Deficit Panel's Failure Will Have a Lingering Impact

Nov. 26, 2011— -- The failure of the "supercommittee" to put together a deficit-reduction package leaves Congress without a framework to address big issues in the coming weeks and next year. Among them:

Current year spending

Congress has passed stopgap legislation to fund the government until Dec. 16, but nine of the 12 annual spending bills remain unfinished. Congress agreed to an overall spending level of $1.043 trillion in discretionary spending for the fiscal year that began in October, but the failure of the supercommittee could lead House Republicans to seek further domestic spending cuts.

Payroll tax cuts

President Obama proposed a one-year, 2% cut to Social Security taxes as part of a compromise with Congress a year ago. Now, Obama wants to extend them another year — and increase them to 3.1% — but congressional Republicans are non-committal. "I don't know the answer to that," supercommittee co-chairman Rep. Jeb Hensarling, R-Texas, said on Fox News Sunday. "Certainly, we would want to make sure that they are paid for."

Unemployment benefits

Congress has extended the eligibility for unemployment benefits to 99 weeks. But that provision expires at the end of the year, meaning that about 1.2 million jobless Americans could be kicked off the benefit rolls starting in January. Some economists say the expiration of payroll tax cuts and unemployment benefits together could shave as much as 1% off the economy next year.

Tax 'extenders'

As many as 59 tax breaks expire Dec. 31, according to the Joint Committee on Taxation. They include tax credits for electric vehicle charging stations, deductions for state and local sales taxes and several provisions to prevent middle-class taxpayers from being hit with the Alternative Minimum Tax.

Bush-era tax cuts

Congress extended these temporary tax cuts for two years in 2010, so they expire at the end of next year. Making them permanent would cost more than $5 trillion over the next 10 years — and so doing nothing would cut the deficit by more than the most ambitious supercommittee proposal. The real argument is over extending the cuts for households that earn more than $250,000 a year.

Mandatory cuts

From the beginning, Congress set up a device to ensure budget cuts even if the supercommittee failed its mission: $1.2 trillion in cuts taken equally from domestic and defense spending, beginning in 2013. But some defense hawks — such as Sen. John McCain, R-Ariz. — want to defuse that trigger because of Pentagon concerns that it would decimate the military. President Obama has threatened to veto any attempt to undo the triggers without at least $1.2 trillion in offsetting cuts.

Entitlements

The automatic cuts do not affect the mandatory spending — Medicare, Medicaid and Social Security — that will be the largest driver of future deficit spending. "There will be more people collecting benefits and each person will be collecting more in benefits," Congressional Budget Office Director Doug Elmendorf told the supercommittee in September. The demise of the supercommittee leaves Congress without an obvious process or firm deadline to address those problems.