Over the week-end the Super Committee failed to work towards a compromised bill to come up with a $1.5 trillion dollar deficit reduction plan. They have until midnight tonight to work out a plan or else $1.2 trillion will be sequestered (automatically cut) across the U.S. government through cuts to entitlement and defense spending beginning in 2013.
Last August politicians in both the House and Senate agreed to a last minute deficit plan of $4 trillion with the expectation that another $1.5 trillion would be secured in November from revenue generated by the Super Committee. They approved a $ 4 trillion plan led by the Republicans in Congress which entailed a deficit reduction plan with only tax cuts and no additional taxes.
Republicans in Washington D.C. are deeply entrenched along a no taxation economic ideology. One of the main drivers behind their no taxation ideology is Grover Glenn Norquist, president of Americans for Tax Reform. Mr. Norquist has pressed for all Republican politicians to make a rigid pledge to never support any tax increases. His ideology has won huge support in the Tea Party movement of the Republican Party.
It is worth noting that several previous Republican presidents such as President Ronald Reagan accepted tax increases to reduce the federal deficit when they served in the Oval Office. President Reagan approved 11 tax increases during his 2 terms as president. In 1981 President Reagan significantly reduced the maximum tax rate, affecting the highest income earners. He also lowered the top marginal tax rate from 70% to 50%. In 1986 President Reagan reduced the tax rate to 28%.
What was the outcome? The federal deficit fell from 6% of GDP in 1983 to 3.2 % of GDP in 1987.
Democrats in the Super Committee
The six Democrats in the Super Committee are proposing a plan that includes securing $1.5 trillion in both tax cuts and tax increases.
Senator John Kerry told Meet the Press on Sunday morning that the purpose of the Super Committee is not to simply make tax cuts. “We’re not a tax cutting committee. We’re a deficit reduction committee” he insisted. Kerry continued, “We Dems (democrats) put a 4 trillion deal on the table and it included huge, hard, tough, horrible reductions on the sacred cow.”
The Democrats’deficit proposal last week-end requests $ 1 trillion in new taxes in addition to $ 1 trillion in cuts. But Republicans signaled that the Democrat proposal was essentially dead on arrival. Their second revised offer sought less tax revenues.
If the Super Committee fails to compromise with a new plan, the $ 1.2 trillion will automatically be sequestered beginning in 2013 as noted earlier. Since the Bush Tax Cuts will expire at the end of 2012, all Americans will be faced with a tax increase.