Deficit Panel Sets Table for Failure

ByStander

WASHINGTON—Congress's special deficit-reduction committee teetered on the brink of collapse Sunday, nearing the end of an effort to break the back of the nation's burgeoning deficit before the 2012 election campaign kicks into high gear.

Barring a last-minute breakthrough that neither party would predict Sunday, the committee is expected to announce Monday that it had failed to reach its goal of writing a bipartisan bill to cut $1.2 trillion from the nation's deficit over 10 years.

That expected failure throws a new element of uncertainty into the nation's political and economic problems heading into a volatile election year. It likely will inflame a public already seething in anger at Congress, and raise questions about whether Washington is incapable of resolving the nation's problems in the absence of a financial or economic calamity.

If the committee comes up empty-handed, it leaves unresolved a host of urgent year-end issues that lawmakers had hoped would be addressed by the panel's deal, including an imminent payroll-tax increase and the Dec. 31 expiration of extended unemployment benefits.

Members of the Joint Select Committee on Deficit Reduction, in television interviews Sunday, insisted they wouldn't throw in the towel until the last possible minute on their four-month effort, which has been conducted almost entirely behind closed doors. The official deadline for approving a bill is Wednesday, but as a practical matter the panel needs an agreement by midnight Monday because the law requires the bill to be available for two days before the panel votes on it.

An aide close to the panel said its work is likely to end Monday with a joint statement by the co-chairmen, Sen. Patty Murray (D., Wash.) and Rep. Jeb Hensarling (R., Texas).

Although both kept hope technically alive in their Sunday interviews, their comments sounded more like a postmortem than a promise of 11th hour resurrection.

"This is a huge blown opportunity," said Mr. Hensarling on "Fox News Sunday." "It wasn't so much a failure, as a failure to seize an opportunity."

Ms. Murrray said she would be "waiting all day" for a breakthrough but didn't seem to expect one.

"This is a challenge that is still going to be on the table at the end of the day," she said on CNN's "State of the Union." "The question is not if we are going to solve it but how we are going to solve this."

Members of both parties Sunday continued efforts to blame the other side for the collapse of the talks—even, apparently, any effort to craft a smaller deal to salvage residual areas of agreement.

But negotiations over a possible smaller deal foundered on the same issue that has blocked compromise on a bigger agreement: Democrats are insisting that any further spending cuts to be accompanied by tax increases, and Republicans refuse to raise taxes without major concessions on curbing entitlement programs like Medicare.

The special committee was established in August as part of the summer's bipartisan deal to raise the debt limit, which also cut nearly $1 trillion in domestic spending. The 12-member panel—evenly divided between Republicans and Democrats, House members and senators—was charged with devising a plan to cut at least an additional $1.2 trillion in deficit reduction by Wednesday.

The law specified that if the committee failed, or if Congress didn't pass its recommendations by Dec. 23, $1.2 trillion would be automatically cut from across the government in a process known as a "sequester."

However, in the wake of the committee's expected failure, the additional spending cuts—including $600 billion from the Pentagon—don't take effect until 2013.

Sen. Jon Kyl (R., Ariz.) said on NBC's "Meet the Press" that he didn't believe Congress would allow those cuts to take effect in the defense budget because of the dire warnings of its detrimental effects.

However, President Barack Obama and House Speaker John Boehner (R., Ohio) have opposed attempts to mitigate or tamper with the spending-cuts mechanism, which once had been considered a powerful incentive for the panel to reach a compromise.

But the one-year time lapse before the enforcement mechanism kick in reduced the sense of urgency and eased pressure on the panel.

A more immediate question heading into Monday is how the financial markets will react to the committee's collapse.

Mark Zandi, chief economist at Moody's Economy.com, said he didn't think there would be much reaction because the markets didn't have high expectations for progress in the first place.

"It is all relative to expectations," he said on "Fox News Sunday." "I don't think there will be a significant market reaction."

Sen. John Kerry (D., Mass.), a committee member, was more anxious about blowback from investors at a time of global turmoil and uncertainty.

"The market will look again at Washington and say, 'You guys can't get the job done,' " said Mr. Kerry on ABC's "This Week."