While not officially declaring defeat, the deficit supercommittee remains in a partisan deadlock and had failed by Monday to reach a deal.
Although the supercommittee’s deadline is Wednesday, the committee was supposed to have its recommendations to the Congressional Budget Office today so that the CBO could “score” the recommendations.
Sen. John Kerry, D-Mass., a member of the deficit-reduction committee, said on the Fox News program “Fox and Friends” on Monday that a deal could still be reached by Wednesday if Republicans were willing to let the Bush-era tax rates expire. “The only thing blocking us is the insistence on the Bush tax cuts for the wealthy,” Kerry said.
White House Press Secretary Jay Carney said during a press briefing on Monday that “Congress still has the ability to act” if the deficit committee fails to reach a deal. “Congress needs to take action” if the deficit-reduction supercommittee cannot meet its goal, he said.
If a deal isn’t reached, automated cuts of $1.2 trillion mandated by law will not kick in until 2013, as previously reported by AdvisorOne.
U.S. stocks fell more than 3% on the major exchanges in afternoon trading on Monday on news of the deadlocked supercommittee. However, while worries have persisted that failure to reach an agreement could disappoint investors and lead to another downgrade of U.S. debt, David Kelly, chief market strategist for J.P. Morgan Funds, said that “with such low expectations of an agreement all along, it is hard to see why failure to reach one should move markets significantly.”
Meanwhile, he added, “the aftermath of S&P’s U.S. debt downgrade in August suggests that Treasury rates should not back up significantly just because of a further ratings cut.”
A bigger issue for the economy and markets, Kelly said, “is the ability of Congress to achieve anything in the wake of this [deficit-reduction] process.” It’s important to note, he said, that a number of temporary tax breaks, including a 2% payroll tax cut, are due to expire at the end of this year. ”If they do,” he said, “and discretionary spending is held to the caps agreed to in August, there is a significant risk that the economy will suffer too much ‘fiscal drag’ entering a new year, undercutting some small signs of momentum which have emerged in recent weeks.”
On Sunday, members of the bipartisan congressional supercommittee tasked with finding $1.2 trillion in budget cuts continued to blame the other side for the stalemate, with Republicans refusing to consider any action that might increase tax revenues to offset spending and Democrats determined to protect social safety net programs such as Social Security, Medicare and Medicaid in a tanking economy.
The New York Times reported that both sides took advantage of the Sunday talk shows to state their positions, with Sen. Patty Murray, D-Wash, and the committee’s co-chairwoman, saying on CNN’s State of the Union, “As long as we have some Republican lawmakers who feel more enthralled with a pledge they took to a Republican lobbyist than they do to a pledge to the country to solve the problems, this is going to be hard to do.”
Murray referred to a “no-new-taxes” promise made by Republicans to the conservative Grover Norquist group Americans for Tax Reform. Recent polls have shown that most Americans support tax increases on higher levels of income, as well as closing tax loopholes, to raise revenue—as do most millionaires, some of whom last week made their way to Washington to lobby in favor of such a move.
Republicans, for their part, said Democrats were at fault for the supercommittee’s failure. Rep. Jeb Hensarling, R-Texas, was quoted saying on Fox News Sunday, “Unfortunately, what we haven’t seen in these talks from the other side is any Democrats willing to put a proposal on the table that actually solves the problems.”
Republican presidential candidate Mitt Romney also accused President Barack Obama of taking a hands-off position as the supercommittee wrangled, saying in a Sunday stump speech, “He hasn’t had any role. He’s done nothing.”
Kerry, defended Obama’s role on Meet the Press, saying the president and White House budget officials “were asked to be hands off.” He continued, “The Republicans said, ‘Don’t let Obama come into this, because if he does, it will make it political.’ They’ve been intimately involved, but carefully so that they didn’t politicize it. I think they did the right thing.”