Failure of US Deficit Panel Makes Progress Before '12 Unlikely

Published Nov 21, 2011. By John Shaw.

WASHINGTON (MNI) - The failure of Congress's deficit reduction panel, which is expected to be formally confirmed Monday, ends a bitter year-long battle over fiscal policy between President Obama and his Democratic allies on Capitol Hill and House Speaker John Boehner, his Republican majority in the House, and an aggressive GOP minority in the Senate.

This partisan fiscal battle peaked during the summer's debt ceiling crisis, recessed briefly during August, and then resumed this fall under the auspices of Congress's deficit reduction panel.

Budget experts say that little progress is now likely on fiscal policy until after the 2012 presidential and congressional elections, unless a major market reaction forces the parties to come to the table.

The actual announcement of failure may be issued late in the afternoon, after most markets have closed. No other steps are required and if such an announcement is issued, that will end the Super Committee process.

"My sense is that fiscal policy is now going to shift into full campaign mode," says Bob Bixby, executive director of the Concord Coalition.

"I don't see much happening between now and the 2012 elections. It seems likely that Congress has to do something on a few immediate items: extending the payroll tax cut and unemployment insurance benefits. These will probably happen in late December," Bixby said.

Bixby said this year's budget battles raised key fiscal issues, but neither party was willing to make the kind of compromises required to reach an agreement.

"I don't think anybody had the political standing to pull off a Grand Bargain. John Boehner and Barack Obama tried this summer but they couldn't do it. Doing so required both sides to take a leap of faith and take a big risk at angering their base," Bixby said.

"The Super Committee tried to do a smaller deal and found that kind of deal may be even more politically difficult to do than a Grand Bargain, because it would have required unfairly focusing pain on one group or interest," he said.

Obama and Boehner discussed a broad budget agreement this summer that would have called for about $4 trillion in ten year deficit reduction, but these talks collapsed over disputes over entitlement reform and additional revenues.

"I had high hopes for this group, in large part because its goal was so puny: $1.2 trillion," says Bill Frenzel, a former Republican congressman who is now a guest scholar at the Brookings Institution.

"But it looks like even that was too much. Neither side was able or willing to get off its established positions. It looks like we are going to have to wait for another election to try to sort all of this out," Frenzel added

Former White House Budget director Alice Rivlin said Monday at a budget conference that the major fiscal event for the rest of the year will be an effort to extend expiring tax provisions, including the payroll tax cut, and also extending unemployment insurance benefits.

"Something has to get done on that stuff and it's expensive," Rivlin said.

"There may be a majority (in Congress) for extending those," she said, but added that the failure of the deficit reduction committee makes these extensions more difficult.

Rivlin that once these matters are dealt with, the focus of fiscal policy in Congress will be on the 2012 elections.

Budget experts expect some members of the House and Senate to keep pressing for a major deficit reduction agreement, but these efforts are unlikely to accomplish anything tangible.

Members of the Senate's co-called "Gang of Six" are likely to try to resurrect their $4 trillion deficit reduction plan, but that package is unlikely to go anywhere in Congress.

The Joint Select Committee on Deficit Reduction is charged to submit a report to Congress by Wednesday that reduces the deficit by at least $1.2 trillion for the 2012 and 2021 period.

If the panel fails to agree on a spending cut package or Congress rejects its plan, a budget enforcement trigger would secure $1.2 trillion in budget savings through across-the-board cuts.

The cuts would be equally divided between defense and non-defense programs but would exempt Social Security, Medicaid and low-income programs.