Debt Accord May Be ‘Two-Step Process,’ Hensarling Says

The congressional committee charged with crafting a plan to cut the U.S. debt may use a “two-step process,” agreeing only on a broad framework for deficit reduction by its Nov. 23 deadline, the panel’s top Republican said.

Representative Jeb Hensarling of Texas, the co-chairman of the bipartisan supercommittee, said panel members might reach an accord on overall numbers for tax revenue increases, leaving it to other congressional panels to work out the details.

“There could be a two-step process that would hopefully give us pro-growth tax reform,” Hensarling said yesterday on CNN’s “State of the Union” program.

Lawmakers are trying to break a partisan impasse over tax increases in exchange for spending cuts as the supercommittee seeks to cut $1.5 trillion from the budget deficit. The panel’s six Democrats and six Republicans remain hundreds of billions of dollars apart on the tax revenue issue with nine days until the deadline.

President Barack Obama said yesterday the supercommittee must “bite the bullet” and come up with a plan that combines spending cuts with revenue increases.

‘Prudent Cuts’

“Prudent cuts need to be matched with prudent revenue,” Obama said at a news conference in Honolulu, where he was hosting a summit of leaders from the Asia-Pacific region. He said the threat of automatic budget cuts should prod lawmakers “to move off rigid positions and do what was required to help the country.”

Another Republican on the supercommittee, Senator Pat Toomey of Pennsylvania, said he was open to compromise on his proposal to modify the tax code to bring in what Republicans say would be $300 billion in additional revenue.

Negotiations are at “a difficult point,” Toomey said on “Fox News Sunday.” He added: “We’ve got a ways to go.”

Representative James Clyburn, a Democratic supercommittee member from South Carolina, said on Bloomberg Television today that he’s willing to support “structural” changes in entitlement programs, which include Medicare, if Republicans agree to overhauling the tax code.

“Let’s look at the structure of the tax code, the structure of entitlement and that’s where the exchange ought to be,” Clyburn said in an interview on Bloomberg Television nine days before the panel’s Nov. 23 deadline to reach an agreement.

‘Just as Hopeful’

“I think we are going to get there,” he said. “I am not as confident as I was a few days ago, but I am just as hopeful.”

Clyburn said he would accept a debt-cutting process that eliminates $1.2 trillion from the budget as a “down payment,” while asking other congressional committees to find additional cuts to raise the total reduction to about $4 trillion.

The main sticking points in the talks are the level of revenue --Democrats want at least $1 trillion and Republicans have offered about $500 billion -- and how it would be achieved, with Democrats favoring a rollback of tax preferences for higher-income earners. Republicans want a comprehensive tax overhaul that lowers income tax rates while eliminating some exclusions and deductions. They also want to count economic growth from tax cuts as new revenue, a concept Democrats reject.

Representative Dave Camp of Michigan, who oversees the tax- writing Ways and Means Committee in the House, and Senator Max Baucus of Montana, chairman of the Senate Finance Committee, have been working to try to forge a consensus.

House Obstacle

Anti-tax members of the House Republican caucus loom as a major obstacle, making it unclear whether any supercommittee deal could pass the chamber.

Representative Jim Jordan of Ohio, who the Republican Study Committee in the House, said in an opinion article in USA Today that it isn’t time for the supercommittee to raise taxes. “Our economy will have an even tougher time catching its balance if Washington raises taxes,” he wrote. Taxes “should not punish success to satisfy some false definition of ‘balance.’”

Congress created the supercommittee in August in legislation that resolved a standoff over raising the federal debt limit. If the panel can reach an agreement, its proposal would be subject to up-or-down votes in the House and Senate. Failure to enact a plan by the end of the year would trigger automatic across-the-board spending cuts of $1.2 trillion in 2013.

Confidence ‘Erosion’

Without an agreement, “there will be further erosion in what little confidence remains in our federal government,” Toomey said.

Senator Tom Coburn, an Oklahama Republican who was part of a group of six senators offering a bipartisan debt-reduction plan earlier this year, released a report identifying tax breaks he considers “giveaways for millionaires” that could be targeted as part of any deal.

They include $89 million for preservation of ranches and estates; $75.6 million in residential energy tax credits and $9.5 billion in government benefits paid to millionaires since 2003.

“This welfare for the well-off -- costing billions of dollars a year -- is being paid for with the taxes of the less fortunate, many who are working two jobs just to make ends meet,” said Coburn in a statement.

To contact the reporters on this story: Greg Stohr in Washington at gstohr@bloomberg.net; Heidi Przybyla in Washington at hprzybyla@bloomberg.net

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

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.