Deficit panel struggles for a deal

WASHINGTON Thu Nov 17, 2011 6:09pm EST

1 of 8. The twelve members of the Congressional Super Committee, six Democrats and six Republicans, gather for opening remarks as the panel holds its inaugural meeting to search for at least $1.2 trillion in new deficit reductions, in Washington, DC, September 8, 2011.

Credit: Reuters/Mike Theiler

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WASHINGTON (Reuters) - Members of a Congress deficit-reduction committee considered scaling back their efforts on Thursday amid a Republican split over taxes and mounting doubts of reaching a deal by next week's deadline.

The 12-member "super committee" has until midnight on Wednesday, the day before the Thanksgiving holiday, to reach a deal to cut U.S. deficits by at least $1.2 trillion over 10 years.

"I feel we're caught in a tailspin," said a senior aide familiar with stalled talks.

Voicing the sentiment of many on Capitol Hill, another aide said: "It doesn't look particularly promising. But this is a place that works deadline to deadline. We shall see."

If it is unable to do so, automatic spending cuts would kick in across federal agencies, beginning in January 2013, two months after next year's election.

Failure to get a deal would likely anger voters who have been rattled by budget fights this year that brought the government to the edge of a shutdown and the brink of default.

Congress's approval rating stands at record low levels, and lawmakers are eager to prove that they are capable of governing as they head into the 2012 election season.

At the same time, any deal is likely to challenge orthodoxies on the left and the right.

Democrats have campaigned for decades on a promise to protect health and pension benefits, while nearly every Republican in Congress has vowed to oppose tax increases.

With so much distance between themselves on taxes and spending cuts, the full "super committee" hasn't met in weeks.

POSSIBLE PLAN B

But panel members have held a number of smaller talks among themselves and with party leaders.

A senior aide said some committee members were meeting just to discuss whether a broad deal is possible at this late hour.

If they conclude that it is not, talks may enter a new phase - one that takes taxes and benefit programs off the negotiating table and puts together a much smaller package containing measures both sides easily can agree upon.

These could include moves such as more aggressive government sales of the right to use radio and television frequencies and cutting federal pensions and some agriculture subsidies.

The goal would be to limit the severity of automatic spending cuts that would begin in 2013, with half hitting domestic programs and the other half hitting defense spending. If the panel comes up with a plan that does not reach $1.2 trillion, the automatic cuts would kick in for the remaining amount.

Underscoring the difficulties ahead for the super committee, 72 members of the Republicans' conservative wing sent a letter to the 12-member panel stating that they would oppose any tax hike to help close budget gaps that have topped $1 trillion in each of the past three years.

"Increasing taxes on Americans would destroy jobs, erase all hope of an economic recovery, and simply serve to feed out-of-control spending in Washington," the Republican lawmakers wrote.

Republicans on the panel have floated a plan that would raise about $300 billion in taxes over 10 years, in a softening of the firm anti-tax stance they have taken in other budget battles this year.

Polls show most Americans do not expect the panel to get a deal, and that more would blame Republicans, whose party has consistently shown resistance to tax hikes.

Democrats say they will not back a plan that consists of spending cuts alone, and their latest proposal would raise the government's 10-year tax haul by about $400 billion.

A Democratic aide familiar with the negotiations told Reuters that unless Republicans come up with a counter-offer to the Democrats' latest proposal, "We are at a standstill."

Taxes are not the only issue. Republicans want to overhaul health and retirement benefit programs, while Democrats want to roll in measures to boost the ailing economy.

Democrats say they cannot go any further on spending cuts until they know where Republicans stand on taxes.

"I believe we have opened the door to negotiations in these last final hours," Senator Patty Murray said after meeting with fellow Democratic super committee members.

"But if they can come to an agreement on their side on revenue, then we will be able to move forward. And my hope is that that will happen today," the panel co-chair said.

At his weekly news conference, House Speaker John Boehner, the top U.S. Republican, said he remains determined to get a deal.

"I'm going to continue to work because the problem is not going to go away," Boehner said. "If it were easy, it would have been done a long time ago."

(Writing by Thomas Ferraro; Additional reporting by Richard Cowan and Andy Sullivan: Editing by Deborah Charles and Eric Walsh)

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