Q+A-What's ahead for US Congress deficit-cutting panel?

WASHINGTON, Sept 7 Wed Sep 7, 2011 7:01am EDT

WASHINGTON, Sept 7 (Reuters) - When a new "super committee" in Congress begins work this week on reducing U.S. budget deficits, the financial world will be watching to see just how serious Washington is about getting its fiscal house in order.

The Joint Select Committee on Deficit Reduction -- featuring six Republican and six Democratic members of Congress -- was created in early August as part of a deal that achieves $917 billion in spending cuts coupled with an increase in U.S. borrowing authority.

Now, this special committee will try to find at least $1.2 trillion more in savings in the next decade. Credit ratings agencies will judge the panel's results, which could have a profound impact on the country's fiscal health. Already, one agency, Standard & Poor's, has downgraded U.S. debt.

Here are some key points to keep in mind:

WILL THE SUPER COMMITTEE SUCCEED?

Democrats and Republicans are urging bipartisanship. Nonetheless, the panel will be working in a highly charged atmosphere after a bitter fight over raising the debt limit and amid presidential campaigns that are heating up.

If Republicans cannot go along with tax hikes and Democrats form a wall of opposition against cuts to government healthcare or retirement benefits, it likely will be doomed to failure.

But if both sides keep everything on the negotiating table and if nobody walks out of the talks or is seen as trying to poison the atmosphere, some sort of deal might be reached. Congress has to vote on it by a Dec. 23 deadline.

If a majority of the panel agrees to a deal, no amendments can be made by Congress, which would have until Dec. 23 to approve or reject the measure.

WHAT ABOUT EXTERNAL FORCES?

The committee will be under pressure from lobbyists. U.S. defense contractors, for example, will fight deep Pentagon cuts.

Some healthcare industry lobbyists and some liberal groups hope the committee fails. They fear they would suffer bigger cuts under a deal than if the super committee fails and automatic spending cuts are instead triggered, beginning in 2013. [ID:nN1E7840KU]

And then there are the Republican presidential candidates. Their campaigns will be heating up as the super committee is deliberating. If those candidates ratchet up their rhetoric against any tax increases, it will be more difficult for Republicans on the panel to embrace deficit-reductions through higher revenues.

Conservative Tea Party activists who seek to cut the size of government want only spending cuts. Liberal groups want a "balanced" approach that includes tax increases.

WHAT IF GLOBAL ECONOMIES TANK?

If economic growth further deteriorates in the United States or if European debt problems jeopardize the American economy, there could be more pressure on the panel for a deal -- and maybe even one bigger than the $1.2 trillion in added savings.

WHAT MIGHT A DEAL LOOK LIKE?

There could be some savings in the Medicare healthcare program for the elderly -- ones that do not reduce benefits but cut costs in other modest ways. Some new revenues, such as ending some special interest corporate tax breaks, could be included. But it is unclear if Republicans would insist on an equal amount of income tax rate cuts.

A partial deal is also possible. If the panel cannot get to $1.2 trillion in savings over 10 years, it could agree on several hundred billion dollars worth. The rest would be achieved through automatic spending cuts starting in 2013.

The question is whether Congress late in 2012, after congressional and presidential elections, would let those automatic spending cuts go forward.

A deal also could include savings outside the mandated 10-year budget window, said Alex Brill, a research fellow at the conservative American Enterprise Institute. Those longer-term savings could be aimed at Medicare, Medicaid or Social Security and would amount to a lot of money, he said.

WHAT WILL HAPPEN ON THURSDAY?

The super committee holds its first meeting, which will be open to the public.

The members will deliver opening statements, which will give some clues as to how partisan a fight this will be. They also will weigh the rules under which they will operate.

That will be followed by the panel's first public hearing on Tuesday, when it will hear from the Congressional Budget Office chief. A few more hearings are likely. (Editing by Bill Trott)

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