Obama's Deficit-Reduction Plan Vis-A-Vis Congressional Supercommittee

On September 19, 2011, President Barack Obama unveiled a 10-year, $3 trillion deficit-reduction plan that would find savings from entitlement refoms, winding down wars in Iraq and Afghanistan, and raising $1.5 trillion of new taxes. The entitlement cuts would amount to $580 billion, including $248 billion to Medicare and $72 billion to Medicaid. The savings from the winding down the wars would be $1.1 trillion. President's deficit reduction plan adds flavor to the work of the "congressional supercommittee" entitled to save up to $1.5 trillion over 10 years.

October 14, 2011 was the deadline for submitting proposals to the "congressional supercommittee", formally known as Joint Select Committee on Deficit Reduction, on deficit reduction. A plethora of proposals were submitted to the 12-member supercommittee. The powerful panel has until November 23, 2011 to come up with recommendation for trimming the deficit by at least $1.2 trillion (the "supercommittee" has a target of $1.5 trillion) over the next 10 years, and Congress has to act by December 23, 2011. Else automatic cuts of $1.1 trillion over the next decade will be instituted starting in January 1, 2013. The following amount will be automatically chopped of if Congress fails to act on JSCDR recommendation:

Cuts to be instituted for 2013-21 amount to $984 billion according to CBO estimates:

* Defense--$492 billion (9% of $5.3 trillion spending cap)

Half the cuts will come from National Security operations and military costs.

* Nondefense Discretionary--$322 billion (7% of $4.9 trillion spending cap)

Health, Education, Drug Enforcement, national parks and other agencies and programs.

* Nonexempt Mandatory--$47 billion (4% of $726 billion estimated spending)

Mostly agriculture programs

* Medicare--$123 billion (2% of $6.1 trillion estimated spending)

Includes payments to Medicare providers and plans, limited to a 2% cut.

* No Cuts in Exempt Entitlements ($17 trillion estimated spending)

Social Security, Medicaid, Veterans' benefit, nutrition and other low-income programs.

******* BACKGROUND OF CONGRESSIONAL SUPERCOMMITTEE ********

Joint Select Committee on Deficit Reduction, formal name of the Congressional supercommittee, was formed as part of agreement (2011 Budget Control Act) between the White House and Congress to raise the country's debt ceiling. The agreement was reached on July 31, 2011 to raise the debt ceiling by up to $2.4 trillion, thus averting default risk by August 2, 2011. In exchange, GOP extracted deep spending cuts over the next 10 years.

** DEBT CEILING
(I) $400 billion immediately

(II) $500 billion by fall by presidential order unless Congress overrides him by a two-third vote

(III) $1.2 trillion - $1.5 trillion after a powerful congressional panel recommends and enacts matching spending cuts.


** SPENDING CUTS
-- $917 billion in discretionary spending, including $350 billion from Defense over 10 years. Cuts will come from education, transportation, defense and housing among others. Medicare, Medicaid and Social Security will not be touched.

-- Cap spending on discretionary programs each year for 10 years starting at $1.043 trillion in 2012

-- $1.2 trillion to $1.5 trillion cut in projected deficit over 10 years to be identified by a 12-member Congressional panel. The panel is to come up with recommendation by November 23, 2011. Congress has to act on the recommendation by December 23, 2011. Automatic, across-the-board spending cuts will be instituted beginning 2013 if Congress fails to act.

** BALANCED BUDGET AMENDMENT
Both houses would hold votes by the end of 2011.

House of Representative passed the measure on August 1, 2011 by 269-161 votes. Senate passed it on August 2. President Obama signed the Budget Control Act on August 2, 2011.

On August 11, 2011, top four leaders of the Congress wrapped up the selection of 12 members of the Congressional Supercommittee.

** Harry Reid's Choice: Sen. Patty Murray, Sen. John Kerry and Sen. Max Baucus

** Mitch McConnell's choice: Sen. Jon Kyl, Sen. Rob Portman and Sen. Pat Toomey

** John Boehner's choice: Rep. Jeb Hensarling, Rep. Dave Camp and Rep. Fred Upton

** Nancy Pelosi's Choice: Rep. Jim Clyburn, Rep. Xavier Becerra and Rep. Chris Van Hollen

******* BACKGROUND OF CONGRESSIONAL SUPERCOMMITTEE ********

Key Dates for Congressional Supercommittee

* November 23, 2011: Deadline for recommendation from the supercommittee

* December 23, 2011: Congress must vote on the plan

* January 15, 2012: President Obama must sign the recommendation from the supercommittee into law

* January 1, 2013: Bush-era tax cuts expire

* January 2, 2013: Automatic cuts go into effect

On November 21, 2011, the congressional supercommittee conceded failure in reaching a decision to cut future deficits by at least $1.2 trillion over the next ten years. Two credit rating agencies on November 21, 2011 retained their existing ratings for the U.S. despite the failure, albeit expected, of the supercommittee to come up with a recommendation on how to cut the future deficits by $1.2 to $1.5 trillion over the next decade. Standard & Poor's kept AA+ and Moody's kept AAA for U.S. bonds.