The implosion of the congressional supercommittee is likely to delay any major deficit-reduction agreement until after the next presidential election and may pose an immediate threat to the struggling U.S. Economy. The committee's failure to reach a deal means several tax programs, including a payroll tax holiday, risk expiring at the beginning of next year, weighing on the household spending that accounts for about 70 percent of the world's largest economy. The panel's inability to agree on $1.2 trillion in budget cuts, which drove stocks down yesterday and Treasuries higher, also stoked doubts about U.S. lawmakers' ability to overcome partisan gridlock and safeguard the nation's fiscal health. "They could not agree even on the smaller challenge of $1.2 trillion," said former White House budget director Alice Rivlin, among a coalition of officials who pushed the panel to "go big" and find $4 trillion in savings, in an e-mail. "I do not see a way to get to the big deal before the election, if then. It is really discouraging!", according to BusinessWeek.
But the absence of an agreement also threatens to significantly slow growth in an already ailing economy by raising taxes on almost everyone while reducing government spending on almost everything. Tax cuts passed in the Bush administration will expire at the end of 2012. By law, the panel's failure triggers new caps on spending, cutting $1.2 trillion from the military, education, health care and other priorities over 10 years beginning next fall. The combined impact of higher tax rates and less spending would reverse the growth of annual deficits beginning in 2013, reducing by more than half the current $1.3 trillion gap between annual revenue and spending, informs msnbc.com.
Initial reaction had Democrats and Republicans blamingeach other for the inability of the bipartisan committee to negotiate at least $1.2 trillion in deficit reduction measures.
'We'll trim deficit one way or another'
Obama lays blame on Republicans
Murray: "I'll be waiting all day"
Romney: I reject debt deal tax hikes.
Obama said Republicans in Congress rejected what he called a balanced approach to deficit reduction that included tax increases on the wealthy. "Despite the broad agreement that exists for such an approach, there are still too many Republicans in Congress that have refused to listen to the voices of reason and compromise that are coming from outside of Washington," Obama told reporters after the super committee announced its failure, says CNN International.
What was meant to be a secretive debt panel was now being undone by leaks. By then, aides say, trust had evaporated, and the work of the super committee was essentially over. When John Boehner, the Republican House Speaker, and Harry Reid, the Democratic Senate leader, met that week in Boehner's office, some thought they would launch an eleventh-hour rescue. The two met for just 15 minutes - and the work of the debt panel was barely mentioned. Perhaps there is only one member of the committee that can put its failure into some perspective as the blame game of why it collapsed begins. At an early breakfast meeting of the panel, Democrat James Clyburn, a veteran of the Civil Rights movement, rebuked his fellow committee members when they kept saying how hard it would be to strike a deal, reports Reuters.