US debt 'supercommittee' fails on deficit plan

US voters are growing increasingly angry at the
partisan gridlock in Washington
© AFP/Getty Images/File Mario Tama

WASHINGTON (AFP) – A US Congress “supercommittee” has failed to reach a deal to rein in the government’s galloping deficits due to angry partisan battles over how best to revive the nation’s sluggish economy.

The move confirmed widespread expectations that the 12-member committee would miss its goal to cut US deficits by $1.2 trillion over 10 years amid political feuds over tax hikes on the rich and cuts to social spending.

“We are deeply disappointed that we have been unable to come to a bipartisan deficit reduction agreement,” co-chairs Democratic Senator Patty Murray and Republican Representative Jeb Hensarling said in a joint statement on Monday.

The deadlock was sure to fuel voter anger at gridlock in Washington one year before November 2012 elections in which President Barack Obama hopes to win a second term by painting congressional Republicans as zealous obstructionists.

Global markets reacted cautiously Tuesday with most stocks in Asia closing down slightly. European markets opened higher.

Under the August law that created the supercommittee, the US impasse triggers draconian automatic cuts to domestic and military spending come January 2013, unless lawmakers repeal that requirement or find an alternative deficit-cutting plan.

Obama blamed the deadlock on Republicans who “will not budge” from opposing a “balanced” approach that pairs cuts in social spending with a tax hike on the wealthy, and warned he would veto any attempt to repeal the automatic cuts.

“There will be no easy off-ramps on this one. We need to keep the pressure up to compromise, not turn off the pressure,” the president said in the White House briefing room shortly after the announcement.

“The question right now is whether we can reduce the deficit in a way that helps the economy grow — that operates with a scalpel, not with a hatchet.”

Obama held out hope that lawmakers could reach a new deal and tried to reassure the markets by saying that despite a ballooning national debt of more than $15 trillion, there was no imminent threat of a US default.

The Dow Jones Industrial Average closed down 2.1 percent before the announcement. Tokyo lost 0.40 percent Tuesday, Sydney slid 0.72 percent but Hong Kong was 0.14 percent up and London’s FTSE 100 opened 0.58 percent higher.

Standard & Poor’s maintained its AA+ credit rating for the United States, while warning that if lawmakers bust previously agreed-upon spending caps, “downward pressure on the ratings could build.”

Fitch said it would wait until the end of November to make its review of the US sovereign rating.

Panel members — six Democrats and six Republicans — had met behind closed doors in a last-ditch attempt to salvage the effort but made no headway. The collapse of talks triggered an avalanche of political finger-pointing.

Republican Senate Minority Leader Mitch McConnell said a deal had foundered on Democrats’ “puzzling insistence on taxing job creators in the middle of a jobs crisis.”

But Democratic Senate Majority Leader Harry Reid blamed Republicans for heeding “the extreme voices in their party instead of the voices of reason” for seeking “more giveaways to millionaires at the expense of the middle class.”

The talks faltered chiefly on Republican refusals to raise taxes on the rich in return for Democratic concessions on making cuts to cherished social safety net programs, so-called “entitlements” with fast-increasing price tags.

Republicans argued that tax hikes would smother job-creation at a time when the US economy is wrestling with stubbornly high nine percent unemployment.

Republican Senator Olympia Snowe condemned the failure as “yet another regrettable milestone in Congress’s steady march toward abject ineffectiveness.”

Democrats pledged to wage a year-end fight to extend jobless benefits and a cut in a payroll tax, measures designed to ease worker pain and spur consumer spending.

“With millions of Americans out of work, we must stay focused on creating jobs,” said Reid, who warned that failure to renew both measures “could plunge us back into a recession.”

Republicans said they would push to repeal the automatic defense spending cuts, citing Defense Secretary Leon Panetta’s warning that they will leave the military slower, weaker, and smaller than at any time since World War II.