Debt Panel Membership Raises Concerns

Legislators face challenge of reaching bipartisan compromise on debt.

The lineup of Democrats and Republicans named to a new congressional panel charged with finding $1.5 trillion in budget savings is raising doubts about the prospects for a bipartisan compromise to address the national debt before next year’s elections.

U.S. House Speaker John Boehner and Senate Republican leader Mitch McConnell yesterday announced their appointments to the 12-member committee created in the Aug. 2 law that raised the nation’s debt limit and averted a default.

Republican Senators Jon Kyl, Pat Toomey and Rob Portman will negotiate with Senate Democrats Patty Murray, John Kerry and Max Baucus, who were chosen Aug. 9 by Senate Democratic leader Harry Reid. Boehner picked House Ways and Means Committee Chairman Dave Camp, Energy and Commerce Committee Chairman Fred Upton and Republican Conference head Jeb Hensarling. House Democratic leader Nancy Pelosi has yet to name her panelists.

The choices from both parties include some “land mines,” increasing the likelihood of deadlock, said Robert Bixby, head of the Concord Coalition, an Arlington, Virginia-based group that advocates for a balanced budget.

Murray, of Washington state, will cause “certain alarm bells to go off” because she is in charge of her party’s principal fundraising committee for senators seeking re- election, Bixby said. Toomey, of Pennsylvania, and Hensarling, of Texas, are vocal anti-tax advocates, and all six Republican appointees have signed a pledge against voting to raise taxes. Upton’s panel has taken the lead on investigating President Barack Obama’s agenda, including the new health-care law.

“This is not auspicious for a grand bargain,” Bixby said.

 

Public Discouraged
Murray and Hensarling will be co-leaders of the committee seeking to trim the deficit.

The American public is discouraged about the prospects government can fix the nation’s economic problems, according to a new Washington Post poll. Almost three-fourths of those responding said they have little or no confidence in the nation’s leaders to repair the economy and almost eight in 10 say they are dissatisfied with the way the political system is working, the Post poll shows.

The panel’s work has taken on greater urgency since Standard & Poor’s on Aug. 5 lowered the U.S.’s AAA credit rating for the first time, saying lawmakers weren’t doing enough to reduce record deficits by raising taxes or cutting spending. The so-called super committee will be the central focus of political and lobbying activity in Washington for the next four months, as industries try to protect their interests.

 

Mounting Debt
Concern about mounting debt worldwide is hurting markets. Stocks slid in the U.S., with the Dow Jones Industrial Average plunging to its lowest level since September 2010, while Treasuries gained. The Dow sank 519.83 points, or 4.6 percent, at the 4 p.m. close in New York, while the Standard & Poor’s 500 Index fell 4.4 percent. Ten-year Treasury yields, which touched an all-time low yesterday, fell 14 basis points, or 0.14 percentage point, to 2.11 percent, at 5:02 p.m. in New York.

Unless the panel pushes through a deficit-reduction package by year’s end, $1.2 trillion in automatic, across-the-board spending cuts will be triggered over a decade, starting in 2013, equally targeting defense and non-defense programs. The 12 panel members need a simple majority to make a recommendation.

All three senators named by Reid have said revenue increases should be part of a debt plan. Republican leaders reject that, saying the group should look only at spending cuts.

 

Bipartisan Plan
Three of the appointees who served on a fiscal commission that Obama set up last year -- Baucus, Camp and Hensarling -- voted against that panel’s bipartisan plan to rewrite the tax code and trim entitlement benefits.

“I’m discouraged today,” said Bill Hoagland, a budget adviser to Republican congressional leaders from 1982 to 2007. “This is going to be an uphill battle to find a majority out of this group.”

Bixby and Hoagland identified Portman, of Ohio, who served as budget director for President George W. Bush, as a potential dealmaker willing to work across the political aisle.

Grover Norquist, president of Americans for Tax Reform, an anti-tax group, said the Republican negotiating team will serve as an effective roadblock to tax increases.

“Taxes are off the table for this super committee even more than they were when Boehner and Mitch McConnell” were negotiating with the president for a long-term debt agreement, Norquist said. “We’re now going to focus on spending cuts, and if the Democrats can’t do that, we’ll have the automatic cuts.”

Automatic Cuts
Still, those automatic cuts may place more pressure on Republicans because they are so targeted at defense spending, which has long been treated as untouchable by many in the party.

Kyl, of Arizona, has a long record of pressing for tax cuts. In June, he was the lead Senate Republican negotiator in debt talks led by Vice President Joe Biden. He followed House Majority Leader Eric Cantor in walking out of those talks amid a dispute over raising taxes, saying the White House and Democrats were “insisting on job-killing tax hikes and new spending.”

Toomey served as president of the Club for Growth, another anti-tax group, after three House terms and a failed Senate bid in 2004. He won a Senate seat in 2010, helped by the surge of anti-government fervor embodied in the Tea Party movement.

“I am not interested in some kind of big tax increase,” Toomey told reporters on a conference call yesterday. “That would be counterproductive, that would harm our economic growth.”

 

Likely Targets
Likely targets for spending cuts are the health-care and defense budgets, which might affect companies from drugmaker Pfizer Inc. to defense contractor Lockheed Martin Corp.

Financial firms are concerned the panel might opt for changes such as an increase in the tax rate on carried interest -- the profit share earned by private equity managers and venture capitalists -- while home builders are trying to maintain the mortgage-interest deduction. Almost any other industry, from transportation to oil exploration, also might be affected by tax and spending changes.

The nine members named so far have some natural constituencies. Automakers including Ford Motor Co. have extensive operations in Michigan, home to Upton and Camp, and in Portman’s state of Ohio. Toomey, Portman and Murray have the most military installations in their states, potentially positioning them to fight against certain defense cuts.

Retired people are among the largest donors to almost all the lawmakers, and members considering cuts to Social Security or the Medicare health program will face a lobbying barrage by the seniors’ group AARP. Toomey’s state has the greatest proportion of Social Security recipients among the panel’s senators, according to Bloomberg Government data.

 

Social Security Recipients
Among the House members, Camp’s district has the highest proportion of residents on Social Security, according to the same data. Michigan has the highest unemployment rate, at 10.5 percent, of the states represented by the lawmakers.

Upton and Camp’s biggest group of donors is health professionals, while Hensarling has received the most from the finance industry. Aside from retired people, the biggest bloc of donors for both Portman and Toomey is the securities and investment industry. For Kyl, it’s the real-estate industry.

All three Senate Democrats got the biggest bloc of political money from lawyers during their careers, according to the Washington-based Center for Responsive Politics, which tracks campaign-finance data.

Upton, as chairman of the House Energy and Commerce Committee, has led investigations into Obama’s policies, including how federal economic stimulus funds were used. In the past, though, he has also joined in bipartisan efforts, such as expanding the State Children’s Health Insurance Program.

Hensarling advocates cutting government spending and balancing the federal budget, on occasion opposing his own party’s leadership to fight government programs. In 2008, he led efforts to oppose the bailout of the financial system.

Camp has occasionally strayed from Republican stances on issues, supporting extended unemployment benefits in 2008 and the federal bailout of the automobile industry, a mainstay in his home state of Michigan. Still, he describes himself as “a conservative on fiscal policy.”



Bloomberg News

 

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