US Defence And Welfare Cuts Loom As 'Super Committee' Deadlocked

Bipartisan committee expected to announce on Monday that efforts to forge a $1.2 trillion deficit reduction plan have failed

Dominic Rushe in New York
guardian.co.uk, Sunday 20 November 2011 14.18 EST

The bipartisan committee tasked with reducing America's $15tn (£9.5tn) budget deficit looks close to admitting defeat as its deadline looms.

The committee, created in August, has until Wednesday to report a plan to cut $1.2tn from the nation's deficit. Failure to do so will trigger automatic cuts to defence and social welfare programmes starting in 2013.

A war of words erupted on Sunday as both sides admitted that barring
last minute surprise there would be no deal. A formal announcement of
failure is expected Monday.

Economists warned on Friday that failure by the "super committee" could have dire consequences for the US and lead to another downgrade of its credit rating. But in the final hours of negotiations, committee members from both sides said they were still at loggerheads on issues that have troubled the two sides since the committee was set up.

John Kerry, a Democrat committee member, said on NBC's Meet the Press: "There is a real threat that not only will there be a downgrade but that the markets will look at Washington again … and say, 'you guys can't get the job done'. Just the political confusion and deadlock is enough to say 'America can't get its act together'."

Democrats said Republicans were refusing to budge on Bush-era cuts that provide tax breaks for wealthier Americans and expire in 2012. Democrats want to see the cuts at least scaled back, while Republicans want to extend them.

Tension between the two sides increased last week after Grover Norquist, an anti-tax lobbyist, said senior Republicans had pledged not to pass any deal that involved tax increases. Republicans said Democrats were refusing to budge on cuts to "entitlement" social welfare programmes. Republican committee member John Kyl told NBC that his party had offered compromises but had been blocked by Democrats' unwillingness to cut spending. "In Washington there are a group of folk who will not cut a dollar unless we raise taxes," Kyl said.

Pat Toomey, a Republican committee member, told CBS's Face the Nation: "Time is short and it's going to be very difficult." He said it was "not entirely too late" but reaching a deal would be tough.

"There was an unwillingness to cut any kind of spending at all unless there was a huge tax increase," Toomey said. "There is still an opportunity. There is a plan on the table that would at least take us half way to our goal, which is scored. It's ready to go; we could still get something done. If the Democrats would come back to us with a counter-proposal, we'd work on it."

Officially, the 12-member committee has until Wednesday to present a plan but in practice it must have a proposal in place today for review by lawmakers and the congressional budget office.

The consequences of not reaching a deal are automatic across-the-board cuts, including major reductions in arms spending that the defence secretary, Leon Panetta, has said would be "devastating" and "lead to a hollow force".

Last week David Semmens, US economist at Standard Chartered, said if the committee failed to act, the consequences would be "long-lasting". Standard & Poor's decision to downgrade US debt in August followed the row in Washington over raising the debt ceiling, a dispute that almost led to a government shutdown.

"Failure [of the committee] will further highlight the political deadlock in Washington. It's very important the super committee sends a strong message to the markets that the US is getting its house in order," Semmens said.