The co-chairs of the 12-member bipartisan Joint Select Committee on Deficit Reduction, authorized by the Budget Control Act of 2011 (P.L. 112-25), announced last Monday:"After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee's deadline. That deadline was November 23rd--the day before Thanksgiving."
Despite the announcement, the debate in Washington on our long-term fiscal outlook is far from over.
This "Super Committee" was charged with issuing a formal recommendation to Congress on how to reduce the deficit by at least $1.2 trillion over the next10 years. The reduction could come from any combination of revenue/tax increases, entitlement or discretionary cuts. Seven of the 12 committee members had to reach agreement on the recommendations before their report and legislative language were sent to both chambers of Congress for an expedited, up-or-down simple majority vote by December 23, 2011. Spending cuts were to go into effect in 2012.
The Budget Control Act included an "enforcement" mechanism to provide pressure for the committee to reach agreement. If the committee failed to reach agreement, then a $1.2 trillion sequestration "trigger," or an automatic across-the-board spending cut in federal programs, would go into effect January 2013. House Majority Leader Eric Cantorhas said that the sequester was designed to be ugly "because we didn't want anybody to go there."
The automatic trigger required cuts equally divided between $600 billion in domestic discretionary federal spending and $600 billion defense discretionary spending. The threat, particularly in automatic and untargeted cuts to defense, was believed to bring about the political will for super committee members to reach agreement. (Remember, the initial $1.2 trillion in federal spending cuts within the budget act were directed at domestic discretionary funding.)
Trigger Exempts Federal Medicaid Spending
As part of the budget deal negotiated between the White House and Congress, certain mandatory or entitlement programs were exempt from the sequestration.On July 31, President Obama insisted that Medicaid be exempt from the automatic across-the-board cuts that would take effect in 2013. Social Security and certain other federal mandatory programs were also exempt.
Although Medicare beneficiaries were protected from any direct cuts, Medicare providers were subject to a 2% cut beginning in 2013. The exemptions were included in the deal announced on August 1 that was then passed by both chambers before recessing until after Labor Day.
Congress Has Now Authorized $2 Trillion in Cuts to Reduce the Deficit Without Cuts to Medicaid
The Budget Control Act ended months of negotiations over increasing the limit on the debt ceiling-initially estimated to reach its limit in April. However, unlike past years when the debt limit was increased without much fanfare, many in Congress--especially the new House Republican majority--believed this year that the nation was at a fiscal cross-roads and insisted upon steps to reduce the federal budget deficit before raising the ceiling on the debt limit.
The budget act in August made an immediate $917 billion down-payment on the budget deficit, with the promise of at least another $1.2 trillion in cuts. The cuts were to be made either through the super committee's recommendations that were then voted on by Congress to take effect in 2012 OR through an automatic trigger with federal spending cuts to begin in 2013.
Note:The cuts brought about by the trigger are scheduled to begin 2013, not in 2012 as they would have were the subcommittee's recommendations been passed by Congress.
With the collapse of the super committee, the August Budget Control Act has now authorized nearly $2 trillion in reductions to the federal deficit. Nearly $1 trillion in cuts over 10 years went into effect in August, with another $1.2 trillion in cuts to take effect in 2013 with no cuts to Medicaid.
See below for discussion of the impact of the automatic cuts and possible next steps by Congress.
Failure Not An Option, But Few Surprised by the Committee's Collapse
Many ANCOR members may not be surprised with the announcement yesterday by the co-chairs of the Congressional Super Committee that the 12-member panel failed to meet its goal of coming up with a deficit reduction plan. That conviction was upheld in a recent poll that found more than 70% of the public did not believe the super committee would reach agreement by Thanksgiving.
Whether because of a lack of confidence in Congress specifically (recent polls show that only 9% of the public hold a positive view of our national lawmakers); skepticism over the ability of Washington to govern given the results of the 2010 elections that raised the issue of whether "compromise or gridlock" would prevail: experience of a string of year-long brinksmanship politics resulting in unpopular compromises over tax cut-unemployment benefits' extensions last December, a March 2011 appropriations agreement avoiding a government shutdown, and an August deal that avoided a debt ceiling crisis by agreeing to increase the debt ceiling while making a $1 trillion cut in spending; recognition that neither party wanted to give up their best talking points as ammunition during the 2012 election cycle; or acknowledgement of fundamental Congressional differences over the vision for government and the interplay of federal revenue and spending policies in a post-recession economic environment, the public reached a conclusion born out by the super committee announcement yesterday-stalemate.
There are those that add to the list of the reasons for the collapse. Some believe timing of the recommendations before the 2012 elections was an issue. Others suggest that the composition of the super committee itself an issue and those members were subject to their own leadership's agenda, internal party politics, and differences between the way the two chambers operate as barriers to agreement. Some point to the lack of transparency of actual offers that were placed on the table and lack of public engagement over the possible solutions. Many believe the super committee was designed to fail because the so-called enforcement mechanism-automatic trigger-presented no real threat given the reversal by a future Congress and concerns over cuts in defense. Some believe the trigger as a "Sword of Damocles" should have been held closer to the head of Congress by going into effect in 2012, rather than leaving 13 months for an escape hatch until after the 2012 elections.
Most believe that the super committee was doomed because neither political party would give enough on their "sacred cows"-entitlements for Democrats and Bush-era temporary tax cuts on wealthier Americans for Republicans-to be able to reach an agreement, preferring to take their issues before the electorate in 2012. Democrats did place cuts in Medicaid, Medicare and other entitlement programs on the table. Republicans did place $250-$300 billion in increased revenues (although not all of that increase in revenue came from increases in taxes). The "blame game" has already begun and can be followed in media coverage.
ANCOR stands by its message of calling for a balanced approach to deficit reduction and that Congress should not cut Medicaid, especially in a slow-growth post-recession environment that adversely affects providers, states, and ultimately beneficiaries.
What's Next and What's the Impact on States?
The debate over the long-term fiscal outlook of the nation will continue. The 112th Congress could take action in 2012. No matter what Medicaid cuts and/or reforms were contained in the super committee's recommendations, ANCOR believed that they were only the first step in efforts to address budget deficits, federal spending, and entitlement reforms. Expect legislative activity in this arena in 2012 and as a part of the debates surrounding the 2012 elections. No matter the results of the elections, ANCOR expects greater focus in this arena in 2013. For now keep the following in mind:
1. The Budget Control Act has already authorized a total of nearly $2 trillion in cuts over the next 10 years to reduce the federal budget deficit.
2. The impact of the failure of the super committee to reach agreement may have some short-term positive affects on states.
- Nearly three-fourths of federal funding that states receive is exempted from the automatic cuts scheduled for 2013.
- Medicaid is exempt from the sequester cuts, so states largest expense will not receive less federal funding.
- Also exempt from automatic cuts are federal funds for the Children's Health Insurance Program, Temporary Assistance for Needy Families, Supplementation Nutrition Assistance Program, and highway programs.
- The other cuts in domestic discretionary funding will not take place until 2013, rather than 2012, providing states more time to build revenue.
- All total, about 75 grant programs of significance to states would be affected by the sequestration cuts. Education and community development and housing programs will be hit the hardest.
However, it is possible that Congress could change the legislation regarding the automatic cuts. Prior to the super committee's announcement yesterday, some members of Congress (Senators McCain (R-AZ) and Graham (R-SC), and House Armed Services Chairman McKeon (R-CA) have already stated that they would introduce legislation to alter the automatic trigger, thereby preventing future cuts on the grounds that $600 billion in cuts over 10 years to defense and Pentagon budgets were too much and a threat to the nation's security.
President Obama Says No. Following Monday's announcement, President Obama stated;I will veto any effort to get rid of those automatic cuts to domestic and defense spending. There will be no easy off ramps on this one. There is still plenty of time for Congress to act, and there are a range of issues that demand their immediate attention.
3. Action by the 112th or Next Congress. Congress, under its regular committee structure, could develop legislation to further reduce the budget. Senate Finance, House Ways and Means, and House Energy and Commerce could put forward legislation under their jurisdiction to make changes in Medicaid, Medicare, Social Security, and taxes. Senator Manchin (D-WV) has called upon Congress to take up the Simpson-Bowles recommendations to reduce the budget deficit-referring to the co-chairs of bipartisan commission created by the President that reported in December a series of recommendations that also failed to reach a consensus.
3. Busy Congress in December Igniting Same Dialogue. Expect an active and divided Congress this December. Lawmakers have yet to deal with several important matters that require attention before the end of the year, including another fix to prevent Medicare cuts to physicians (known as SGR) to take place in 2013; another extension in additional help to states on extending unemployment insurance benefits; and continuation of the employee payroll tax holiday run out. All of these measures would require cuts in other programs/increase in revenues to pay for the federal spending.
Medicaid is not off the hook!