Move to cut US debt stymied

WASHINGTON - Reuters

The US Capitol in Washington DC is seen on Nov 19. Washington may not be able to resolve a dispute over taxes and spending until 2013. AFP photo

U.S. lawmakers abandoned their high-profile effort to rein in the country’s ballooning debt on Nov. 21 in a sign that Washington likely will not be able to resolve a dispute over taxes and spending until 2013.

The admission of defeat by Republicans and Democrats on a 12-member congressional “super committee” is likely to cement perceptions among voters and investors that politicians are too divided to tackle trillion-dollar budget deficits and a national debt that now is roughly equal to the U.S. economy.

“Despite our inability to bridge the committee’s significant differences, we end this process united in our belief that the nation’s fiscal crisis must be addressed and that we cannot leave it for the next generation to solve,” Republican Representative Jeb Hensarling and Democratic Senator Patty Murray said in a joint statement.

But lawmakers will be less willing to compromise as they shift their attention to the November 2012 presidential and congressional elections.

President Barack Obama said at the White House that Republicans had scuttled the talks by refusing to consider tax hikes on the wealthy.

“They simply will not budge from that negotiating position and so

far that refusal has been the main stumbling block that has prevented Congress from reaching an agreement to further reduce the deficit,” Obama said.

Republicans blamed Obama for a lack of leadership and said his Democrats had been unwilling to consider a fundamental overhaul of government-run healthcare programs that could swamp the economy in coming decades as the population ages.

The panel waited until after U.S. markets closed at 4 p.m. to formally declare the effort dead, but shares on Wall Street had already hit a one-month low due to fears of out-of-control government debt in Europe and the United States.

Japan’s Nikkei index yesterday hit its lowest level in eight months. The committee’s failure to agree on $1.2 trillion in deficit reduction sets up a year of uncertainty on taxes

and spending that could further rattle investors already shaken over eurozone debt woes.

Automatic cuts

Congress is now set to deliver those budget savings through automatic cuts to defense and domestic programs, but some Republicans have vowed to prevent them from hitting the military. Obama said he would veto any effort to do so. He will have to contend with a concerted lobbying effort by his own defense secretary to preserve the Pentagon’s budget.

“If Congress fails to act over the next year, the Department of Defense will face devastating, automatic, across-the-board cuts that will tear a seam in the nation’s defense,” Defense Secretary Leon Panetta warned.

The U.S. Congress will have to deliver close to $4 trillion in savings to ensure that the national debt, now at $15 trillion, does not swamp the economy, budget experts say.

“The United States is on a perilous debt course, and today’s announcement does nothing to alter it,” said Maya MacGuineas, head of the Committee for a Responsible Federal Budget think tank.

In the coming weeks, Democrats will scramble to extend economy-boosting measures, such as a tax cut for workers and enhanced jobless benefits, which are due to expire at the end of the year. Analysts say the economy could suffer if they are not extended, but Republicans are likely to insist on spending cuts to offset their $168 billion cost