Doubt over US committee securing deficit deal

Monday 21 November 2011 13.42
Senate Finance Committee Chairman Max Baucus
Senate Finance Committee Chairman Max Baucus

There is growing pessimism among members of the US Congress "super committee" tasked with tackling the country's deficit, as they remain unable to agree on cuts and tax hikes.

The 12-member panel faces a rapidly approaching deadline to adopt a plan to cut $1.2 trillion (€888bn) from deficits over 10 years.

The plan must be agreed by midnight on Wednesday (7pm Irish time) with failure due to trigger draconian cuts to domestic programmes and military spending.

A day after the White House said the committee must "do its job," President Barack Obama trumpeted new trade deals signed during his trip to Asia as engines of job growth with US unemployment stuck at over 9%.

"This is important, because over the last decade, we became a country that relied too much on what we bought and consumed. We racked up a lot of debt, but we didn't create many jobs at all," he said in Indonesia's Bali resort island yesterday.

However, Mr Obama did not directly address the seemingly deadlocked negotiations in Washington.

The congressional effort was given a burst of urgency on Wednesday when the US government debt passed the $15 trillion mark, roughly equal to 99% of the size of the total US economy - a level economists consider perilous.

Any deal would require majority approval on the committee, which is evenly divided between Democrats and Republicans, after which the full Congress would need to adopt it by 23 December to avoid the automatic cuts.

In Washington, Republican Senator and committee member Pat Toomey said that "it's not too late for the United States" to avoid a Europe-style fiscal and financial crisis.

"The hour is late. By law, our work on this committee must be completed this coming week. But I remain hopeful that we can meet our goal," said Mr Toomey.

However, his colleague, Republican Jon Kyl of Arizona, sounded less optimistic.

"I think that's pretty doubtful at this point," Mr Kyl said about the possibility of reaching a compromise. "But obviously no one wants to quit until the stroke of midnight."

Asked to describe the outline of a possible compromise, Mr Kyl said, "I'm not sure there is one."

Meanwhile, The Washington Post reported gloomily that the super committee was "poised to admit defeat as soon as Monday."

The panel, created in an August deal on raising the US debt limit, is locked over Republican refusals of Democratic calls to raise taxes on the very wealthy in return for cuts to cherished social safety net programmes.

"If you're going to ask every average American who drives a car, goes to work, struggles each day to pay their bills, and they're going to somehow be part of the solution, to have something on the table that does not ask the wealthiest people in the country to share in, that would be unconscionable," Democratic Senator John Kerry, a panel member, said Friday.

Republicans have rejected tax hikes on the wealthiest Americans, arguing that they would cripple job-creating investment even as the brittle US economy labours under stubbornly high unemployment.

They have also tried to set the stage for repealing military spending cuts which would kick in come January 2013.

Defence Secretary Leon Panetta has warned the cuts will leave US forces smaller, slower and weaker than at any time since World War II.

Markets that should have been buoyed by some positive economic data during the week were instead held back by both the super committee deadlock and the failure in Europe to quell a debt crisis that threatens to spill overseas.

The Dow Jones Industrial Index finished the week down 2.9% from the previous Friday, while the S&P 500 was 3.8% lower.