Super Committee Issues

Anyone who has even tangentially has followed the super committee knows that trying to get these guys to move toward a consensus regarding the budget is about easy as moving the Washington Monument.  Both sides have drawn their lines in the sand and it feels as if we will not hear anything positive until the hour before the Thanksgiving deadline.

What comes out of the committee will probably look like a horse designed by a committee. In other words a camel!  To expect much different would be unrealistic. Both sides start off too far apart, too steeped in political grandstanding, and too unwilling to make the other side look good.

Conservatives want cuts in programs and Liberals want to tax more. These diametrically opposed stands are nearly impossible to bridge.  In such times, real "leaders" come to the fore, we will see if any appear.  

What do you think will happen?

Here is the latest from the Wall Street Journal published today.

A LOOK INSIDE THE SUPER COMMITTEE

November 7, 2011
Wall Street Journal
STEPHEN MOORE

'I can find $1.5 trillion of budget savings in my sleep," says Jeb Hensarling, the Republican co-chairman of the 12-member deficit reduction committee. "The hard part is getting six Democrats to agree to do it."

If he can't, there will be no consensus on a plan to reduce deficits over the next decade and the so-called super committee will surely blow up, just as most on Wall Street and in Washington are betting will happen. To beat the statutory deadline for a congressional vote before Thanksgiving, a deal, if there is one, will almost surely have to be struck by the end of this week.

Insiders on the panel say that the deal being offered by Democrats is less than $1 of spending cuts for every $1 of new taxes. Democrats want to count the $900 billion of discretionary spending cuts already agreed to in the debt bill and $1 trillion in troop withdrawals from Afghanistan and Iraq, which may not happen. Meanwhile they are insisting on close to $1.2 trillion of tax increases in exchange for less than $1 trillion in entitlement reforms. The president's own deficit reduction committee, Simpson-Bowles, offered $2 of cuts for every $1 of new taxes. The GOP House budget passed last spring contained some $4.5 trillion in cuts—three times more than the super committee must find.

Democrats also keep pressing for higher tax rates on the rich. "We have no intention whatsoever of raising tax rates—period," Mr. Hensarling states emphatically.

But raising rates and raising revenues are different. Eliminating loopholes in exchange for making the Bush tax cuts permanent after 2013 is on the table—and by broadening the tax base, this could bring in tens of billions of new revenues each year. Says Mr. Hensarling: "Republicans want more revenues. We want more revenues by growing the economy; we're not happy with revenues at 14% of GDP, but we don't want to do it by raising rates."

One positive development on taxes taking shape is a deal that could include limiting tax deductions, perhaps by capping write-offs on charities, state and local taxes, and mortgage interest payments as a percentage of each tax filer's gross income. That idea was introduced on these pages by Harvard economist Martin Feldstein.

Deficit reduction committee members Rep. Jeb Hensarling (R., Texas) and Sen. Patty Murray (D., Wash.)

In exchange, Democrats would agree to make the Bush income-tax cuts permanent. This would mean preventing top rates from going to 42% from 35% today, and keeping the capital gains and dividend tax rate at 15%, as opposed to plans to raise them to 23.8% or higher after 2013.

And there is some indication that corporate rates might actually be pushed lower. Republicans would agree to a broader tax base and Democrats would accept a rate of between 25% and 28%, down from 35% now.

One member of the committee tells me on background that this means getting rid of certain deductions, including immediate write-offs of capital purchases, write-offs for interest expenses, and green energy subsidies in the tax code that can drive effective tax rates down to zero for major U.S. firms. He says this is an area where progress is being made.

Another policy Republicans are fighting for is allowing corporations with foreign subsidiaries to repatriate capital back to the U.S. at a one-time tax rate of 5.25% (on income already taxed once in the country of origin) instead of having to pay a charge as high as 35% today.

The big fiscal breakthrough Mr. Hensarling and his GOP colleagues are hoping for on the spending side of the ledger is first-stage reforms in the big three entitlements—Medicare, Medicaid and Social Security.

Republicans want a gradual rise in the retirement age for the giant cost drivers Social Security and Medicare; higher co-pays and premiums for Medicare; and a tweak in the cost-of-living benefit formula to more accurately reflect the real inflation rate.

Read More: http://online.wsj.com/article/SB10001424052970203716204577017640028084180.html?mod=WSJ_Opinion_LEADTop