–Analysts Say Deadlock Shows Parties Deeply Divided on Fiscal Issues
–Dems, GOP Unwilling To Make Key Concessions On Entitlements, Taxes
–Extending Payroll Tax Holiday, Unemployment Insurance Now Key Issues
–Hill Bankbenchers Likely To Keep Calling For Deficit Deal

By John Shaw

WASHINGTON (MNI) – The failure of Congress’s deficit reduction
panel, which is expected to be formally confirmed Monday, ends a bitter
year-long battle over fiscal policy between President Obama and his
Democratic allies on Capitol Hill and House Speaker John Boehner, his
Republican majority in the House, and an aggressive GOP minority in the
Senate.

This partisan fiscal battle peaked during the summer’s debt ceiling
crisis, recessed briefly during August, and then resumed this fall under
the auspices of Congress’s deficit reduction panel.

Budget experts say that little progress is now likely on fiscal
policy until after the 2012 presidential and congressional elections,
unless a major market reaction forces the parties to come to the table.

The actual announcement of failure may be issued late in the
afternoon, after most markets have closed. No other steps are
required and if such an announcement is issued, that will end the Super
Committee process.

“My sense is that fiscal policy is now going to shift into full
campaign mode,” says Bob Bixby, executive director of the Concord
Coalition.

“I don’t see much happening between now and the 2012 elections. It
seems likely that Congress has to do something on a few immediate items:
extending the payroll tax cut and unemployment insurance benefits. These
will probably happen in late December,” Bixby said.

Bixby said this year’s budget battles raised key fiscal issues, but
neither party was willing to make the kind of compromises required to
reach an agreement.

“I don’t think anybody had the political standing to pull off a
Grand Bargain. John Boehner and Barack Obama tried this summer but they
couldn’t do it. Doing so required both sides to take a leap of faith
and take a big risk at angering their base,” Bixby said.

“The Super Committee tried to do a smaller deal and found that kind
of deal may be even more politically difficult to do than a Grand
Bargain, because it would have required unfairly focusing pain on one
group or interest,” he said.

Obama and Boehner discussed a broad budget agreement this summer
that would have called for about $4 trillion in ten year deficit
reduction, but these talks collapsed over disputes over entitlement
reform and additional revenues.

“I had high hopes for this group, in large part because its goal
was so puny: $1.2 trillion,” says Bill Frenzel, a former Republican
congressman who is now a guest scholar at the Brookings Institution.

“But it looks like even that was too much. Neither side was able or
willing to get off its established positions. It looks like we are
going to have to wait for another election to try to sort all of this
out,” Frenzel added

Former White House Budget director Alice Rivlin said Monday at a
budget conference that the major fiscal event for the rest of the
year will be an effort to extend expiring tax provisions, including
the payroll tax cut, and also extending unemployment insurance benefits.

“Something has to get done on that stuff and it’s expensive,”
Rivlin said.

“There may be a majority (in Congress) for extending those,” she
said, but added that the failure of the deficit reduction committee
makes these extensions more difficult.

Rivlin that once these matters are dealt with, the focus of fiscal
policy in Congress will be on the 2012 elections.

Budget experts expect some members of the House and Senate to keep
pressing for a major deficit reduction agreement, but these efforts are
unlikely to accomplish anything tangible.

Members of the Senate’s co-called “Gang of Six” are likely to try
to resurrect their $4 trillion deficit reduction plan, but that package
is unlikely to go anywhere in Congress.

The Joint Select Committee on Deficit Reduction is charged to
submit a report to Congress by Wednesday that reduces the deficit by at
least $1.2 trillion for the 2012 and 2021 period.

If the panel fails to agree on a spending cut package or Congress
rejects its plan, a budget enforcement trigger would secure $1.2
trillion in budget savings through across-the-board cuts.

The cuts would be equally divided between defense and non-defense
programs but would exempt Social Security, Medicaid and low-income
programs.

** Market News International Washington Bureau: (202) 371-2121 **

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