including corporate rates he views as too high, as well as “entitlement reform. On Fox News the day before, he stressed that any net increase in revenue is a nonstarter. “We are not going to raise taxes coming out of this joint committee,” he said.

House Speaker John Boehner, an Ohio Republican, has said he won’t choose anyone who would back a tax increase.

Democrats are equally adamant in pushing for what Obama has called a “balanced approach” to deficit reduction.

“There has got to be some revenues” to spread the financial sacrifices of cuts, Reid said in a floor speech yesterday. House Minority Leader Nancy Pelosi, a California Democrat, said revenue must be considered “in a strong way.”

Benefits Issue

For Pelosi and other Democrats, it was a victory that the final debt-ceiling law left benefits for Social Security, Medicare and Medicaid untouched as part of $917 billion in cuts the measure already approved for the next decade.

“Whoever is at the table” for House Democrats “will fight to protect that” as the committee grapples with how to cut the additional $1.5 trillion, she said.

Among House Republicans, potential picks include Ways and Means Committee Chairman David Camp of Michigan and Budget Committee Chairman Paul Ryan of Wisconsin -- both of whom have repeatedly stressed their opposition to tax increases.

On the Democratic side, the House’s fiscally conservative Blue Dog Coalition is pressing leadership to name one of its members.

“It’s absolutely essential that some of the members of this committee be moderates,” said Representative Kurt Schrader of Oregon, who heads the group’s fiscal task force.

Push for Portman

In the Senate, McCain said in an interview yesterday that if McConnell asks for his advice, he will recommend Senator Rob Portman, an Ohio Republican who was Bush’s top international trade official and budget director.

Reid was noncommittal yesterday when asked by reporters whether he would name any of his party colleagues who were part of the so-called Gang of Six: Durbin, Mark Warner of Virginia and Kent Conrad of North Dakota.

“I’ve had inquiries by lots of people,” he said.

The Gang of Six, which included three Republican members, has been working since early this year on its own bipartisan deficit-reduction plan.

Senator Tom Coburn, an Oklahoma Republican and member of the group, said he isn’t interested in serving. “I’m committee- ed out,” Coburn said yesterday. “I’ve worked well over a year and a half on these issues -- they just probably need some fresh blood.”

A question involving budgeting assumptions looms as a possible impediment to a major federal tax rewrite by the committee.

The committee is likely to operate under current budgeting forecasts that assume the 2001 and 2003 tax cuts that Bush pushed through Congress will expire at the end of 2012.

CBO Scoring

Any proposal that changes future tax rates could work against the committee’s deficit-reduction mandate because it would be scored by the nonpartisan Congressional Budget Office as a tax cut and not count toward the panel’s $1.5 trillion deficit-reduction goal.

“It is the framework against which the committee’s proposals are required to be scored,” and it creates “significant structural impediments to raising taxes,” Ryan said in a blog post yesterday.

The committee could create its own revenue baseline that would allow it to measure taxes against current tax rates, not future ones. To do that, though, would require a majority vote on a panel evenly divided between the parties, and Republicans are unlikely to allow it.

Camp also has argued against the committee trying to accomplish deficit reduction and an overhaul of the tax system.

“There’s nothing that explicitly says tax reform is part of this,” he told reporters Aug. 1. “It’s best done on its own. Tax reform should be about tax reform, not about deficit reduction or raising revenues.”

To contact the reporters on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net; Richard Rubin in Washington at Rrubin12@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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