"Super" isn't what it was in Washington, now that the super-committee appointed to resolve the political conflict over dealing with the huge US debt problem has failed. After months of hope that a solution would be found, even the most optimistic had already lost faith before the committee of six Democrats and six Republicans ultimately announced it had been unable to come to any agreement on how to cut the deficit.
Now a bitter battle over every dollar looms, with unpredictable consequences for Americans. A massive US "Failure" was the term used by many newspapers as the collapse loomed - a humiliation for the political class on the Potomac River. These are no back-benchers who have been looking for a compromise, but include former Democratic presidential candidate John Kerry and John Kyl, the Republican number two in the House of Representatives.
These 12 experienced lawmakers have a reputation to lose, as evidenced by the way many of them rapidly appeared on television talk shows over the weekend to blame the other side for the failure, even before that failure had formally been acknowledged. "If it weren't so serious, I could laugh," Kerry told NBC television. The visibly annoyed senator accused the Republicans of attempting to use the committee to smuggle fresh tax cuts for the rich through Congress and to cut social expenditures.
Republican committee co-chairman Jeb Hensarling retorted that the Democrats had no intention of making real savings, but simply wanted to raise taxes. "These are not allegations. These are facts," he said. And after the committee's co-chairs announced that they had not accomplished their task, harsh words continued to fly.
US President Barack Obama called Republicans' refusal to raise taxes "the main stumbling block that has prevented Congress from reaching an agreement to further reduce our deficit." Republicans were equally as harsh of Obama's Democrats, insisting they had not acted in good faith and only sought to increase the size of government.
What is remarkable in the Washington ideological battle is that it is not the goal of creating savings but the means how to do so that is at issue. The super-committee was tasked with finding 1.2 trillion dollars in budgetary cuts over the next 10 years.
Failure means that from 2013 an automatic process will kick in that will cut this sum from future budgets much like a lawn mower. The goal will be achieved, but it remains unclear who will pay for it. The cuts are to come equally from domestic programmes dear to Democrats and defence spending guarded by Republicans. Defence Secretary Leon Panetta had warned of severe consequences to the military.
According to a model generated by the left-of-centre Third Way think tank, many other Americans could also be hit by these forced savings. The institute says 3,700 federal police will lose their jobs, leading to 26,000 fewer arrests. Washington would have to cut 2,300 tax inspectors, with the likely result that 4.5 billion dollars would escape the tax net. And 1,200 air traffic controllers laid off would mean delays for a million passengers. These figures may be rough estimates, but offer an impression nevertheless.
A more serious effect could be loss of confidence. Standard & Poor's downgraded US debt this summer for the first time in rating agency's history, basing its move in part at least on the lack of political reliability. The markets are watching how the committee performs for a sign on how the United States will progress with essential cuts in the budget deficit. "It shows whether the political process is working," investment bank Goldman Sachs said in a recent analysis.
Failure by the committee would have a negative impact but would not lead to an immediate further downgrade, according to Mark Zandi, chief economist at Moody's ratings agency. Zandi sees as much more important Washington's ability over the next 10 years to trim the deficit by a total of 4 trillion dollars. All that is needed for this is for limited tax relief programmes and stimulus packages to expire at their appointed dates. "As long as the legislators do nothing, we'll manage it," Zandi says with no trace of irony.
Comments
Comments are closed.