Interesting, contrarian note from Goldman’s Alec Phillips on why the super-committee IS likely to come up with a fiscal package.
In light of the recurring disagreements between the parties, many observers have questioned whether the recently established Joint Committee on Deficit Reduction, or “super committee,” which has a goal of $1.2 trillion in deficit reduction over 10 years, will be able to reach an agreement. Despite the large differences between congressional Republicans and Democrats, we think the committee will indeed be able to agree on a fiscal package, for three reasons:
1. The super committee outcome is not binary. Although the committee is tasked with reporting to Congress legislation that would reduce the deficit by at least $1.2 trillion, the committee can still pass an agreement that reduces the deficit by a smaller amount. This is critical, because there appears to be at least some consensus on provisions that would reduce the deficit by a few hundred billion dollars over the next 10 years, but much less consensus on measures that would reduce it by $1 trillion or more over that timeframe.
2. Public opinion demands some type of agreement. Lawmakers are under significant political pressure to reach agreement. Congressional approval ratings have been on the decline for several years, but took another step down following the debate over raising the debt limit. Since then, the share of the public that approves of Congress’s performance has averaged only 13%. Moreover, the share of the public that identifies the budget deficit as their primary political concern has grown to levels similar to the early 1990s, when several major pieces of deficit reduction legislation were passed, as shown in the chart below.
3. The super committee package creates a vehicle for other priorities. For Democrats interested in passing parts of the President’s American Jobs Act, the super committee’s legislation provides a vehicle to do so, and to offset the cost. The extension of the two percentage point payroll tax cut extension seems likely to be included, at a minimum. While Republicans may not support much of the President’s jobs proposal, many of them are likely to support using the super committee bill to pass the routine extension of expiring corporate tax provisions.
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