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US Deficit Reduction Committee Nears Deadlock

by Mike Godfrey,, Washington

11 November 2011

As it nears its deadline to produce a plan for United States fiscal deficit reductions over the next decade, the Joint Select Committee on Deficit Reduction appears to have hit a brick wall, as both political parties play the ‘blame game’.

The Joint Select Committee is currently looking at measures, which could include spending cuts and tax reforms, to reduce the aggregate US deficit over the next decade by at least USD1.5 trillion. It has a deadline of November 23 to produce results, and there is an enforcement mechanism so that, if the committee fails, equivalent spending reductions will be triggered beginning in January 2013.

While the deliberations of the committee are held in secret, and nothing of substance can be found on its official website, leaks are currently abounding concerning the contradictory proposals being made by both the Democrat and Republican parties. There are also, presently, no full committee meetings planned for the near future.

The Speaker of the House of Representatives, John Boehner (R - Ohio), has already previously emphasized that tax increases are not a viable option for the committee. "It’s a very simple equation," he said. "Tax increases destroy jobs. And the Joint Committee is a jobs committee. Its mission is to reduce the deficit that is threatening job creation in our country.”

Nevertheless, Democrats on the committee are insisting that significant tax increases should be part of any deficit reduction programme. It appears, in fact, that their last proposal would involve a total reduction of USD2.3 trillion over the ten years, equally divided between spending cuts and tax rises. There would, it is said, be provision for wider tax reform, with a trigger to produce more revenue if such reform was not approved by January 1, 2013.

Rejecting that proposal, the Republican party is now reported to have produced its own plan to meet the Joint Committee’s deficit reduction goals. However, that plan, although containing some elements of revenue increases, has been immediately rejected by the Democrat party, without discussion, as not being fair and balanced, as it would reduce taxes to the wealthy.

While details are uncertain, it seems that the Republicans on the committee (although maybe not the party as a whole) would be willing to accept some restrictions to tax breaks, such as mortgage interest deductions, in return for a lowering of the top rate of income tax from 35% to 28% – with a net increase in individual income tax revenues of around USD300bn.

It therefore seems that each party is now unwilling to compromise further and discussions in the Joint Committee are stalled. Failing any agreement, however, it has been remarked in the past that the enforcement mechanism, in the event of a committee failure, and the expiration of the higher-income Bush tax cuts would both occur on the same date – January 1, 2013. Dependent on who wins next year’s Presidential elections, non-extension of the tax cuts could, again, become a political football.

TAGS: tax | economics | budget | tax rates | United States | tax breaks | tax reform | individual income tax

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