Can The U.S. Super Committee Solve The Debt Crisis?

By Marc Davis | August 24, 2011 AAA
Can The U.S. Super Committee Solve The Debt Crisis?

America's relentlessly-escalating national debt seems like a problem that defies resolution. Congress and the Obama administration couldn't solve it recently when they agreed to raise the U.S. debt ceiling by another $2.1 trillion.

TUTORIAL: How To Manage Credit And Debt

Instead of agreeing on measures to reduce the country's staggering debt, Congress and the president handed off the problem to a so-called Super Committee. The 12-member, bipartisan committee of national legislators, with an equal number of Democrats and Republicans, will study U.S. finances and recommend $1.2 trillion in budget cuts by November 23. (When hedge funds buy up bonds from bankrupt companies, should investors follow suit? See Why Hedge Funds Love Distressed Debt.)

Reaching an Agreement
If the committee reaches an agreement on budget cut proposals, Congress must vote approval on them by December 23. If Congress votes on them accordingly, the $1.2 trillion in cuts will go into effect. As usual, however, the issues will be what gets cut and by how much.

There are many items on the committee's agenda for discussion, including: raising taxes, revamping the tax code, Social Security, Medicare, Medicaid, healthcare for the elderly and the federal retirement program; these are all major issues that have been long debated in Congress.

Also up for debate and possible reduction is the 35% U.S. corporate tax rate. Many Democrats and Republicans agree that the rate is too high relative to rates imposed in other countries. Democrats, however, have proposed plugging tax loopholes as a means of making up the difference in revenue if the corporate rate is lowered.

So the committee may have a difficult time finding ideas that everyone – including their constituents – can agree on. For example, another particularly controversial tax deduction that some legislators proposed eliminating is the home mortgage interest exemption. A USA Today/Gallup poll conducted this spring asked survey participants if they would approve eliminating that deduction if overall tax rates were also lowered. Sixty-one percent opposed the idea.

What if an Agreement Can't be reached?
In the event that the committee fails to reach an agreement, $1.2 trillion in budget cuts will be automatically imposed in equal amounts on domestic and defense spending.

With committee members divided equally along opposing political lines, many observers believe a stalemate is inevitable.

The 12 appointed members are:

  • Rep. Jeb Hensarling of Texas (Republican and committee co-chair): Chairman of the House Republican Conference.
  • Sen. Patty Murray of Washington (Democrat and committee co-chair): She is a member of the Budget and Appropriations committees.
  • Rep. Chris Van Hollen of Maryland (Democrat): Van Hollen is the ranking Democrat on the Budget Committee.
  • Sen. Jon Kyl of Arizona (Republican): The number two ranking Republican in the Senate behind Mitch McConnell and a member of the Finance Committee.
  • Sen. John Kerry of Massachusetts (Democrat): A former presidential candidate in 2004 against incumbent George W. Bush, he is a member of the Finance Committee.
  • Sen. Pat Toomey of Pennsylvania (Republican): Elected to the Senate last year. Member of the Senate Budget and Banking committees.
  • Sen. Max Baucus of Montana (Democrat): Chairman of the Senate Finance Committee. Also served on Obama's debt commission.
  • Sen. Rob Portman of Ohio (Republican): Former White House budget director in the Bush administration, and a member of Budget Committee.
  • Rep. Xavier Becerra of California (Democrat): A senior member of the House Ways and Means Committee
  • Rep. Dave Camp of Michigan (Republican): Chairman of the House Ways and Means Committee.
  • Rep. James Clyburn of South Carolina (Democrat): The third-ranking Democrat in the House and a member of the Appropriations Committee.
  • Rep. Fred Upton of Michigan (Republican): Chairman of the House Energy and Commerce Committee.

Committee members reportedly will draw upon previously proposed solutions from Republican and Democratic legislators, independent groups, Obama's 2010 bipartisan deficit commission, among others, as a basis for discussion.

The American public, eager for solutions and an end to partisan bickering, have nevertheless been warned by analysts and former policy makers not to expect too much from the committee.

Reaching an Agreement
If the committee reaches agreement, as a political and practical matter, the suggestions are expected to be narrow in focus and likely to win Congressional approval, while the still nagging major issues will remain: long term taxes and entitlements. (Find out what you can do to avoid a financial meltdown when there's a medical emergency. Check out How To Avoid Medical Debt.)</INVESTOPEDIACONTENT/

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