Image: Former Sen. Alan Simpson (R-WY) (L) and former White House Chief of Staff under the Clinton Administration Erskine Bowles (R)
Alex Wong  /  Getty Images
Former Wyoming Sen. Alan Simpson, left, and former White House Chief of Staff Erskine Bowles, co-chairs of the National Commission on Fiscal Responsibility and Reform, will testify before the Joint Select Committee on Deficit Reduction Tuesday.
By Tom Curry National affairs writer
msnbc.com
updated 11/2/2011 9:26:36 AM ET 2011-11-02T13:26:36

In less than three weeks, you’ll be buying the Thanksgiving turkey and the Joint Select Committee on Deficit Reduction — “super committee” in Washington, D.C. speak — will deliver its plan to cut future deficits by at least $1.5 trillion over 10 years.

Or it will fail and promptly go out of business.

The committee, composed of six Democrats and six Republicans, half from the House, half from the Senate, was created as a product of the Budget Control Act, the August deal in Congress to resolve the debt ceiling impasse.

Story: The supercommittee on deficit reduction

"Nothing would send a more reassuring message to the markets than taking bipartisan steps to fix the structural problems in Medicare, Medicaid, and Social Security," House Speaker John Boehner said Monday as he urged the committee to come up with a plan.

If the committee can’t do that by Nov. 23, Thanksgiving Eve, then $1.1 trillion in automatic spending cuts over the next 10 years are supposed to start taking effect on Jan. 2, 2013.

In the first year, the automatic cuts mandated by the Budget Control Act would be about $54 billion, an amount equal to about 1.5 percent of FY2011 federal outlays.

But the cuts would bear heavily on defense spending, since Congress put most of the other big chunk of the budget, entitlement spending on Medicare, Medicaid, and Social Security, off-limits to the automatic chopper.

The cuts would get bigger as the 10-year plan proceeded if — and it’s a big “if” — Congress allows it to stay in effect.

Will Congress undo automatic cuts?
While we’ll know by Thanksgiving whether the committee will have succeeded in devising its own plan, it will take longer to find out whether Congress, having created the committee and backed it up with fail-safe spending cuts, will decide that it would rather not allow those cuts to take place after all.

On Tuesday afternoon, committee members heard from the authors of two deficit cutting plans that have been on the table for months.

Video: Kenneth Langone One-on-One (on this page)

One plan was devised by the Simpson-Bowles fiscal commission appointed by President Obama in 2010, and the other by the Bipartisan Policy Center, spearheaded by former New Mexico Republican senator and Budget Committee chairman Pete Domenici and former Congressional Budget Office head Alice Rivlin, a Democrat.

Domenici warned members that if those Republicans who oppose tax increases combine with those Democrats who oppose cuts in entitlement spending to block a deficit-cutting blueprint, they are "both complicit in letting America destroy itself."

In the first hour of the hearing, committee members gave few indications of where their bargaining was headed, or whether they’d found areas of agreement.

A warning on tax reform
Committee member, Sen Max Baucus, D-Montana, cautioned that “What’s (tax) reform to one might not be reform to another.”

Baucus said of the $1.1 trillion in tax credits and other preferences, which the Simpson-Bowles report proposed to scrap or shrink: “I think it’s important for everyone to know that only about $200 billion of those are itemized deductions, the rest are other tax expenditures which includes the employer-provided health insurance, for example...”

“So if the proposal is to repeal them all in return for lower (tax) rates and deficit reduction, people have to realize what that means,” Baucus warned. “A lot of people have relied on those provisions: employees have, because that’s income that’s not taxed….”

Baucus indicated he favored turning over responsibility for writing specific tax reform measures to the committee he chairs, the Senate Finance Committee, and to the House Ways and Means Committee, since there is so little time left to meet the Nov. 23 deadline.

Panel member Senate GOP Whip Jon Kyl, R - Ariz., argued that raising the tax on capital gains, as recommended by the Simpson-Bowles commission, would harm economic growth.

“Higher capital gains taxes mean … a higher cost of capital, less activity in the capital markets and less economic growth,” he said. It would “make our deficit problem worse.”

He reminded his colleagues that the health care law Congress passed last year already increases taxes on dividends and capital gains by 3.8 percent

The Simpson-Bowles plan should be all too familiar to four members (two Democrats and two Republicans) of the super committee since they also served on the Simpson-Bowles commission, but voted against its final recommendations.

If you look at what those four “no” voters said about the Simpson-Bowles plan, you will find clues as to why there has been so much bipartisanship — that is, bipartisan rejection of deficit cutting.

“If I believed that the increased revenue would actually be used for deficit reduction, you know, I might reluctantly come to the table, in a global agreement," said Simpson-Bowles commission member (and deficit reduction committee co-chairman) Rep. Jeb Hensarling, R-Texas last December, before voting against the commission's recommendations.

Video: Financial warnings (on this page)

Hensarling cited the lesson he took from President Reagan's agreement to raise taxes in 1982: “Somehow the spending restraint never quite materializes, and yet the increased revenues do, and it seems like the increased revenues simply chase the spending.”

Democrat: Go back to Clinton Era tax rates
Another Simpson-Bowles commission member who voted “no”, California Democratic Rep. Xavier Becerra, faulted the panel for not endorsing a return to the income tax rates which prevailed under President Bill Clinton. “This approach does not require a single vote in Congress to take effect,” he noted. “Who says the only real solutions are complicated and opaque?”

The committee hearing Tuesday comes in the wake of last week’s offer by some of the Democrats on the committee of a plan to cut Medicare and Medicaid by as much as $500 billion over ten years while increasing taxes. Republicans rejected that offer while offering their own plan more weighted toward entitlement spending cuts.

Referring to the Democrats on the committee, AFL-CIO president Richard Trumka said in a conference call with reporters Monday, “I told them that this is the wrong direction to go in.” He added, “I was surprised to see some of the suggestions coming out from the Democratic side.”

Trumka said the labor union confederation might balk at supporting members of Congress running for re-election next year who end up voting for cuts in entitlement spending.

Organized labor is unhappy
“I would have a tough time envisioning us endorsing people who actually voted for major cuts to Social Security, Medicare or Medicaid,” he said. “That would have a dampening effect on any candidate, even if they were endorsed (by organized labor) and it would make our job significantly more difficult in mobilizing our members around a candidacy of a person who voted for cuts in Social Security, Medicare, or Medicaid.”

Some outside observers expect little to result from the super committee’s labors.

“Look, it’s a charade,” said investment banker Kenneth Langone, a supporter of former Massachusetts Gov. Mitt Romney's presidential campaign, on CNBC Monday.

Referring to the cold shoulder that Obama and most members of Congress gave to the Simpson-Bowles blueprint, Langone asked, “What happened with Simpson-Bowles? There was a perfect one; that was a home run! And they could all say, ‘look, here’s two bipartisan guys knowledgeable on the situation, no ax to grind, no re-election, none of that.’ And guess what? Nothing happened. Why is this any different?”

With Eurozone nations going through their own debt trauma right now, investors are paying much closer attention to European sovereign debt than to that of the United States, said Nigel Gault, the chief U.S. economist for economic consulting firm IHS Global Insight.

“It’s not the case that U.S. bond market is demanding huge cuts in spending or huge tax increases here in the United States,” he said, but bond market investors do want to see a credible long-term plan to reduce federal deficits.

“The problem would come if nothing eventually replaces the automatic cuts,” he said.

© 2013 msnbc.com Reprints

Video: Financial warnings

  1. Closed captioning of: Financial warnings

    >>> and spent the last six months telling that with the package to the american people ?

    >> 80% of the american people support an approach that includes revenues and includes cuts. so, the notion that, somehow, the american people aren't sold is not the problem. the problem is, members of congress are dug in ideologically.

    >> less than four months later and here we go again, a congressional panel is now up against a hard deadline to deal with the deficit. today, members of the super committee will hear from the two men who know a thing or two about it. let's bring in the co-chairs of the president's fiscal commission, former u.s. senator allan simpson , a republican, and former chief of staff to president clinton , erskine bowles , the democrat. have you decided who gets top billing ? depend on the day?

    >> we go on with our family and friends who are very kind to us.

    >> and that's it?

    >> yeah, that's it.

    >> all right, mr. bowles, let me start with you. the president's inability to take it -- you know, people don't know this, you actually have to go to whitehouse.gov to see your report, right?

    >> yeah.

    >> so it's on the white house website if he does not sell this. how frustrating has it been that the president didn't own this and just sell it, even though he asked you guys to do this?

    >> it's been really frustrating, and i think it's been a shame, because i think the people want to see the country come together, to pull together, rather than pull apart. i think they want to see something real, something of substance. i think they want to see something that makes sense. we propose $4 trillion in deficit reduction. we didn't propose that because the number four bus went down the road. we proposed it because that's the minimum amount you have to reduce the deficit over ten years in order to stabilize the debt and get it on a downward path as a percent of gdp. he knows that and he knows it's what we have to do for the country and that's what we're going to talk to this super committee about today.

    >> and senator simpson, the republican plan that was released from the republican half of the super committee only said there's $1.5 trillion in cuts and it's almost like they have blinders on. if they could come up with $3 trillion in cuts only, they probably would have, but they politically can't, but they don't want to talk about how to get the other half, and we know what that probably is, which is taxes.

    >> yeah, but you don't have to call it a tax hike. when we dug in there and found the shocking thing of $1,100,000 $1,100,000,000, spending by any other name. and if you knock off as coburn tried to, get rid of 6 billion bucks of ethanol --

    >> you saw what grover norquist did to him.

    >> grover norquist .

    >> did i say the magic word ?

    >> if he's the most powerful man in america, elect him president. this is a good guy with a bad idea. he gathered up all these signatures when there were roses in the pathway. and to think that a person would sign a pledge to do anything before they've heard the debate, reviewed the thing, done their homework, done their research, that is not the way you legislate, and he's got them. if he's got them and he can't murder you, can't burn your house. the only thing he can do is defeat you for re-election. and if that means more to you than your country, you shouldn't be in congress.

    >> i want to play you this aarp ad that's been running recently, that is -- i'm sure both of you guys have an opinion on. here's a clip.

    >> but i am a voter. so, washington, before you even think about cutting my medicare and social security benefits, here's a number you should remember, 50 million. we are 50 million seniors who earned our benefits, and you will be hearing from us today and on election day .

    >> that's a full-fledged threat.

    >> you bet it is. it's an arrogant, it's an arrogant bunch of people where the leadership at the top are not patriots, they're marketers. and i wonder what they got paid to do that and all the people around him. the aarp, if we can't get past the aarp, and they have done nothing, so they -- let's run the ad backwards and say you don't want to do anything with the solvency of social security , then pal, you take the heat in 2036 when you waddle up to the window and get a check for 23% less. try that one.

    >> i disagree with alan completely. you know, as a democrat, what i'm supposed to be for is making sure we take care of the truly disadvantaged. if you look at our plan, that's exactly what we do. and what i can't understand is how people in my party can oppose making social security sustainably solvent, so it actually will be there and improving the payout --

    >> but when it was a rumor, and my own reporting, he was putting, he was tip-toeing to the line on doing some social security reform , but it was getting close to a nixon/china moment, and his party was ready to throw him under the bus.

    >> that's my party, and i've talked to lots of people in my party, and what people want is the truth. social security will run out of money in 2036 , and there will have to be, under current law, a 22% cut in what the benefits are. we can either face up to that and make it sustainably solvent, or we can let it run out. what we said is let's make it there for 75 years, for sure. let's make it sustainably solvent, and let's improve the payment, let's give a bump-up to the people who are truly disadvantaged.

    >> what's your conversations been like with mitch mcconnell and john boehner ?

    >> i don't know, i'm not there, but i know they're both a couple of tough guys. and i know mitch quite well. he and i were in the senate together.

    >> right.

    >> and i think he's putting a lot of pressure on his people --

    >> too much pressure, you think?

    >> i don't know. he's a master. you don't want to ever sell mitch short, but i think at some point in time, if you look like you're "wavering" in a ghastly way, you could end up being the ranking member of the journal committee.

    >> it does seem to me, though, that this fear of, for instance, both senate leaders, mcconnell and reid, didn't like it when the gang of six got together, which was sort of, frankly, a senate version of what you guys were trying to do. if you had both members of the leadership -- now, i'd argue you're elected leadership to get into the majority, period. that's your job, and until that changes to getting rewarded for governing, i don't know how to fix this. but what do you do?

    >> you know, i think you're elected to leadership to lead. and that means doing what's right for the american people , not necessarily what's right for democrats or republicans. and what's right for this country is to solve this long-term fiscal problem. we face the most predictable economic crisis in history. the fiscal path we are on is not sustainable. they know it and they've got to stand up to it. we've simply made promises we can't deliver on.

    >> is there any, you know, if the voter isn't going to reward it, though, what do you do?

    >> i don't know, but i took on all those groups. i held a hearing on the aarp when i was an active u.s. senator . they were furious. i took on the professional veterans. they were furious. i mean, the guys who have been in combat never showed up at the debates. some guy who never left camp bailey or doesn't know mortar from either end is up, they're bleeding all over the floor, while the real guys who fought the battle don't get in there. so, if you can't take those people on, you shouldn't be in congress. if you can't wade through emotion, fear, guilt and racism and get to the nut of things. and the reason erskine and i are heard in the land like the voice of the turtle is we don't do bs and we don't do mush.

    >> all right. i'm going to have to leave it there. senator alan simpson , erskine bowles , wearing your carolina blue . could be a little wyoming blue and gold, right?

    >> probably, although we're coming back. [ everyone talking at once ]

    >> all right, it was an

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