No deal by U.S. deficit panel would be dire: experts

WASHINGTON Tue Nov 1, 2011 6:56pm EDT

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WASHINGTON (Reuters) - Budget experts warned on Tuesday of dire consequences if the congressional "super committee" fails to come up with a deficit reduction plan within a month, amid signs negotiations are faltering.

"I'm worried you're going to fail, fail the country," Erskine Bowles, who was President Bill Clinton's chief of staff and who helped lead a deficit-reduction panel last year, bluntly told the committee that is charged with finding at least $1.2 trillion in reductions over the next decade.

At a public hearing of the bipartisan super committee, Democrats said they would make concessions to reach a deal as long as Republicans also budge from long-standing positions.

"It's not enough for either side to simply say they want to reduce the deficit," said Senator Patty Murray, the panel's Democratic co-chair. "Now is the time when everyone needs to be putting some real skin in the game and offering serious compromises."

Democrats have been pushing for tax increases as part of any deficit-reduction package, with no sign so far that Republicans would go along. Republicans instead are focused on a tax reform that lowers income tax rates and spending cuts on healthcare and other federal benefit programs.

Little sign of progress has been seen in negotiations since last week when Democrats and Republicans swapped opening positions. The Democratic plan of about $3 trillion in deficit-reduction coupled tax increases with spending cuts. Republicans, meanwhile offered a $2.2 trillion over 10 years that focused heavily on spending cuts and claimed revenues largely through a tax overhaul that they said would boost economic growth.

Sources familiar with the discussions gave the six Republicans and six Democrats on the panel less than a 50-50 chance of reaching agreement because of an impasse over taxes.

If the committee fails to reach a deal before a November 23 deadline, $1.2 trillion in automatic spending cuts will be triggered across U.S. government agencies, beginning in 2013.

As the super committee was holding its hearing, Senate Republican leader Mitch McConnell was asked by reporters to assess the panel's chances for success. His answer reflected the uncertainty surrounding the panel's work.

"I have high expectations for the committee," McConnell said, but added, "I'm not going to speculate about what they may do. It was created to succeed, not to fail."

POTENTIAL 'DISASTER' SEEN

McConnell's counterpart -- Senate Majority Leader Harry Reid -- told reporters he hoped for a deal, "but you know, if they can't get it done, they can't get it done. You have to have two to tango."

But Bowles said "I think it will be a disaster" if the super committee fails to get an agreement.

Credit ratings agencies have warned that failure to rein in America's deficits could lead to a further downgrade of its AAA rating. Standard & Poor's cut the long-term U.S. credit rating by one notch to AA-plus in August on concerns that Washington did not have the political will to deal with the country's rising debt burden.

Another downgrade could cause U.S. interest rates to spike and lead to turmoil on financial markets at a time of global economic fragility.

Reid singled out House of Representatives Speaker John Boehner, a Republican, for saying he wants a "grand bargain" on deficit reduction but "without any sacrifice to their people (the wealthy) that have most of the money in this country."

Democrats want to raise some taxes on the wealthy so that deficit-reduction efforts do not fall solely on government spending cuts.

ENORMOUS POWER

Shortly before the hearing began, Democratic Senator Max Baucus said things were "starting to percolate." He would not elaborate but predicted the committee would reach a deal.

Baucus is one of a group of six -- three Republicans and three Democrats -- that has been loosely formed within the super committee to work on a deficit-reduction deal of between $1.2 trillion and $1.5 trillion.

Congressional aides, who spoke on condition of anonymity, told Reuters Monday the breakout group was trying to make a deal because they thought differences between the sides over taxes and spending were too wide to agree on a multi-trillion dollar "grand bargain."

Experts who have spearheaded past fiscal commissions said they feared party politics that were keeping lawmakers from tackling federal health and retirement programs spending and taxes would lead to a long-term decline of U.S. economic growth.

"The (super committee) has enormous power. What I don't know is whether it will use that power," said Pete Domenici, a former Republican Senate Budget Committee chairman who helped lead a debt reduction task force.

(Additional reporting by Rachelle Younglai and Thomas Ferraro; Writing by Deborah Charles; Editing by Vicki Allen and Cynthia Osterman)

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Comments (7)
DrJJJJ wrote:
$1.2 Trillion savings over the next 10 years is $120 Billion per year-less than 30 days deficit spending!!They’re having trouble with this?? God help us!

Nov 01, 2011 4:29pm EDT  --  Report as abuse
JamesFogal wrote:
These guys need to look at REAL CUTS, not reductions in growth of government programs, departments, and things that have been traditionally untouchable in the past.

I hate any tax increase, especially pointed at the rich as the government defines them. I do feel the super rich have grown their wealth beyond imagination and sometimes without even working. When someone grows millions or billions of dollars a year through just investments its time we tax wealth along with income. Encourage the super rich to spend some of those billions by taxing them at 2% of all of their wealth beyond two million dollars in accumulated wealth. The two million number should be a target for couples to shoot for to retire on. If a couple saves a little, puts in matching dollars into a 401K with two very average jobs they can accumulate 2 million dollars in assets within a lifetime. If they accumulate more than 2 million then they start getting taxed at 2% of any amount over that. So lets say they have accumulated 3 million in assets. They pay taxes of no more than 25% on their income and of say $150,000 which would be $37,500 in federal taxes and then 2% of the extra million they have over the 2 million in protected retirement assets. This means they have an additional tax of $20,000 which means they are paying taxes of $57,500. That number brings up to that magical 35% tax bracket that the wealthy pay but it is done differently. The reason this is so much better is that guys like Warren Buffet who complains he does not get to pay enough taxes will see his tax bill go from $20,000,000 a year on income of $60,000,000 to $1,300,000,000 per year. Thats because he accumulates a great deal of his wealth in stocks and pays no taxes on them until he cashes that stock in. With wealth of around $64,000,000,000 he is not going to miss 1.3 billion of it. He actually usually grows his wealth at a rate about 4 times that 1.3 billion anyways.

This would be a great way to tax that WEALTH of the country and not just the income. The wealthiest Americans make most of their income from stock options or stock grow and then are rewarded by paying 15% when they do cash them in while the little guy, including the guy saving 2 million dollars to retire on, is paying upwards of 25%. This makes no sense. Lets look at this new option and quit picking on the guys working hard for their money. Lets look at the guys who have banks full of money and are simply not paying much in taxes. But this option to raise more revenue will come at a great expense, a balanced budget amendment that has a plan to eliminate the national debt. The balanced budget amendment does not cost anyone in congress a penny and makes them actually work to balance a budget like the rest of us at home and in our businesses.

Nov 01, 2011 6:23pm EDT  --  Report as abuse
txgadfly wrote:
They will cut a deal because a deal is not in the interest of the American people. A deal would mean no military or war spending cuts with all the reduction coming in a default by the Federal Government on its debt under the Social Security and Medicare programs. So there will be a deal. There may also be a 1% Luxury Tax on diamonds purchased which are larger than one carat and are purchased on February 29th.

Nov 01, 2011 9:35pm EDT  --  Report as abuse
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