OUR THOUGHTS ON:

The Super Committee - Not Looking Quite So Super!

Tax

By Ron Kramer

With just two weeks left until its November 23 deadline to produce and vote on a debt reduction proposal, it’s looking more likely that U.S. Congress Joint Select Committee on Deficit Reduction (referred to as the “Super Committee”) is heading for an impasse. Little progress has been reported out of the Committee to date.

The Super Committee is charged with recommending at least $1.2 trillion in further spending cuts by November 23 as part of the Budget Control Act of 2010, which increased the U.S. debt ceiling by at least $2.1 trillion through 2013.

The Budget Control Act of 2010 builds in an incentive for Congress to act and to meet or beat the required cuts. If Congress fails to provide a deficit reduction bill with at least $1.2 trillion in cuts, then the debt limit will increase only $1.2 trillion and will be paid for by across-the-board spending cuts split evenly between defense cuts and other spending programs.

Thus, Republicans are incentivized to keep further cuts in defense spending from happening, and Democrats are incentivized to prevent reduction in other spending and entitlement programs.

The Super Committee appears to be stymied by that same old classical “American standoff”:

  • Republicans arguing that the U.S. has a spending problem not a revenue problem, and failing to budge from their position against no new taxes, and
  • Democrats arguing that we have a revenue problem because wealthy Americans do not pay their fair share of taxes, and refusing to discuss cuts in spending and entitlement programs until the Republicans cave on new taxes.

It’s hard to imagine that the Super Committee will be successful in reaching a deal in the short time remaining. In fact, the deadline for any proposed deal is even shorter than the November 23 date since the Congressional Budget Office (CBO) would need time to score any deal before the November 23 vote. The full House and Senate are scheduled to vote on any deal on December 23. Hopefully, a failure by the Super Committee to do its job and reach a substantive deal by November 23 will not have a severe impact on the economy and the U.S. stock market.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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