Lawmakers on the special "debt-reduction committee" plan to announce that they failed to reach an agreement. They are expected to say that the panel can not agree on a deficit reduction of at least $1.2 trillion.
By Heidi Przybyla and Kathleen Hunter
Nov 21, 2011 10:07 AM MT
Lawmakers on a special debt- reduction committee are poised to announce they failed to reach agreement and dissolve congressional gridlock, kicking tax and spending issues into the 2012 election year.
Treasuries rallied while riskier assets declined as the congressional supercommittee’s deadlock spurred demand for safer assets.
Senator Jon Kyl of Arizona, a Republican on the 12-member panel, said on CNBC today the Republican and Democratic committee co-chairmen, Representative Jeb Hensarling of Texas and Senator Patty Murray of Washington, would make a formal announcement “toward the end of the day.” They are expected to say the panel can’t agree on deficit reduction of at least $1.2 trillion, triggering across-the-board cuts of the same amount starting in 2013.
“The next election certainly will have a big bearing on the question of what’s the scope and size of the federal government, and do we want to try to tax our way out of this or grow our way out,” Kyl said. There will be efforts to “ameliorate” effects of the cuts over the next year, he said.
Today is the panel’s deadline to receive a Congressional Budget Office analysis of the effects of any proposal on the deficit. The law requires that the estimates be available for 48 hours before the panel votes, and the supercommittee has a Nov. 23 target date for reaching a deal.
Senator John Kerry of Massachusetts, a Democrat on the panel, said lawmakers have a year before the automatic spending cuts are set to occur. “We have an election between now and then and a lot can take place,” he said in an interview on Bloomberg Television.
Kerry and Kyl were meeting this morning with three other members of the committee, according to a Democratic aide.
Treasuries rose, pushing yields to almost a six-week low. Benchmark 10-year notes advanced for the fifth time in six days as European stocks fell and government bonds from Spain and Italy declined amid concern the region’s leaders will struggle to fix the debt crisis.
The 10-year yield fell seven basis points, or 0.07 percentage point, to 1.95 percent at 11:05 a.m. New York time, according to Bloomberg Bond Trader prices.
Stocks tumbled, extending last week’s declines. The Standard & Poor’s 500 Index lost 2.4 percent, to 1,187.08 at 11:32 a.m. in New York. The Dow Jones Industrial Average plunged 332.60, or 2.8 percent, to 11,463.56.
Senate Republican leader Mitch McConnell of Kentucky has declared over the past few months that failure is “not an option” for the panel, which was created in August after rancorous debate over raising the nation’s borrowing limit that plunged congressional approval ratings to lows of between 9 percent and 14 percent.
Kerry told Bloomberg TV “the single thing” standing in the way of an agreement was Republican “intransigence” over extending tax cuts for top earners, enacted under President George W. Bush, that are scheduled to expire at the end of 2012. He said because those tax cuts would benefit the wealthy, “the vast majority of Americans do not think we should do” that.
Members of both parties blamed each other. Democrats faulted Republicans for refusing to budge on an anti-tax pledge and Republicans accused Democrats of rejecting an offer to raise revenue along with spending cuts.
Appearing yesterday on NBC’s “Meet the Press,” Kyl said Democrats turned down a final offer that included $250 billion in new revenue by eliminating some tax breaks even as it lowered income tax rates. “There’s a group of folks that will not cut a dollar unless we also raise taxes,” he said.
On the same program, Kerry called Kyl’s statement “patently not true” and said Democrats agreed to $917 billion in spending cuts with no new revenue as part of the August agreement to raise the debt ceiling. The latest Republican plan, said Kerry, “still results in the biggest tax cut since the Great Depression.”
The lack of a deal also would deprive President Barack Obama of a vehicle extending a payroll tax cut and insurance benefits for unemployed Americans, which expire at the end of the year.
The impasse pushes into an election year the difficult work of reaching a bipartisan deal to head off the automatic cuts that Defense Secretary Leon Panetta has called “devastating” for the Pentagon.
“We’re going to have to wait for the next election,” said Senator Christopher Coons, a Delaware Democrat who appeared on ABC’s “This Week” program.
“I never thought the supercommittee was a good idea,” said Florida Senator Marco Rubio, a Republican who appeared on the same program.
The supercommittee was designed to be the solution to more than a year’s worth of failed bipartisan efforts to strike a “grand bargain” to drive down the debt. Obama’s fiscal commission last December didn’t agree on a $4 trillion package, pushing the work off to a group led by Vice President Joe Biden and bipartisan members of Congress.
The president and House Speaker John Boehner ultimately took over those negotiations, before delegating the task to the supercommittee.
With an eye to congressional approval ratings that began to sink to as low as 13 percent in a mid-August Gallup poll, Republicans insisted that the committee would deliver.
“This joint select committee was set up to succeed,” McConnell said to reporters Nov. 1.
Republicans may shoulder more blame for the panel’s failure. According to a Nov. 11-13 CNN poll, 42 percent of respondents said they would hold Republicans responsible for failure, with 32 percent saying they’d blame Democrats. The margin of error was three percentage points.
The debate in Washington will now focus on the so-called trigger and the automatic cuts slated to start in 2013.
Congress has a history of undoing previous attempts to require debt reduction, and lawmakers on both sides of the aisle, including Senator John McCain, an Arizona Republican, and Representative Maxine Waters, a California Democrat, are already trying to use legislative levers to stop the automatic cuts from taking effect.
Supporting the Trigger
Boehner, an Ohio Republican, and House Minority Leader Nancy Pelosi, a California Democrat, have said they support the trigger. “The markets should know that the deficit reduction will occur,” Pelosi said on Nov. 3. Boehner has said he “personally” feels a moral obligation to uphold the cuts.
U.S. credit rating companies have made it clear that, while a failure of the supercommittee might not lead to a credit downgrade, undoing the automatic cuts probably would. Moody’s said the lack of a supercommittee agreement wouldn’t on its own cause the U.S. to lose its top credit ranking because the August debt-ceiling deal includes $1.2 trillion in automatic cuts.
Last month, John Chambers, a managing director of Standard & Poor’s, said the U.S. could face additional downgrades if Congress attempts to thwart the across-the-board cuts.
Instead of dismantling the trigger, Congress is more likely to look for ways to reconfigure the blend of defense and domestic cuts.
“They’re done in a way that would be very harmful to our nation’s defense,” Senator Pat Toomey, a Pennsylvania Republican on the panel, said yesterday. “It’s very important that we change the configuration but that we not abandon the spending cuts.”
If the current trigger remains, the consequences of failure will fall disproportionately on discretionary programs, with the Congressional Budget Office estimating that 71 percent would come from these programs such as education, the environment, transportation, housing assistance and veterans’ health care. The cuts would come in addition to the first round of cuts as part of the Budget Control Act.
Meanwhile, with the U.S. jobless rate at 9 percent, Congress and the president must now decide whether to extend an expiring payroll tax cut, which could further roil the economy.
To contact the reporters on this story: Heidi Przybyla in Washington at firstname.lastname@example.org; Kathleen Hunter in Washington at email@example.com
To contact the editor responsible for this story: Mark Silva at firstname.lastname@example.org
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