Former Treasury official: 'Grand bargain' to avert cuts unlikely

There will be no "grand bargain" between Democrats and Republicans on staving off nearly $500 billion in automatic defense cuts when Congress comes back to Washington next month, according to a former White House official. 

"We're not going to have grand bargain. You can tell from this debate just how highly politicized everything has become," Neil Barofsky, the Treasury official who oversaw the Wall Street bailout, said Sunday during a roundtable appearance on CNN's "State of the Union."

Given the fragile nature of the U.S. economy, still recovering from the financial meltdown that made the federal bailouts necessary, the defense cuts under sequestration would shatter the economic progress made over the past few years, he said.

"We can't have massive spending cuts on defense or otherwise at this point in our economic recovery, and we are going to have to re-look at this," said Barofsky.  

There seems to be little room for compromise on Capitol Hill over impending defense cuts to be triggered under sequestration, with both sides becoming further entrenched in their positions on how to avert the cuts. 

GOP lawmakers have been adamant that any alternative plan to the defense cuts must not include tax increases, and the funds to pay for defense should be drawn from cuts elsewhere in the government budget. 

Congressional Democrats say offsetting cuts elsewhere would disproportionately hit social welfare programs including Social Security and Medicare, and have called for generating more federal revenue via tax increases. 

"At the end of the day, we hear a lot of talk about defense spending, but, once again, not a willingness to pay for it. It's like putting the two wars on our national credit card," Rep. Chris Van Hollen (D-Md.) said of the GOP position during the same roundtable. 

In May, Van Hollen and several other House Democrats proposed a plan to cut government farm subsidies and end federal payouts to oil companies as a way to pay for defense cuts under sequestration. 

The plan was shot down by the GOP-controlled House. Instead, House Republicans passed a measure calling for sharp cuts to the federal food stamps and national school lunch programs, and limits to Medicaid payments to pay for the defense budget cuts. 

The GOP plan, which was approved by a party-line vote of 233-183, has little chance of being called for a vote in the Democrat-controlled Senate. 

Staunch fiscal conservative Grover Norquist, founder and president of Americans for Tax Reform, said Sunday the key to salvaging defense was not in raising taxes or cutting social welfare. 

Savings can be made by the Pentagon, but DOD officials need to take a closer look at their own books for areas to reduce or cut out spending altogether, he said.

"Defense spending is not magic. Just because it's defense doesn't mean you shouldn't question it and you shouldn't figure out how to spend it more effectively and more efficiently," he told CNN. "There are ways to save money, and we ought to look at those." 

DOD had already implemented, under former Defense Secretary Robert Gates, measures to tighten the Pentagon's budget belt before the debt-ceiling deal that spawned sequestration was passed last year. 

Norquist is a polarizing figure in the ongoing defense sequestration debate. Several top Democrats, including Senate Armed Services Committee Chairman Carl LevinCarl Milton LevinHow House Republicans scrambled the Russia probe Congress dangerously wields its oversight power in Russia probe The Hill's Morning Report — Sponsored by CVS Health — Trump’s love-hate relationship with the Senate MORE (D-Mich.), have blamed him for blocking any compromise within the GOP for revenue increases. 

A slew of Republican lawmakers, including many Tea Party members in the House, have signed Norquist's Taxpayer Protection Pledge. 

The pledge opposes any and all tax increases for individuals and businesses, as well as any reductions in tax credits without matching reductions in tax rates. 

"That is an extreme position," Levin said during a June speech at the National Press Club, adding that such a stance would make reaching an alternative sequestration deal nearly impossible.