Debt supercommittee member Senate Finance Committee Chairman Sen. Max Baucus, D-Mont., left, talks with Supercommittee Co-Chair Sen. Patty Murray, D-Wash., in the Eisenhower Executive Office Building on the White House complex in Washington on Monday.Photo by Associated Press /Chattanooga Times Free Press.
The deadline for the congressional supercommittee to reach a bipartisan deal on deficit reduction left just a few hours on the clock Monday. Yet both sides seemed to have effectively given up hope several days ago that they could come to terms on a compromise agreement. By Sunday, they were already in overdrive on the talk shows explaining how the panel's failure was the other side's fault. In truth, it was the Republicans' fault, pure and simple.
The long and short of the breakdown is this: Democrats were willing to bend over backwards to reach a deal. To reach a greater reduction that their $1.2 trillion goal of reduced deficit spending over the next decade, they had tentatively agreed to cut spending for major entitlements and other domestic programs by more than $2 for every $1 in new revenue from nominal tax hikes.
But Republicans wouldn't bend on raising revenue by rolling back the high-end Bush tax cuts at least on the ultra-wealthy -- those making more than $1 million annually. Even their last-ditch tax reform proposals to raise some revenue through tax reform were skewed against average Americans. The GOP proposals would have lowered marginal tax rates for the super-rich, from 35 percent to 28 percent. They would have helped pay for that mainly by eliminating deductions for the middle class for employer-provided health insurance, interest paid on home mortgages, and relief from the alternative minimum tax.
Republicans will spin the breakdown any way they want. In fact, they've made it clear that they would blame Democrats for unwillingness to make significant cuts in Medicare, Social Security and Medicaid, which pays most of the costs for nursing home care for the middle class, as well as health care for the very poor. And they will claim that Democrats wanted "new'' taxes on "job creators" -- though the high-end Bush tax cuts excluded virtually all small business owners, never produced new jobs, and were never intended to be made permanent after their 10-year run.
The facts simply won't confirm the GOP propaganda. The crux of the problem in the supercommittee, and in Congress generally, is that Republicans just will not allow the high-end Bush tax cuts to expire, as they originally were written to do when George W. Bush and his Republican-controlled Congress passed them in 2001 and 2003.
Republicans also refused to consider the other key tax-revenue issue with regard to deficit reduction -- an end to egregious corporate tax loopholes that leave many major, highly profitable corporations paying no taxes whatsoever. Republicans did agree to eliminate some loopholes in return for lowering corporate tax rates to around 27 percent, but not nearly enough to guarantee either tax equity or sufficient new revenue to make a serious stab at deficit reduction.
Still, the failure of the bipartisan, 12-member deficit reduction panel is no surprise. Few expert observers expected any semblance of success, even with the prospect that another Washington failure on the deficit could damage the economy. Still, the blow to Washington's budget credibility is bound to hurt the economy, especially given the continuing shockwaves from Europe's euro-debt crisis.
Republicans may yet spur more economic angst. The agreement that established the supercommittee created a backup plan. If the panel failed to meet its deficit reduction target, then cuts were to fall across the board on most Washington spending. Some Republicans are now moving to block the automated sequestration of funding scheduled for the Pentagon, which hogs about a third of Washington's tax revenue and would get the biggest cut of all.
Congressional Democrats shouldn't let that happen. The Pentagon's budget is already larger than all the defense budgets of the 29 next highest military-spending nations combined. Deficit reductions have to begin somewhere, and Republicans have to compromise somewhere.