Deficit hawks say downgrade shows need for grand bargain on debt

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The Concord Coalition’s Bob Bixby told The Hill that the S&P downgrade increases the chances the committee will go beyond its mandate. “They are going to look silly if they do not,” he said.

“It really does need to go beyond the limited goal it has been given. That doesn’t satisfy anybody,” he said. Entitlements and tax reform need to be on the table, he said.

“If you going to open that Pandora’s Box, you might as well go beyond $1.5 trillion,” he said. He praised S&P for finally saying the emperor has no clothes.

Even if Gang of Six members are not chosen and supercommittee members are beholden to party election agendas, the threat of further downgrades still could overwhelm political pressure and produce a deal, Bixby said.

Former Clinton budget director Alice Rivlin and former Republican Sen. Pete Domenici (N.M.) in a letter to congressional leaders on Monday urged them to seek a grand bargain including entitlement reforms and tax increases. Such reforms would allow the supercommittee to find greater deficit reduction than the $1.2 trillion currently envisioned.

Rivlin and Domenici last fall produced a compromise plan similar to the Bowles-Simpson fiscal commission plan that reformed entitlements, including Social Security, while simplifying the tax code and raising new revenue to reduce the debt. 

“This committee has a historic opportunity to come to a broad bipartisan solution that will control debt and ensure America’s future prosperity,” they wrote. “We hope that this committee of twelve members of Congress can build on the recommendations of the Bipartisan Policy Center’s Debt Reduction Task Force, which we proudly co-chaired, as well as the President’s Commission on Fiscal Responsibility and Reform.

“We believe that the Congress, through the cuts they have already approved, fully meets the recommendations our task force made in discretionary appropriations accounts. We strongly urge the Joint Select Committee to now move beyond these accounts and to the real drivers of our debt crisis — revenues and entitlements."

They also called for a large payroll tax holiday to spur short-term growth.

Maya MacGuineas from the Center for a Responsible Federal Budget said in an opinion piece on CNN.com if the supercommittee goes big, the U.S. will win back its AAA rating from S&P.

“Congress must pass and President Obama must sign a plan this year that generates these trillions in savings. Not next year when more downgrades may have come. And not after the election when politicians will have dug themselves deeper into unworkable promises and a full-blown market crisis could have kicked in. This year,” she said.

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MacGuineas called for Social Security and Medicare reform, including the possibility of the "premium support" style reform backed by the House GOP.

“Tax reform is a no-brainer. Getting rid of the hundreds of billions of dollars in regressive tax breaks would allow us to lower rates and generate more revenue to close the deficit,” she said. “If we do all of this, we'll win back the heart of Mr. AAA by the end of the year. I would bet my dwindling retirement account on it."

As currently structured, the supercommittee is to find at least $1.2 trillion in cuts by Nov. 23. If the group fails to do this, defense and non-defense spending will be cut automatically. The supercommittee cuts come on top of discretionary spending caps cutting spending by $917 billion over 10 years, signed into law last week.

S&P has judged the supercommittee’s level of cuts insufficient to stabilize the national debt and wants $4 trillion in total deficit reduction over 10 years at least. Democrats have said that without some tax revenue, they are unwilling to cut entitlement benefits. The GOP has said tax increases cannot pass the House, where most members have signed Americans for Tax Reform's pledge to not raise taxes.