Sept. 14 (Bloomberg) -- Congress’s deficit-cutting supercommittee may receive a push to increase its $1.5 trillion savings target from a bipartisan group of about 25 senators.
The informal group, about evenly split between Democrats and Republicans, met yesterday to discuss principles they might propose, said Senator Chris Coons, a Delaware Democrat, and two other senators. Another meeting is planned tomorrow.
“I’m optimistic about our progress,” Coons said in an interview. The senators aim to provide political support for supercommittee members in both parties who face difficult decisions on whether to support entitlement program cuts and tax increases.
Separately, Representative Dave Camp, a Michigan Republican who sits on the supercommittee, said that panel will hold a private executive session tomorrow night. Thus far, the committee has held two meetings that were open to the public.
Congress created the 12-member bipartisan supercommittee last month in legislation resolving a standoff over raising the federal debt limit. The panel was instructed to create a 10-year plan to cut at least $1.5 trillion by Nov. 23. The law requires automatic, across-the-board spending cuts if Congress doesn’t pass a plan.
During the supercommittee’s first hearing yesterday, the director of the Congressional Budget Office said the U.S. can’t stabilize its long-term debt without major cuts to entitlement programs, revenue increases far higher than historical averages or a much smaller federal government.
“Citizens will either have to pay more for their government, accept less in government services and benefits or both,” said Director Douglas Elmendorf.
Elmendorf said Congress would have to more than double its $1.5 trillion goal to diminish the risk of a fiscal crisis and reduce the debt burden on the economy. A day earlier, about 60 business leaders and former government officials also urged the supercommittee to raise its target.
Democratic members of the committee, including Senator John Kerry of Massachusetts, support a larger savings target, while Republicans, including panel co-chairman Representative Jeb Hensarling of Texas, have said that a higher goal would make an already difficult agreement nearly impossible.
President Barack Obama is asking Congress to approve his $447 billion plan to create jobs through tax cuts and new spending. The president proposed that it be paid for with tax increases that could be folded into the supercommittee’s work.
Broader Tax Base
A member of the informal group of senators, Delaware Democrat Tom Carper, said he hopes Republicans among them will go along with higher revenue “in the context of entitlement reform and tax reform where we end up with lower rates, progressive but lower rates, and with a broader base and with revenues.”
Another member, Maine Republican Susan Collins, said that, while the informal group is still discussing what statement it may make, she could go along with higher revenue as long as it doesn’t include tax increases similar to what Obama is proposing.
“I’m certainly open to new revenues, but it depends how you do it,” she said. Collins said she supports lower corporate rates rather than Obama’s proposal to set a 28 percent cap on itemized deductions and some exclusions for individuals earning more than $200,000 a year.
Democrats and Republicans on the supercommittee differed on the role of deficit reduction in creating jobs. “A path to credible deficit reduction is a jobs program,” Hensarling said. The debt crisis is “spending-driven,” and “the deficit reduction will be a jobs plan,” he said.
Kerry warned against focusing on “austerity measures alone.” He said that the nation “needs growth” and that “creating jobs today helps reduce the deficit tomorrow.”
Elmendorf said the U.S. would need to reduce deficits by about $3.8 trillion, including interest savings, in the next decade to lower the debt in 2021 to the mid-1990s level of about 50 percent of gross domestic product.
That number would go up to $6.2 trillion if Congress wants to continue policies such as the tax cuts initially enacted during President George W. Bush’s administration, the director said.
While spelling out the risks of delaying a major debt-reduction package, Elmendorf also warned that deep cuts in the short term could put at risk a fragile economy that may be headed into another recession.
Drag on Expansion
“Immediate spending cuts or tax increases would represent an added drag on the weak economic expansion,” he said.
“There is no inherent contradiction between using fiscal policy to support the economy today, while the unemployment rate is high and many factories and offices are underused, and imposing fiscal restraint several years from now, when output and employment will probably be close to their potential,” he said.
The major contributors to the debt are federal benefit programs, Elmendorf said. The number of Medicare and Social Security beneficiaries will increase by one-third in the next decade, he said.
All spending apart from Social Security, the major health-care programs such as Medicare and Medicaid and interest payments on the debt is projected to decline as a share of the economy, falling to 7.7 percent of GDP in 2021, the lowest in the past 40 years, he said.
“The fundamental question for you is not how we got here but where you want the country to go,” he told Baucus. “What role do you and your colleagues want the government to play in society?” If members want to retain programs like Medicare in their current form, “more tax revenue is needed,” he said.
Elmendorf said that if the committee wants to rewrite entitlement laws, its real deadline is the beginning of November because the CBO will need a few weeks to analyze the cost.
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