Nov. 1 (Bloomberg) -- A co-leader of President Barack Obama’s fiscal commission told the congressional supercommittee seeking a $1.5 trillion debt-reduction package, “I’m worried you’re going to fail.”
Erskine Bowles, former President Bill Clinton’s chief of staff, and other budget experts testified before the 12-member bipartisan panel of House and Senate members today that a plan must include both higher tax revenue and trims to entitlement programs. The 12-member panel is just over three weeks away from its deadline with no agreement in sight.
Also testifying before the panel in Washington, former Senator Pete Domenici of New Mexico, a Republican, criticized Democrats who oppose changes to Medicare and Republicans who refuse to accept tax increases.
“They are both complicit in letting America destroy itself, in letting this great democracy destroy itself because we don’t want to make tough decisions,” Domenici told the supercommittee. “I hope you heard that.”
The panel was directed to come up with a proposal by Nov. 23. If Congress doesn’t pass a defict-cutting plan by the end of the year, across-the-board spending cuts to domestic and defense programs will occur in 2013. The committee has been deadlocked over Democrats’ insistence on tax increases and Republicans’ refusal to accept them.
Made of Straw
Bowles, in his prepared remarks, said the nation’s fiscal house is “made out of straw” and any significant blow like an oil shock or a collapse in Europe “can blow our house down.” He said the deficit stems from four major sources: the costs of health care and national defense, the “ineffective” tax system and interest on the national debt.
The supercommittee plans no private meetings this week to discuss debt-cutting proposals. Congressional Budget Office Director Doug Elmendorf has warned that the committee’s real deadline is early this month to give his agency enough time to study the plan.
During today’s hearing, Democrats and Republicans showed no signs of bending their positions on entitlements and taxes. Senator Jon Kyl of Arizona, the No. 2 Senate Republican, pushed back against some tax proposals offered by experts appearing before the panel, including taxing capital gains and dividends at the same rate as ordinary income. Gross domestic product “will be lost and wages will be lower,” he said.
Meantime, Democrats sought to defend the traditional Medicare system. Representative Xavier Becerra, a California Democrat on the supercommittee, said Republican plans to change Medicare to a private system would result in increased costs.
“If you were to get rid of Medicare and send seniors over to the private market they would actually pay more,” said Becerra.
Outside groups are also preventing a deal, according to some experts who testified.
Former Wyoming Senator Alan Simpson, a Republican, criticized anti-tax activist Grover Norquist, president of the advocacy group Americans for Tax Reform, and AARP, the senior citizens’ lobbying group that opposes cuts to Social Security.
“If we are in thrall to those two groups we haven’t got a prayer,” Simpson said. Cutting the deficit is “a tough job and you’re going to have to do it,” the former senator said.
Bowles said earlier today there’s a 50 percent chance that the supercommittee will agree on a plan. In an interview on Bloomberg Television, Bowles said a downgrade of U.S. debt is “very possible” if the panel doesn’t come up with a plan to cut the deficit.
A $4 trillion deficit-reduction plan is the “minimum” amount needed to lower the deficit, Bowles said in the interview. Simpson, the co-chairman of Obama’s debt panel, said in the interview that the supercommittee should address tax “loopholes.”
Last December, Obama’s debt commission rejected a recommendation by Bowles and Simpson for a $3.8 trillion budget-cutting plan that included a mix of tax increases and spending cuts.
Alice Rivlin, Clinton’s budget director, said that even though making drastic spending cuts and tax increases now would harm the economic recovery, Congress needs to enact a long-term deficit reduction plan.
“The markets and the public have got to see that it’s going to happen, that we’re serious and that it’s in law,” she said. “It doesn’t have to take effect right away, but it’s got to be in the law.”
Moody’s Investors Service said today a failure by the supercommittee to agree on deficit reduction wouldn’t on its own cause the U.S. to lose its top credit ranking.
While it “would be more negative,” the lack of an agreement isn’t decisive in the U.S.’s Aaa rating because the government’s August deficit-cutting agreement includes $1.2 trillion in automatic cuts to discretionary spending, Moody’s said in a statement.
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