SCENARIOS-Amid pessimism, US deficit panel could buck odds

WASHINGTON Tue Nov 8, 2011 2:49pm EST

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WASHINGTON Nov 8 (Reuters) - The 12 Democrats and Republicans serving on a congressional "super committee" have been wrangling for months over how to find at least $1.2 trillion in deficit reductions by a Nov. 23 deadline.

At the heart of the debate is a Democratic demand that significant revenue increases be part of any 10-year deal -- something Republicans have been resisting. Without Republican concessions on taxes, Democrats are not seen agreeing to the kind of healthcare and retirement benefit program savings Republicans want.

Super committee failure would trigger $1.2 trillion in spending cuts starting in 2013. But it could also rattle financial markets already fretting about a lackluster U.S. economy and Washington's ability to deal with fiscal affairs.

If the super committee members cannot close their differences, voters -- already weary of Washington's bickering -- could punish lawmakers in the 2012 elections.

Here are possible scenarios for how the committee could hit the bullseye, get close to it or miss the target altogether.

PARTIAL DEAL

This scenario is fuzzy, but it is one that regularly comes up among budget and tax experts outside the government. They give it strong odds.

Here is how it would work: The super committee, unable to reach agreement on the $1.2 trillion in savings, agrees to some savings -- say $500 billion to $800 billion over 10 years. Farm subsidies and federal workers' pensions could get trimmed along with other spending cuts and tiny revenue hikes.

The automatic spending cuts starting in 2013 could help achieve the rest of the $1.2 trillion goal.

There could be a twist: In a move to give credit rating agencies and investors confidence that Washington is determined to fix the long-term fiscal mess, the super committee instructs congressional committees to find more savings next year. That likely would mean an attempt at broad tax reform.

It is unclear though how the super committee could force the congressional committees to actually do the work.

THE FULL DEAL

The super committee finds a way to thread the needle and get enough votes for a package that reduces deficits by $1.2 trillion over a decade.

Maybe it's a combination of more domestic spending cuts, counting savings from upcoming troop withdrawals from Iraq and Afghanistan and cutting federal pensions and agriculture supports. Throw in savings from lower government interest payments on debt and maybe even changing the way government calculates cost-of-living increases for healthcare and retirement benefits and the super committee might find itself at the magic $1.2 trillion number.

Still unclear is whether some revenue increases would be part of this formula. That's the most difficult part of the ongoing negotiations.

NO DEAL

A majority of committee members fail to agree on anything, a scenario that is given even odds by some budget observers.

Here's why: Republican leaders have said no to tax hikes, while President Barack Obama and his fellow Democrats have said they won't allow major cuts to government retirement and healthcare programs without tax increases.

The pessimists also argue that months of negotiations between Congress and the White House earlier this year failed and so there is no reason the super committee can close the divide. They also point to the bickering that unfolded in September over a routine spending measure to fund aid for disaster victims and keep the government running temporarily.

The result: $1.2 trillion in spending cuts are automatically triggered to begin on Jan. 1, 2013.

But 2013 is a long time away. In the meantime, voters will go to the polls on Nov. 6, 2012, to pick a president and members of Congress. Depending on who wins, there could be a move to suspend or change the automatic spending cuts.

Some Republican senators already are crafting such legislation.

A ROBUST DEAL

Nobody sees it now, but sometimes the unexpected happens. Under this scenario, the super committee surprises everybody, and crafts a $3 trillion deficit-reduction deal that includes Republican spending cuts and Democratic tax increases.

The panel writes into legislation comprehensive tax reform and structural reforms to the Medicare and Medicaid healthcare programs for the elderly, poor and disabled.

By Dec. 23, the full Congress approves the plan. Obama signs it into law and heads into the election year as a tight-fisted budget hawk. Republicans, including Tea Party fiscal conservatives, boast that they have changed the culture of Washington from spendthrift to miser.

This is the recipe ratings agencies are looking for. Over the long run it could persuade Standard & Poor's to restore Washington's AAA credit rating that was cut a notch in August after a rancorous debate over raising the U.S. credit limit.

But it has nearly no chance of actually happening, according to budget experts.

DEAL DELAYED

The Nov. 23 deadline for the super committee to finish its work is written into law, not stone, and Congress can change the law.

But moving the deadline faces serious problems: It looks bad politically and there might not be enough support for an extension to pass Congress as many lawmakers already resent the extraordinary powers the super committee enjoys to advance legislation without any opportunity to amend it.

A Democratic member of the committee, Representative Chris Van Hollen, said this week the panel was not looking for more time to strike a deal.

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