POLICY RESEARCH | US CHRIS KRUEGER Research Analyst T: +1 202-747-9469 [email protected]

NOVEMBER 2, 2011 INSTITUTIONAL USE ONLY WASHINGTON RESEARCH GROUP DC DOWNLOAD

Debt Ceiling: Super Duper Subcommittee Formed

Half of the Super Committee members have formed an unofficial super duper subcommittee within the 12- member Super Committee and are seeking to put together a $1.2T-$1.5T deficit reduction plan over ten years. The 6 bi-partisan and bi-cameral members are: Reps. Dave Camp (R-MI), Fred Upton (R-MI), and Chris Van Hollen (D-MD) and Sens. Max Baucus (D-Mont.), John Kerry (D-MA), and Rob Portman (R- OH). These six are the leading pragmatists on the Super Committee. We are raising our odds to 1 in 3 that the Super Committee will recommend a deficit reduction plan similar to our Bland Bargain Plan of $1.2T in deficit reduction over 10 years. The Super Committee must report out its recommendations (requires 7 of 12 votes) by November 23.

Reuters reports that “aides stressed that the six lawmakers are still in talks with the full super committee and have not splintered off. Instead, they are making an internal effort to try to broker a bipartisan deal.” It seems clear that the Republicans in this smaller group are aware that any deal that hits the $1.2T number to prevent the sequester trigger (across the board spending cuts that go into effect on Jan. 1, 2013) MUST INCLUDE REVENUE RAISERS. Reuters also reports that the super duper subcommittee is “acting with the knowledge and direction of congressional leadership in both parties.”

The inclusion of Van Hollen in this group is significant because House Democrats will in all likelihood be needed to pass the Super Committee recommendations out of the House. The House and Senate must approve the recommendations by December 23. The recommendations enjoy procedural protections and may not be amended or filibustered. 66 House Republicans voted against the Budget Control Act (BCA), which raised the debt ceiling on August 2nd and created the Super Committee. 218 votes are required to pass the Super Committee recommendations in the House. If you assume the 174 House Republicans who voted for the BCA (vote results here) will vote for the Super Committee recommendations, you still need 44 House Democrats.

The broad outline of the Bland Bargain of $1.2T in deficit reduction over ten years:

 $300B revenue raisers (the likely framework would be a 3-1 spending to revenue ratio)

 $216B interest savings

o 18% interest savings on deficit reduction per the legislative language from the BCA

 $134B-$300B in Medicare/Medicaid

o On the low-side of $134B, this would nearly equal the amount cut by the sequester trigger. Under the sequester trigger, Medicare providers are capped at 2% of projected Medicare spending over the next ten years. That amount is (pause) $6.5T to $7T. 2% of that is $135B-$140B.

o See Rick Weissenstein and John Shepard’s list of potential cuts here.

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POLICY RESEARCH | US NOVEMBER 2, 2011 | DC DOWNLOAD

 $60-255B Chained CPI for inflation-adjusted programs

o The top line number would vary on whether Social Security was included – these numbers continue to fluctuate depending on who scores the savings…such is government accounting.

 $200B relatively non-controversial spending cuts

o Agriculture Subsidies ($20B-$40B) o Selling Federal Land ($15B) o Spectrum Sales ($15B) o Pension Reform ($80B) o Higher Guarantee Fees for Fannie Mae and Freddie Mac ($15B-$30B) o Reducing “waste, fraud, and abuse” at the federal level ($40B)

 $100B defense

o Always a third rail, this is $100B over ten years and is FAR better to the national security hawks than a potential 16% cut to the Pentagon’s budget through the sequester trigger o This $100B would be on top of the $350B through the spending caps (using CBO baseline, not Pentagon), which is also FAR less than Simpson-Bowles or most others.

Recall that there is still the wildcard of the War Savings Money. The CBO re-scored the “savings” from winding down the wars in Iraq and Afghanistan. The CBO score was lowered from $1.1T to $560B. $560B is still floating in the deficit reduction ether and could be used to juice the total number.

SHOT…

"I enjoy flowers, like everybody else.”

-- Herman Cain to Greta van Susteren when asked if he has a "roaming eye" on Fox Monday night

…CHASER

“Oh! Oh, look at this. It's a flower pot with the dirt in it.

Actually, the real gift is what's planted in the soil. The bulb of a Jerusalem tulip. Which I was told is one of the rarest and most beautiful flowers in existence.

Oh, right, right, the Jerusalem -- From the "Jerusales tulipesias" genus. Yes, yes.

Hmm. Anyway, yeah, the guy said with regular watering, it should bloom in about six months, so….

Oh, we will look forward to that, Greg.”

--Dina Byrnes, Jack Byrnes, and Gaylord “Greg” Focker, as played by Blythe Danner, Robert DeNiro, and Ben Stiller, in Meet the Parents

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