WASHINGTON (Reuters) – A high-profile congressional effort to trim stubborn budget deficits appeared near collapse on Friday as Democrats rejected a scaled-back proposal from Republicans that contained few tax increases.
With Democrats and Republicans on a deficit-cutting “super committee” deadlocked ahead of a Wednesday deadline, House of Representatives Speaker John Boehner floated an offer to try to break the logjam on tax increases and benefit cuts.
The plan would save $643 billion over 10 years, about half of the panel’s goal of $1.2 trillion, but the two sides were unable to even agree what was in the plan.
Boehner aides said it included $229 billion in new revenues and fees. Democrats said it would only generate $3 billion in new revenue from closing a tax break for corporate jets.
“To have something on the table that does not ask the wealthiest people in the country to share (the burden) … is unconscionable,” said Senator John Kerry, a Democrat on the committee.
One Republican on the panel said the two sides were continuing to talk but time was running short.
“It’s regrettable that they are not willing to make any common sense reductions in spending and at the same time they’re insisting on job-killing tax increases,” said Republican Representative Dave Camp.
The panel will need to have a deal in place well before its Wednesday vote.
By late Friday, aides said no further meetings were planned. Saturday also looked to be quiet, though members of the panel were gearing up verbal combat Sunday morning TV talk shows.
Congress already has rock-bottom approval ratings among the American public after a year of down-to-the-wire budget battles. Failure by the committee to reach a deal would likely incite further disgust among voters as the 2012 election season heats up.
But, unlike budget standoffs in April and August, failure would not lead to a government shutdown or a sovereign debt default. Instead, automatic spending cuts of $1.2 trillion over 10 years, split evenly between military and domestic programs, would kick in starting in 2013.
BUSH TAX CUTS A FACTOR
Many Republicans worry the automatic cuts to military programs could compromise national security.
Democrats feel less urgency as programs for the poor and the elderly, such as Medicare and food stamps, would be largely shielded from the cuts.
They also see an advantage as temporary tax cuts enacted under President George W. Bush are due to expire at the end of 2012 and Republicans are eager to forge a deal that would overhaul the tax code before that time in order to avoid a higher tax burden on the wealthy.
Some Republicans have said they could support tax increases in return for an overhaul of benefits like Medicare, expected to expand dramatically as the population ages. But they face fierce opposition within their own party.
Democrats hope to include measures to stimulate the struggling economy, such as a payroll tax cut and enhanced jobless benefits due to expire at the end of the year. Economists warn the economy could suffer if those measures are not kept in place, and it could be harder to overcome Republican skepticism and procedural barriers if they are not included in a deal.
The panel must release any plan it comes up with at least 48 hours before a vote. That would point to Monday as a final deadline, but lawmakers must give budget analysts time to crunch the numbers as well.
MARKET REACTION UNCLEAR
It’s not clear how investors would react to failure.
Markets plunged in August after a divisive battle over extending the government’s borrowing authority prompted ratings agency Standard & Poor’s to issue a first-ever U.S. debt downgrade. The other two major ratings agencies have said they would not necessarily follow suit if the committee deadlocks, as long as the automatic cuts are allowed to kick in.
Investors’ expectations are extremely low, which might limit the scope of market reaction. Most are distracted by the debt crisis in Europe, which may ensure a safe-haven status for U.S. Treasury bonds and the dollar even if the committee fails to agree on substantive cuts.
However, the automatic cuts may be seen as another negative for the U.S. economy and could roil the stock market.
Boehner’s plan represented a third option that would set aside divisive issues like taxes and benefits and put together a much smaller package containing measures both sides could theoretically agree upon, which would reduce the severity of automatic spending cuts.
But the Democrats’ rejection of that approach showed the two sides remain far apart.