–Committee For Responsible Federal Budget: Big Deal Would Fix Problem
–Large Deal Allows For Entitlement, Tax Tradeoffs
–Plan Imposing ‘Shared’ Sacrifice Easier To Swallow

By John Shaw

WASHINGTON (MNI) – Pondering the complex and often counterintuitive
world of U.S. fiscal politics, the Center for a Responsible Federal
Budget argues in a new policy paper that it will actually be easier for
Congress to assemble and pass a deficit reduction package of about $4
trillion over ten years than a much smaller deficit cutting plan of
between $800 billion and $1.2 trillion.

The budget group says a larger plan would be more politically
salable because it would require both parties to make major concessions,
promote a sense of shared sacrifice, and provide the not insignificant
benefit of actually putting American fiscal policy on relatively sound
footing.

“The benefits of a comprehensive fiscal plan that stabilizes and
reduces debt this decade and continues to do so over the long-term are
numerous,” it said.

“A large enough package would buoy business, market, and consumer
confidence — both from an improved economic outlook and renewed faith
in the U.S. political system to address critical challenges. A stable
and declining debt path could significantly strengthen the economy over
the long-term, as falling public borrowing needs made way for greater
private sector access to capital,” it added.

The Center For a Responsible Federal Budget argues that a $4
trillion deficit reduction plan would be easier to pass than an $800
billion plan for three central reasons.

First, a comprehensive deal would require the parties to “put
everything on the table” and force the necessary political tradeoffs
needed to undertake both tax and entitlement reforms. Currently,
Democrats will not even discuss entitlement reform unless Republicans
agree to discuss tax reform and additional revenuers. A large deal would
make this possible.

Second, a comprehensive agreement would require “shared sacrifice”
in which virtually all Americans would have to give up something.
However, a smaller deal would generate opposition from constituencies
and interest groups who would feel singled out, it said.

“A small package of savings would be comprised of provisions which
have savings that are relatively modest in the context of the overall
size of the deficit, but which nonetheless are likely to generate
intense opposition from affected constituencies,” the budget paper
argued.

Finally, a large agreement would stabilize the public debt and
improve global and business confidence that the U.S. political system
can still work.

Crunching numbers, the Center For a Responsible Federal Budget said
an $800 billion deficit reduction agreement would put the nation’s debt
to ratio in 2021 at between 78% and 79% while a $4 trillion deal would
drop it to between 65% and 69%.

The budget group said a smaller package could easily prompt
additional debt downgrades for the U.S. by rating agencies who conclude
that the American political system is not able to put fiscal policy on a
sustainable course.

“The American public is hungry for a grand bargain. They want an
agreement that truly solves the problem, not another deal to kick the
candy down the road,” the budget group said.

Congress’ Joint Select Committee on Deficit Reduction is charged to
submit a report to Congress by Nov. 23, 2011 that reduces the deficit by
between $1.2 trillion and $1.5 trillion for the 2012 and 2021 period.

The final package, if one is agreed to by the majority of the
panel’s 12 members, must be voted on without amendment by the House and
Senate by Dec. 23, 2011.

If the panel fails to agree on a spending cut package or Congress
rejects its plan, a budget enforcement trigger would secure $1.2
trillion in budget savings through across-the-board cuts.

The cuts would be equally divided between defense and non-defense
programs but would exempt Social Security, Medicaid and low-income
programs.

Analysts have said that the deficit reduction panel needs to submit
its recommendations to the Congressional Budget Office by early November
so the package can be scored by Nov. 23.

** Market News International Washington Bureau: (202) 371-2121 **

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