The deficit-cutting congressional supercommittee is expected to announce tomorrow that it has failed to reach agreement on at least $1.2 trillion in federal budget savings, a Democratic aide said.
The aide, who wasn’t authorized to discuss internal matters publicly and requested anonymity, said in an e-mail this afternoon that it was highly unlikely that the talks could be salvaged. Tomorrow is the deadline for the Congressional Budget Office to receive a plan that it can analyze before the committee’s Nov. 23 target date for reaching an agreement.
Earlier today the supercommittee’s Republican co-chairman, U.S. Representative Jeb Hensarling of Texas, said the 12 panel members faced a “daunting challenge” as they sought to bridge gulfs over taxes and spending.
The panel has been deadlocked over taxes, with Democrats seeking tax increases on high earners while Republicans were pushing for an extension of tax cuts enacted under President George W. Bush. Another sticking point has been the Republicans’ call for cuts, over Democrats’ opposition, in entitlement programs such as Medicare.
‘Nobody wants to give up hope,” Hensarling said on the “Fox News Sunday” program. “Reality is, to some extent, starting to overtake hope.”
Senator Pat Toomey, a Pennsylvania Republican and supercommittee member, said on CBS’s “Face the Nation” that the “silver lining” in a failure to agree would be $1.2 trillion in automatic across-the-board budget cuts starting in 2013. That process, known as sequestration, is designed to spare the U.S. from another credit downgrade.
Senator John Kerry, a Massachusetts Democrat and supercommittee member, warned of potential risk of a downgrade of the U.S. credit rating if the group can’t come together and if lawmakers skirt the mandatory cuts.
“There is a real threat that not only will there be a downgrade but that the market on Monday will look again at Washington and say ‘You guys can’t get the job done,’” Kerry said on NBC’s “Meet the Press” program. “And just the political confusion and gridlock is enough to say to the world ‘America can’t get its act together.’”
Investors have largely shrugged off Standard & Poor’s Aug. 5 downgrade of U.S. debt from AAA to AA+. After the downgrade, the government’s borrowing costs fell to record lows as Treasuries rallied. The yield on the benchmark 10-year Treasury note fell from 2.56 percent on Aug. 5 to below 1.72 percent on Sept. 22. The yield on the 10-year note was at 2.01 percent at 5:14 p.m. on Friday, Nov. 18, in New York, according to Bloomberg Bond Trader prices.
“I don’t think there’d be much of a reaction” by markets to a supercommittee failure to agree on a plan, Mark Zandi, the chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said on “Fox News Sunday.”
“It’s all relative to expectations,” he said, and investor expectations with regard to the committee “have been and are still very, very low.”
Senator Jon Kyl of Arizona, the No. 2 Senate Republican leader and a supercommittee member, said on “Meet the Press” that Republicans would look for a way “to work around” some of those automatic spending cuts, including easing the mandated $500 billion in cuts to Pentagon spending over the next decade.
“There is a way to avoid that if there’s good will on both sides,” he said of defense cuts he described as “Draconian.”
‘More Prudent’ Reductions
Hensarling said he hoped the across-the-board cuts required if no deal is reached would be altered to spare defense. Congress, he said, will have 13 months to make sure the reductions happen “in a smarter, more prudent fashion.”
If the supercommittee fails, he said, “the American people are still going to get the deficit reduction that was contemplated under the law, but it is a huge blown opportunity.”
Both Kerry and Senator Patty Murray of Washington, the supercommittee’s Democratic co-chairman, insisted today that Democrats have been willing to make some cuts to entitlement programs, which include Social Security, Medicare and Medicaid. What was needed, Kerry said on NBC, was for Republicans to drop a push for another extension of the Bush-era tax cuts that now expire at the end of 2012.
“There is one sticking divide, and that is the issue of what I call shared sacrifice, where everybody contributes in a very challenging time for our country, and that’s the Bush tax cuts and making sure that any kind of package includes everybody coming to the table, and the wealthiest of Americans, those who earn over $1 million every year, have to share, too,” Murray said on CNN’s “State of the Union” program. “That line in the sand, we’ve haven’t seen any Republicans willing to cross yet.”
Kyl said Republicans had offered to increase revenue by $300 billion as part of a broad tax overhaul. He said the compromise was “a big step for Republicans,” who oppose tax increases. He also restated the case against raising taxes in a struggling economy.
“You can’t grow if you raise taxes in the middle of a recession,” Kyl said.
Hensarling said that even if no agreement is reached, “the nation is still going to end up with what Republicans said, and that is there will still be a dollar of spending reduction for every dollar increase in the debt ceiling.”
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