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Deficit panel must confront alternate realities

Sep 14, 2011, 12:59 p.m.
Congressional Super Committee member Sen. Jon Kyl (R-AZ) carries a binder titled Budget Policy Options as he departs the inaugural meeting, as the members search for at least $1.2 trillion in new deficit reductions, in Washington, DC, September 8, 2011. REUTERS/Mike Theiler

By Richard Cowan

WASHINGTON (Reuters) - A slew of challenging choices confronts a special deficit-reduction committee in Congress, but one of the most significant yet least understood question is what is the starting point.

In budget parlance, it is a matter of which "baseline" or measuring stick the 12-member "super committee" will use to assess just how much deficit reduction it is achieving.

The question may be a bit arcane for the average person but the answer does not just matter to bean counters. It could significantly alter the amount of spending cuts or tax increases required for any deal.

"It's certainly going to matter because that's the framework for analyzing all of the options that are coming forward," said Alex Brill, a research fellow at the conservative-leaning American Enterprise Institute.

The bipartisan super committee is just starting its search for at least $1.2 trillion in government savings over 10 years. If a majority of the panel cannot agree on a plan by November 23, deep spending cuts to domestic and military programs would be triggered, beginning in 2013.

The outcome will have far-reaching implications for global financial markets as a lackluster result could contribute to another downgrade of the U.S. credit rating. That would be on the heels of Standard and Poor's decision last month to end America's top-notch AAA rating following a long battle in Washington over the U.S. borrowing limit.

In the run-up to S&P's move in early August, budget baselines were fleetingly in the spotlight when the credit-rating agency quizzed government budget analysts over the baseline that was used to certify the $917 billion in deficit cuts that were part of a debt limit increase bill.

When talking about deficit reduction, the question always revolves around savings from what? Is it savings compared to current law? Or, is it savings that also take into account the policies that have not yet been enacted law but everyone knows will be and will change the bottom line?

At the first super committee hearing on Tuesday, Republican Senator Rob Portman, a former White House budget director, highlighted his concerns over scorekeeping rules, saying "these are going to matter greatly in our work."

Some congressional aides have suggested that establishing a baseline might be one of the early decisions the super committee makes. Others worry that an early fight over it could poison the atmosphere for the rest of the negotiations.

James Horney, a fiscal policy expert with the Center on Budget and Policy Priorities, said, "The baseline is a very charged thing." While super committee talks could be easier if the baseline is set at the start of the process, "it might be that's something that gets decided along the way," he said.

ALTERNATE REALITIES

Why does it matter? Here are some examples:

The Alternative Minimum Tax, originally aimed at ensuring the wealthiest pay taxes, now theoretically affects higher earners in the middle class because the law provides no inflation adjustment.

No member of Congress wants to nail 30 million middle-class voters with a steeper tax, so they have been passing short-term AMT exemptions.

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