Is Washington -- a city that almost never takes a direct path when a circuitous route will do -- inching toward a major deficit reduction plan on the order of $4 trillion? It could be, if two influential lawmakers are any indication.
U.S. Rep. Xavier Becerra, D-Calif., who voted against President Barack Obama's debt commission in 2010, said he is prepared to back a major deficit reduction package this year, if about one-third of the gap is closed with higher revenue, Bloomberg News reported Sunday.
Meanwhile, U.S. Rep. Mike Simpson, R-Idaho, who sits on the House Budget Committee, said he is willing to accept tax increases as part of a major deficit-reduction package.
Becerra and Simpson appeared on Bloomberg Television's Political Capital with Al Hunt.
More Evidence of Support for Large Package
The statements from Becerra and Simpson represent the second data point of consequence regarding a larger deficit reduction package than the $1.2 trillion deficit reduction charge Congress has given the super committee. The committee must complete its work by Thanksgiving, or automatic deficit reduction measures kick in. The super committee was created by the Budget Control Act of 2011, part of the debt ceiling deal in August.
Last week, 40 House GOP members, including conservatives like Ron Paul of Texas, joined 60 Democrats calling for the super committee to put revenue on the table, thehill.com reported.
House Speaker John Boehner, R-Ohio, also signaled Sunday that a $4 trillion reduction package may have a decent chance at becoming a reality.
I believe that we can create revenue out of fixing our tax code, and bring that revenue to the table, as long as our colleagues on the other side of the aisle are serious about cutting spending, Boehner said Sunday on ABC's This Week.
Obama's National Commission on Deficit Reduction, led by former U.S. Sen. Alan Simpson, R-Wyo., and former Clinton White House Chief of Staff Erskine Bowles, has said that at least $4 trillion in deficit reduction is necessary to put the nation's finances on a path toward fiscal sustainability. That 10-year plan, technically $3.9 trillion, called for roughly $2.2 trillion in spending cuts, $673 billion in reduced interest payments, and $1 trillion in tax increases.
Political/Public Policy Analysis: One could look at the above chatter in two ways. On the one hand, one could argue that the level-headed members of each party are finally coming to the forefront after the ideologues could not demonstrate a viable deficit reduction plan.
On the other hand, one could argue that events in Europe are getting congressional lawmakers to focus. Not a week after the European Union announced an intervention package for debt-plagued Greece, the bond vigilantes appear to be turning their attention now to Italy, which has $2.8 trillion in debt. The bond vigilantes have already pushed interest rates on Italy's 10-year bond over 6.20 percent -- and that's approaching the 7 percent level that many economists say will make it impossible for Italy to service its debt.
Economist Ed Yardeni, who now runs Yardeni Research Inc. of Great Neck, N.Y., coined the term bond vigilantes in the 1980s to describe the institutional investor practice of selling bonds and shorting bonds of governments when they see unsustainable fiscal policies and/or other actions by governments or companies that the institutional investors believe will lower the value of the bonds issued.
So far, the bond vigilantes have not turned their attention to the United States, but if they do, the U.S. will have to impose both draconian federal spending cuts and tax increases, and one could make an argument that recent talk of a $4 trillion package is Congress sensing the approach of these institutional investors.