Senator Murray and deficit reduction committee can, and should, include revenue

Earlier this week, Senator Patty Murray was named co-chair of the bipartisan deficit reduction committee. The 12-member panel or “super committee” has until late November to identify how to reduce the federal deficit by $1.5 trillion over 10 years. Senator Murray and the other members should not consider deep cuts to public structures without any significant new revenues. The deficit can, and should, be reduced through a balanced approach of revenue increases and spending cuts.

If Congress fails to enact the full $1.5 trillion in deficit reduction, further increase in the debt limit could be no more than $1.2 trillion,  and automatic across-the-board cuts would result starting in January 2013. Given the current state of our economy, additional cuts to Medicaid, SNAP (Food Stamps), and the Earned Income Tax Credit, would throw more people into poverty and hurt our recovery.

Some, including Speaker Boehner, have argued that the legislation does not allow the joint congressional committee to consider revenue in order to decrease the deficit. 

According to recent analysis from the Center on Budget and Policy Priorities, the committee does have the ability to make revenue part of the solution.

The report states in part: “One question that has fostered different interpretations is whether the Joint Committee can consider increases in revenues as a means of achieving its deficit-reduction target, and — more particularly — whether it can consider tax reform that would produce higher revenues than if Congress extended expiring tax provisions (such as the 2001 and 2003 Bush tax cuts, which are scheduled to expire at the end of 2012) but lower revenues than if Congress let all of those tax cuts expire.

The issue revolves around what "baseline" is used in calculating the amount of deficit reduction that the Joint Committee's recommended policy changes would produce. The standard baseline that the Congressional Budget Office (CBO) uses is a so-called "current-law" baseline, which essentially assumes that Congress will enact no changes in current laws governing entitlement programs and taxes. Thus, it assumes that tax cuts that are scheduled to expire — including "temporary" relief from the alternative minimum tax (AMT), which Congress has routinely extended for years — will all terminate on schedule.

However, an alternative baseline exists: a "current-policy" or "plausible" baseline, which assumes that Congress will extend the 2001 and 2003 tax cuts (other than those for upper-income taxpayers) and relief from the AMT. (This baseline also has some other differences from a current-law baseline.) The President's budget used this alternative baseline as a benchmark.

Which baseline one uses to measure deficit reduction is crucial, as the tax reform component of the Gang of Six plan illustrates. Their proposal to reduce or eliminate many tax expenditures while lowering individual income tax rates below current levels would increase revenues by $1.2 trillion relative to a "plausible" baseline that assumes extension of the 2001 and 2003 tax cuts (other than those for upper-income taxpayers) and AMT relief, but would reduce revenues by $1.5 trillion relative to CBO's current-law baseline.”

As CBPP notes,  the debt limit legislation does not prohibit the Budget Committees from asking CBO to produce estimates of the effects of a Joint Committee proposal relative to a current policy or plausible baseline. Nor does the legislation prohibit Congress from using that estimate to determine the extent to which the Joint Committee has met its deficit-reduction target. 

With so much at stake and the sheer size of the deficit reduction target, it is imperative that Senator Murray and the new “super committee” include revenue increases as a realistic way to reduce the federal deficit. 

Read CBPP’s full report here.