(Bloomberg News) A debt-reduction committee with special powers that was supposed to dissolve congressional gridlock in Washington is instead on the brink of failure, setting the stage for $1.2 trillion in automatic spending cuts.
U.S. Senator Jon Kyl of Arizona, a Republican on the 12-member panel, said on CNBC today that the supercommittee's Republican and Democratic co-chairmen, Representative Jeb Hensarling of Texas and Senator Patty Murray of Washington, would make a formal announcement "toward the end of the day." They are expected to say that the panel can't reach agreement on determining deficit reductions of at least $1.2 trillion.
Today is the deadline for the Congressional Budget Office to receive information for analyzing how a proposal would affect the U.S. budget deficit, in advance of the supercommittee's Nov. 23 target date for reaching a deal. Senate Republican leader Mitch McConnell of Kentucky has declared over the past few months that failure is "not an option" for the panel, which was created in August after rancorous debate over raising the nation's borrowing limit that plunged congressional approval ratings to lows of between 9 percent and 14 percent.
Republican 'Intransigence'
Senator John Kerry, a Massachusetts Democrat and member of the supercommittee, told Bloomberg Television today that "the single thing" standing in the way of an agreement was Republican "intransigence" about extending tax cuts for top earners, enacted under President George W. Bush, that are scheduled to expire at the end of 2012. He said that because those tax cuts would benefit the wealthy, "the vast majority of Americans do not think we should do" that.
Yesterday, members of both parties took to the airwaves on the Sunday talk shows to blame the other for the lack of an agreement, though they stopped short of saying the talks had failed. Democrats faulted Republicans for refusing to budge on an anti-tax pledge and Republicans accused Democrats of rejecting their latest offer to raise revenue along with spending cuts.
Appearing on NBC's "Meet the Press," Kyl said Democrats turned down a final offer that included $250 billion in new revenue by eliminating some tax breaks even as it lowered income tax rates. "There's a group of folks that will not cut a dollar unless we also raise taxes," he said.
On the same program, Kerry called Kyl's statement "patently not true" and said Democrats agreed to $917 billion in spending cuts with no new revenue as part of the August agreement to raise the debt ceiling. The latest Republican plan, said Kerry, "still results in the biggest tax cut since the Great Depression."
Market Reaction
European stocks dropped for a third day today and U.S. futures retreated in anticipation of the congressional impasse. Treasuries advanced, pushing yields toward a six-week low, as speculation about the panel's failure to reach an agreement spurred demand for the safest assets.
The 10-year yield fell six basis points to 1.96 percent at 9:13 a.m. New York time, according to Bloomberg Bond Trader prices. The benchmark Stoxx Europe 600 Index lost 1.9 percent, extending last week's sell off, and the MSCI Asia Pacific Index dropped 1.5 percent.
Futures on the S&P 500 expiring in December dropped 1.4 percent to 1,197.30 at 8:38 a.m. in New York. The equity benchmark lost 3.8 percent last week, the biggest retreat since Sept. 23, as Spanish, French and Italian bond yields rose and Fitch Ratings said the euro-area's debt crisis poses a threat to American banks.
Automatic Spending Cuts