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American Shipper

Transportation caught in supercommittee failure

    The 12-member congressional “supercommittee” tasked last summer with identifying at least $1.2 trillion in spending cuts during the next 10 years officially declared failure on Monday, setting the stage for automatically triggered cuts that will affect the entire government, including the Department of Transportation.
   The joint committee of senators and congressmen was required by last summer’s Budget Control Act to approve a bill by Nov. 23, which would go to Congress for a straight up or down vote with no amendments and no Senate filibuster allowed. In recent days there were signs that members of the committee were prepared to compromise, but they were constrained by their respective caucuses with Republicans refusing to budge on new taxes for the wealthiest Americans and closing corporate tax loopholes, and Democrats unwilling to allow cuts to entitlement programs like Medicaid unless there was a revenue component to the deal.
   The Budget Control Act was enacted to enable the president to raise the federal debt ceiling. It is projected to save $917 billion over a decade through cuts and caps on annual appropriations.
   “When times are tough, Americans have always come together to accomplish big things. It’s disappointing that some in Congress haven’t been willing to do the same. Because the supercommittee failed to reach an agreement, we now face across-the-board cuts to programs that are critical to rebuilding our crumbling transportation infrastructure and putting Americans back to work,” Transportation Secretary Ray LaHood said in a written statement.  
   Congress is debating how to reauthorize federal surface transportation programs, which are under pressure from declining fuel tax receipts. Congress in recent years has had to transfer $35 billion from the U.S. Treasury’s General Fund to prop up the Highway Trust Fund because obligations to states for highway and transit projects exceeded the amount being collected from highway users. The last multi-year spending plan expired more than two years ago and programs are being funded through temporary extensions with accounts frozen at prior-year levels.
   President Barack Obama warned congressional Republicans he would veto any attempt to circumvent the automatic spending cuts set to take effect more than a year from now and urged Congress to find a balanced approach to reducing the deficit after it returns from the Thanksgiving holiday.
   Many experts worry that the failure to tackle the budget deficit could lead to a downgrade of U.S. credit and higher interest rates, and roil financial markets in part because of political gridlock that has investors worried that Washington cannot address its problems.
   But there remains a deep disbelief among many in Congress that the deficit supercommittee’s failure to come up with spending cuts will have any real consequences because they see the Dow Jones Industrial Average higher now and the 10-Year Treasury bond trading at 2 percent when it previously was at 3.4 percent and analysts warned that interest rates would go up, Steve Bell, senior director of the Economic Policy Project at the Bipartisan Policy Center said last week at an Eno Transportation Foundation workshop on transportation funding.
   He predicted at the time that there would be a last minute deal “on the courthouse steps” leaders on both sides wanted one.
   The spending cuts in August and the automatic cuts scheduled to go into effect after next year’s election come from discretionary appropriations when experts agree that entitlement programs like Social Security, Medicaid and Medicare will explode the budget in the next 40 years as the Baby Boom Generation ages.
   “You’re attacking 30 percent of the problem with 100 percent of the solution,” Bell said.
   By 2031 the ratio of U.S. debt to Gross Domestic Product will exceed 100 percent. Greece, which is on the verge of economic collapse, has a debt-to-GDP ratio of 136 percent.
   The U.S. government is on track to get to that point because spending as a percent of GDP continues to rise while revenue stays flat, according to Congressional Budget Office projections.
   The Bipartisan Policy Center has proposed a plan for tax and entitlement reform that will save $5 trillion over 10 years, which would mean the federal debt would only be $21 trillion instead of $26 trillion by 2021, but will stabilize the debt at about 65 percent of anticipated GDP. In the short run, it recommends a one-year payroll tax holiday for employers and employees that will inject $640 billion into the economy. 
   President Barack Obama, as part of his $447 billion jobs plan, is pushing Congress to extend last year’s payroll tax cuts that are due to expire at the end of 2011.
   Bell said restoring the health of the economy is the most important task now. 
   “If you don’t have growth over 1.75 percent per year, you won’t be able to accomodate new entrants into the work force,” he said. Growth closer to 2.75 to 3 percent is required to take care of new entrants and create jobs for the unemployed and under employed.
   The government estimates that the U.S. economy grew 2 percent in the third quarter, 1.3 percent in the second quarter and 0.4 percent in the first quarter.  — Eric Kulisch

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