My column from today's Roll Call asks aloud the question that everyone involved with the budget seems to be asking themselves these days -- What happens if (or when) the super committee fails to do what it was charged with doing? The answer may be surprising: Nothing immediately and perhaps nothing at all.
What Happens if the Super Committee Fails?
It’s now less than a month before the Joint Committee on Deficit Reduction — the group that more typically is inappropriately referred to as the super committee — is supposed to report its recommended $1.2 trillion to $1.5 trillion deficit reduction plan to the House and Senate.
In reality, the time for the committee to act is even shorter than that because it needs to send its plan to the Congressional Budget Office for scoring well before the Nov. 23 deadline.
What happens if, as I and many others increasingly suspect, the super committee isn’t able to agree to a deficit reduction plan, if the plan it agrees to is substantially less than what’s required ($400 billion is the number being mentioned most often these days) or if — also as I and many believe — the full House and Senate are unable to pass what’s recommended?
Would it really be a political and financial catastrophe, the equivalent of a nuclear bomb, typhoon, tsunami and magnitude-10 earthquake all rolled into one? Would political hell and damnation result as voters unleash unmitigated anger toward elected officials at levels and in ways that have seldom before been seen in American history? Will the economy actually suffer immediately as the last, best and current hope for serious deficit reduction goes down the drain. And will Wall Street immediately react negatively if the super committee process fails?
Thank you for that brief moment of frivolity. I needed that.
Start with voters. Does anyone really think that the reaction to a super committee failure will be any different than what it has been when, as has happened repeatedly during the past decade, the House and Senate haven’t agreed to a budget resolution or appropriations haven’t been enacted by the start of the fiscal year? Is the reaction going to be all that different from the relatively ho-hum response to the repeated threats of a government shutdown or a financial meltdown because continuing resolutions and debt ceilings have been taken hostage?
On top of everything else, given what has now become a steady series of disappointments over breakdowns in the policymaking process in Washington and the obvious unwillingness of some in Congress to compromise on spending, revenues, deficits and national debt, why does anyone think that many voters will be all that surprised if the super committee process doesn’t deliver the goods?
The same is true of capital markets —you know, the ones that these days react more to forecasts of what will occur than what actually happens. The analyses I’ve read and the people I’ve spoken with have convinced me that Wall Street isn’t assuming that the super committee process will accomplish much of anything. Indeed, given the pessimism I hear from the street, financial analysts and investors will be far more surprised if the super committee recommends $1.2 trillion or more in deficit reductions that are enacted than if the process accomplishes nothing.
And it’s not even clear whether the reaction from Wall Street to a large deficit reduction plan would be positive or negative anyway. In spite of the consistent warnings that they were about to unleash the hounds of hell on interest rates, there continues be no sign whatsoever that bond-market vigilantes have returned (or even really exist, for that matter).
Quite the opposite might be true: Given the current fragile nature of the economic recovery, the bond and equity markets are just as likely to be spooked by the short-term federal spending reductions and revenue increases the super committee members might recommend as they are to be discouraged by the prospect of higher deficits during the next year or so.
Most important of all is that the doomsday-like prophecies of immediate severe political retribution because of the across-the-board spending cuts that will be triggered if the super committee process fails are based on a serious misunderstanding of what the law mandates.
The $1.2 trillion sequester would indeed be triggered, but the mandated spending cuts would not begin until Jan. 2, 2013, and that will seriously delay and mitigate the explosion many want us to believe would be inevitable.
It would also set up what will then become a yearlong effort to prevent the across-the-board cuts from ever going into effect or to get credit for trying.
The president will submit a budget next February that, he’ll say during the State of the Union, will prevent the sequester from going into effect if it is adopted by Congress.
Multiple plans, including the budget resolutions, will be proposed in the House and Senate that, we’ll be told by those who support them, will prevent the super committee process from being completed if they’re accepted by the other chamber and agreed to by the president. Continuing resolutions, debt ceilings and God knows what else are likely to be held hostage to stop the reductions.
There will also be repeated calls on Capitol Hill and elsewhere for the across-the-board cuts to be delayed until the new Congress comes into session and has a chance to review them. And anyone who thinks there won’t be an attempt to combine the spending cuts with the tax cuts currently set to expire Dec. 31, 2012, isn’t reading the political tea leaves correctly. That will make it much harder to blame anyone or any political party for the across-the-board spending cuts.
So what happens if the super committee fails? The answer is far less than anyone is predicting, promising, threatening or perhaps hoping.
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