(Courtesy of Bloomberg)
A special debt-reduction committee in the U.S. Congress failed to reach agreement, extending partisan gridlock into the 2012 election year and setting the stage for $1.2 trillion in automatic spending cuts.
President Barack Obama blamed Republicans, saying in remarks at the White House they “refused to listen to the voices of reason and compromise.” The president said he would veto any move to avoid the automatic spending cuts that are supposed to start in 2013 as a result of panel’s failure.
Committee co-chairmen Representative Jeb Hensarling of Texas, a Republican, and Senator Patty Murray of Washington, a Democrat, said in an e-mailed statement that “after months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.”
Murray told reporters she would keep working toward a “fair and balanced” deal that could forestall the automatic cuts. “We have a responsibility to find that solution, and I’m going to keep working each and every day until we get there.”
Standard & Poor’s said it would keep the U.S. government’s credit rating at AA+ after the Hensarling and Murray announcement. S&P, which stripped the U.S. of its top AAA grade on Aug. 5, said it decided that the failure by the committee didn’t merit another downgrade. Moody’s Investors Service today affirmed its Aaa credit rating of the U.S. while maintaining a negative outlook.
The official announcement by the so-called supercommittee came after members spent the day shuttling between meetings at the Capitol to try to reach a last-ditch accord on at least $1.2 trillion in cuts over a decade. The panel was established as a way to end an impasse in Washington after other efforts over the past year aimed at reducing the deficit collapsed amid partisan wrangling.
Both parties expressed disappointment and blamed each other for the impasse. Democrats said Republicans wouldn’t budge on their opposition to tax increase and Republicans accused Democrats of refusing to consider changes to entitlement programs such as Medicare.
Treasuries rallied while riskier assets declined as the supercommittee’s deadlock spurred demand for safer assets.
The Standard & Poor’s 500 Index lost 1.9 percent to close at a six-week low of 1,192.98 at 4 p.m. in New York. The MSCI All-Country World Index sank 2.3 percent in its first six-day slump since August. Yields on 10-year Treasury notes fell four basis points to 1.97 percent.
He added: “Doing otherwise is not an option.”
“We’ll continue our efforts to reduce the size of Washington, reform and protect the entitlement system for future generations, and create a better environment for job growth,” he said.
Senate Majority Leader Harry Reid, a Nevada Democrat, said in a statement, “Republicans relentlessly sought to end Medicare as we know it by privatizing the program and putting seniors and future generations at the mercy of insurance companies.”
House Democratic leader Nancy Pelosi echoed those comments, saying the Republican rejection of a “balanced approach” led to the failure of the supercommittee.
Pelosi, of California, said the panel’s Republicans “insisted on extending the Bush tax cuts for people making more than a million dollars a year and repealing the Medicare guarantee — while refusing to accept a jobs proposal.”
Representative Chris Van Hollen, a Maryland Democrat and panel member, called the outcome a “huge missed opportunity for the country.”
“I believe this is a sad day for the nation,” he said.
Senator John Kerry, a Massachusetts Democrat and member of the supercommittee, said in a statement the panel’s failure “underscores the rigidity and unwillingness of forces outside of Congress to allow for rational consensus.”
Some lawmakers were already looking at ways to lessen the effects of the scheduled across-the-board cuts.
Representative Howard P. “Buck” McKeon, a California Republican and chairman of the House Armed Services Committee, said he will introduce legislation to prevent $500 billion in automatic defense budget cuts.
Defense Secretary Leon Panetta has said the automatic cuts would be “devastating” for the Pentagon.
Peter Peterson, a retired investment banker and advocate of balancing the federal budget, called the panel’s failure “deeply disappointing.”
“A divided government cannot succeed until elected officials choose to lead the country toward solutions instead of relentlessly defending their own political ideology,” the chairman emeritus and co-founder of Blackstone Group and chairman of the Peter G. Peterson Foundation said in a statement.
The failure kicks tax and spending issues into the election debate.
“The next election certainly will have a big bearing on the question of what’s the scope and size of the federal government, and do we want to try to tax our way out of this or grow our way out,” Senator Jon Kyl of Arizona, a Republican on the 12-member panel, said on CNBC.
Congress has a history of undoing previous attempts to require debt reduction, and lawmakers on both sides of the aisle, including Senator John McCain, an Arizona Republican, and Representative Maxine Waters, a California Democrat, are already trying to use legislative levers to stop the automatic cuts from taking effect.
The lack of a deal threatens to deprive Obama of a vehicle to extend a payroll tax cut and insurance benefits for unemployed Americans, which expire at the end of the year.
Obama vowed to block any increase in taxes for middle income Americans. He said lawmakers still have a year to “figure it out” and come up with a deficit reduction plan before the automatic spending cuts take effect.
“One way or another we will be trimming the deficit by a total of at least $2.2 trillion over the next 10 years,” Obama said, counting the $1 trillion in deficit cuts agreed to earlier by lawmakers.