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Deadlines and baselines muddle supercommittee's work


The chances for the supercommittee to design a plan to achieve its mandated $1.2 trillion in deficit reduction are looking slimmer by the hour.

But some of its members have pledged to slog on through the weekend, so let’s say the unexpected happens and the Joint Select Committee on Deficit Reduction does devise a blueprint that seven of the 12 members want to support.

It would be up against two big built-in problems: the deadline and the baseline.

The deadline for the supercommittee is effectively midnight on Monday, since the Budget Control Act which created the super committee says it may not vote on its recommendations unless Congressional Budget Office (CBO) estimates of those recommendations “are available for consideration by all members of the joint committee at least 48 hours prior to the vote.” The law sets Nov. 23 as the deadline for the committee to vote.

Assume the committee comes up with a broad-strokes plan stating goals for deficit reduction and then turns the task of writing the details over to the Senate Finance Committee and the House Ways and Means Committee.

If that were to happen, then “my sense is that they will not give the tax-writing committees specific instructions as to how to achieve those savings,” said Hank Gutman, former chief of staff for the Congressional Joint Committee on Taxation and principal in charge of Legislative and Regulatory Services for the audit, tax, and consulting firm KPMG.
(The staff of the Joint Committee on Taxation are the experts who “score” or estimate the effects of proposed changes in tax law.)

So in a scenario in which the committee turns over the task of writing specific legislation to the tax-writing committees (Senate Finance and House Ways and Means), then only when those committees finished their work would it possible to judge the credibility of a deficit-cutting plan.

But the crucial question, said Gutman, is what baseline -- the projection of future revenues, spending, and deficits -- the supercommittee would use to measure future gains in revenues and cuts in outlays.

Normally, the CBO and the JCT staff use a current-law baseline. Under current law, the Bush tax cuts, which were enacted in 2001 and 2003, expire at the end of 2012. So, too, would a temporary fix in the law that shields some upper- and middle-income taxpayers from the bite of the Alternative Minimum Tax.

If that happens, then the Treasury would begin collecting billions more in tax revenues starting in 2013 as the higher tax rates took effect.

As CBO said in August, “under the current-law assumptions that underlie CBO’s baseline, total revenues are projected to climb sharply” -- from 15.3 percent of gross domestic product in 2011 to more than 20 percent of GDP in 2014. Much of that increase is due to the expiration of tax provisions enacted since 2001.

Unless there is a direction to the committees to use something other than the current law baseline, it’s very hard for the committees to come up with tax savings because if they extend the tax cuts, that immediately is a revenue loss when compared to current law. And it’s a big revenue loss: roughly $3.75 trillion, said Gutman.

He added, “If Congress does nothing at all, those tax cuts expire and that in and of itself is a significant dent in the (future) deficits.”
Gutman said of the super committee, “I am not sure if they will specify a baseline and if they do not, everybody will keep arguing about it.”