Panel's inability to cut debt deal reflects divide
WASHINGTON -- The failure of Congress' "supercommittee" to propose even one dollar in deficit reduction has left Capitol Hill without a strategy for tackling the nation's spiraling debt — and left several trillion-dollar spending and tax issues that must be resolved as soon as next month.
The Joint Select Committee on Deficit Reduction announced Monday it could not come up with the minimum $1.2 trillion of deficit reduction required under its mandate, much less the $4 trillion that deficit hawks said was necessary to help stabilize the finances of the U.S. government, whose debt has topped $15 trillion.
The collapse of the 12-member bipartisan panel's negotiations rattled the financial markets and set the stage for mandatory cuts to defense and domestic programs that would begin in 2013 — after next year's presidential and congressional elections.
It ensures that the fiscal debate that has paralyzed Washington — between Democrats who want to protect expensive social programs and increase revenue by raising taxes on the richest Americans; and Republicans who want to trim government and have steadfastly rejected tax increases — will be a fundamental choice confronting voters in 2012.
For now, the panel's inability to reach a deal leaves Congress with a range of unfinished budget items that could have been part of a larger bargain over federal taxes and spending.
Social Security payroll tax cuts expire at the end of the year, meaning taxes could go up nearly $1,000 annually for someone who makes $50,000. More than 1 million unemployed workers could lose their jobless benefits beginning in January, when those benefits are scheduled to expire. Medicare reimbursement rates for doctors will be cut 27% unless Congress steps in by the end of the year, leaving many seniors without a doctor. And Congress has three weeks to pass nine spending bills to keep most of the federal government operating.
The supercommittee was borne of the last legislative debt crisis in August, when Congress had to raise the federal debt limit beyond $14.3 trillion or risk default. As part of a compromise plan to cut about $1 trillion over 10 years, congressional leaders appointed the panel to come up with at least $1.2 trillion more in cuts.
The plan came with a backup scenario: If the supercommittee failed to come up with those cuts, automatic across-the-board reductions would kick in, trimming $1.2 trillion over nine years starting in 2013. All areas of discretionary spending would be targeted equally.
The threat of the mandatory cuts wasn't strong enough to dislodge panel members from their entrenched positions. With a Wednesday deadline looming, the panel's demise appeared inevitable after a weekend of finger-pointing by both sides on Sunday talk shows. It became official in a 270-word statement from the supercommittee's co-chairs Monday afternoon.
"After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee's deadline," Rep. Jeb Hensarling, R-Texas, and Sen. Patty Murray, D-Wash., said in their statement.
The co-chairs spent most of the statement thanking committee members, staffers and "the American people for sharing thoughts and ideas and for providing support and good will as we worked to accomplish this difficult task."
Reactions began even before the supercommittee raised the white flag.
The major stock indexes lost about 2% during Monday trading. Republican presidential candidates churned out statements blaming President Obama and reiterating their opposition to the supercommittee in the first place. Interest groups on both sides sighed with relief.
Grover Norquist of the Americans for Tax Reform — the man many Democrats blame for the impasse because of his efforts to extract no-new-taxes pledges from Republican lawmakers — said no deal was "better than a tax hike or phony cuts."
The American Association for Retired People called the failure "regrettable," but David Certner, the group's chief lobbyist, said no package was better one that included deep cuts to retiree health care. "We'd rather have a good package."
Obama: 'No easy off-ramps'
Even as the supercommittee tried to work toward a deal, some members of Congress said they would seek to turn off the automatic triggers for cuts that would begin in 2013.
Obama said Monday he won't allow that to happen.
"My message to them is simple: No," he said, threatening to veto any attempt to relieve the pressure on Congress caused by the looming cuts. "There will be no easy off-ramps on this one."
Obama, who said supercommittee Republicans' unwillingness to consider any tax increases left little hope for a deal, said there's nothing to prevent Congress from adopting a deficit-reduction plan without the supercommittee.
The best hope for such a plan, however, appeared to lie with the supercommittee, which was given unique powers to avoid the many pitfalls that can kill legislation on Capitol Hill. The panel's recommendations — if there had been any — would have been presented to both houses of Congress for an up-or-down vote with no amendments, and no possibility of a filibuster in the Senate.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, had urged the supercommittee to "go big" and seek a package of $4 trillion in spending cuts, tax increases and entitlement savings.
"What we watched is them negotiating down throughout the process," she said. "Every offer was smaller and smaller."
She said it appeared there was never any basic trust among the six Democrats and six Republicans on the panel.
Both sides said the talks broke down over taxes. "We simply could not overcome the Republican insistence on making tax cuts for the wealthiest Americans permanent," said Sen. John Kerry, D-Mass. Sen. Pat Toomey, R-Pa., said Democrats "refused to agree to any meaningful deficit reduction without $1 trillion in job-crushing tax increases."
Though disappointed, House Speaker John Boehner, R-Ohio, said the committee's work "did bring our enormous fiscal challenges into greater focus." In response to a USA TODAY editorial, he said the committee couldn't work because "President Obama and Washington Democrats insisted on dramatic tax hikes on American job creators, which would make our economy worse."
His counterpart in the Senate, Majority Leader Harry Reid, D-Nev., blamed the Tea Party and Norquist for the inability to reach a deal. "For the good of our country, Democrats were prepared to strike a grand bargain that would make painful cuts while asking millionaires to pay their fair share, and we put our willingness on paper," he said. "But Republicans never came close to meeting us halfway."
Given how far apart the two sides were on taxes, congressional scholar Thomas Mann of the Brookings Institution said the supercommittee was "destined to fail."
"The failure is fortunate in one respect: Our deficit problem was not worsened by their inaction and might actually be helped over the long run," because of the automatic cuts and because the deal didn't make Bush-era tax cuts permanent, Mann said. "On the other hand, the failure to pass an extension of payroll tax cuts and unemployment benefits will slow economic growth next year."
Concerns on Wall Street
The supercommittee's collapse posed two concerns for Wall Street: The short-term economic impact of spending cuts and tax hikes and the long-term threat posed by a debt now larger than the entire U.S. economy.
The stock market opened Monday with a sharp decline. Some investors were flabbergasted that lawmakers were unable to find the cuts needed to avert another crisis in confidence for the markets. "The fact the supercommittee didn't come to some kind of conclusion is beyond absurd," says Michael Farr of Farr Miller & Washington. "These guys needed to reduce debt spending. They fumbled the ball."
Standard & Poor's, one the three major credit rating agencies, said the supercommittee's lack of action validates its decision in August to downgrade U.S. debt from AAA to AA+. In a report late Monday, S&P said "downward pressure on the ratings could build" if Congress tries to undo its commitment to $1.2 trillion in automatic cuts.
The other agencies, Moody's and Fitch, could follow S&P's lead depending on how Washington handles this latest crisis, said Bill Larkin of Cabot Money Management.
"When the leadership can't form a strategy, that's a bad sign," he said. "You wouldn't invest in America due to the management."
The blame game
Statements from Republican presidential candidates laid the collapse at the doorstep of the White House.
"The whole reason a supercommittee was created was because the president wasn't willing to lead," said Texas Gov. Rick Perry.
Businessman Herman Cain blamed Obama "ultraliberal, anti-job creating comrades in the Democrat Party" for wanting to raise taxes.
And Minnesota Rep. Michele Bachmann's statement began: "Mr. President, your supercommittee has failed the American people."
Asked why Obama wasn't more involved with the supercommittee, White House spokesman Jay Carney said: "This committee was established by an act of Congress. It was comprised of members of Congress. Instead of pointing fingers and playing the blame game, Congress should act, fulfill its responsibility."
Phil Singer, a veteran Democratic campaign strategist, said incumbents from both parties will suffer the most.
"Insofar as people see the failure of Washington, the president on down will suffer," he said. "The onus is on the Washington establishment to explain this."
Singer said that although the mandatory cuts wouldn't go into effect until after the 2012 election, "the failure of the process is on full display right now."
And what of Congress' approval rating, which hit the single digits earlier this year?
"The institution of Congress will take another hit, but its standing is already at rock bottom," Brookings' Mann said. "I doubt if the failure to reach an agreement hurts one party more than another, but it will set up a major campaign debate."