Deficit Deal Failure Would Pose Crummy Choice
WASHINGTON (AP) — If the deficit-cutting supercommittee fails, Congress will face a crummy choice. Lawmakers can allow payroll tax cuts and jobless aid for millions to expire or they extend them and increase the nation’s $15 trillion debt by at least $160 billion.
President Barack Obama and Democrats on the deficit panel want to use the committee’s product to carry their jobs agenda. That includes cutting in half the 6.2 percent Social Security payroll tax and extending jobless benefits for people who have been unemployed for more than six months.
Also caught up in what promises to be a chaotic legislative dash for the exits next month is the need to pass legislation to prevent an almost 30 percent cut in Medicare payments to doctors. Several popular business tax breaks and relief from the alternative minimum tax also expire at year’s end.
A debt plan from the supercommittee, it was hoped, would have served as a sturdy, filibuster-proof vehicle to tow all of these expiring provisions into law. But if the panel fails, as appears likely with Wednesday’s deadline nearing, a dysfunctional Congress will have to sort it all out.
There’s no guarantee it all can get done, especially given impact on those measures on the spiraling debt.
Instead of cutting the deficit with a tough, bipartisan budget deal, Congress could pivot to spending enormous sums on expiring big-ticket policies.
If lawmakers rebel against the cost, as is possible, they would bear responsibility for allowing policies such as the payroll tax cut, enacted a year ago to help prop up the economy, to lapse.
Last year’s extensions of jobless benefits and first-ever cut in the payroll tax were accomplished with borrowed money.
The 2 percent payroll tax cut expiring in December gave 121 million families a tax cut averaging $934 last year at a total cost of about $120 billion, according to the Tax Policy Center.
Obama wants to cut the payroll tax by another percentage point for workers at a total cost of $179 billion and reduce the employer share of the tax in half as well for most companies, which carries a $69 billion price tag.
“The notion of imposing a new payroll tax on people after Jan. 1 in the midst of this recession on working families is totally counterproductive,” said Sen. Dick Durbin of Illinois, the No. 2 Democrat in the Senate.
Letting extended jobless assistance expire would mean that more than 6 million people would lose benefits averaging $296 a month next year, with 1.8 million cut off within a month.
Economist say those jobless benefits — up to 99 weeks of them in high unemployment states — are among the most effective way to stimulate the economy because unemployed people generally spend the money right away.
“We will have to address those issues,” Durbin said.
Extending benefits to the long-term unemployed would cost almost $50 billion under Obama’s plan. Preventing the Medicare payment cuts to doctors for an additional 18 months to two years would in all likelihood cost $26 billion to $32 billion more.
Lawmakers also had hoped to renew some tax breaks for business and prevent the alternative minimum tax from sticking more than 30 million taxpayers with higher tax bills. Those items could be addressed retroactively next year, but only increase the uncertainty among already nervous consumers and investors.
This time, Obama wants them to be paid for. But a move by Democrats to try to finance jobs measures with hundreds of billions of dollars in savings from drawing down troops in Iraq and Afghanistan has gotten a cold shoulder from top Republicans.
“I’ve made it pretty clear that those savings that are coming to us as a result of the wind-down of the war in Iraq and the war in Afghanistan should be banked, should not be used to offset other spending,” said House Speaker John Boehner, R-Ohio. He did not address whether war savings could be used to extend expiring tax cuts.
Those savings are the natural result of national security strategies unrelated to the federal budget. Deficit hawks say tapping into them is simply an accounting gimmick.
“It’s just the worst of all worlds if that were to happen,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
But without the war money at their disposal, lawmakers simply can’t pay for the payroll tax cut and jobless benefits. Liberals such as Durbin are fine with employing deficit financing, especially if the alternative is playing Scrooge just before the holidays.
“Many people will hate to go home for Christmas saying to the American people, ‘Merry Christmas, your payroll taxes go up 2 percent Jan. 1 and unemployment benefits are cut off.’”