–Democrats and Republicans Scramble To Place Blame For Panel’s Failure
–Bipartisan Group of Lawmakers Likely To Try To Revive Deficit Cut Bid
–Obama Takes Hard Line Against Easing Across-The-Board Spending Cuts
–Congressional Action To Shift To Payroll Tax, UI Extension

By John Shaw

WASHINGTON (MNI) – While there is much confusion facing American
fiscal policy in the aftermath of the failure of Congress’ deficit
reduction committee, there are four things that are near certain.

First, Democrats and Republicans will continue to actively blame
each other for the failure of the deficit reduction committee and will
continue to release detailed narratives to support their contentions.

Second, dozens of lawmakers will launch a well-intentioned but
probably fruitless effort to assemble a major deficit reduction package
in the coming months.

Third, both parties will closely examine the practical effects of
the coming $1.2 trillion in across-the-board spending cuts over the next
decade and at least ponder if the allocations of the cuts should be
reconfigured.

And finally, Congress and the White House will spend the next 45
days or so negotiating intensively on a package to renew the payroll tax
cut, extend unemployment insurance benefits, prevent scheduled cuts in
Medicare payments to doctors. and adjust the alternative minimum tax.

As for the reasons for the so-called Super Committee’s failure,
both Democrats and Republicans have been assembling their arguments
about why the other party is to blame and began pushing them
aggressively over the weekend.

While each party has fully developed narratives, replete with
specific offers made during the deficit panel talks, their bottom lines
are simple and familiar.

Republican members of the panel said Democrats would not agree to
an overhaul of entitlement programs unless massive tax increases were
attached to these changes. The GOP said this is unacceptable;
fundamental reform of entitlements is essential for getting control of
the budget, the GOP argues.

Democrats responded by saying the Republican members of the panel
demanded the Bush era tax cuts be extended as part of any deficit
reduction deal. The net effect of this, they said, would be to actually
increase the budget deficit, not increase it. They said Republicans
still oppose a “balanced” approach to deficit reduction with both
spending cuts and tax increases.

In the aftermath of the deficit panel’s failure, there is almost
certain to be a new effort to assemble a deficit reduction package to
avoid the coming sequestration process and to tackle the nation’s
long-term fiscal challenges.

In his remarks Monday evening, President Obama said Congress still
“has a year to figure it out” before the spending cuts begin to be
triggered in January of 2013. “Nothing prevents them from coming up with
an agreement in the days ahead,” Obama said.

Just last week, a bipartisan group of about four dozen lawmakers
held a briefing in which they purported to represent a coalition of
about 150 members of Congress who want a “balanced” $4 trillion deficit
reduction agreement with both spending cuts and revenues.

Members of the Senate’s so-called “Gang of Six” have said they will
revive their efforts to assemble and build support for a $4 trillion
deficit reduction package in the coming months.

But many analysts are deeply skeptical that the “Gang of Six” can
deliver much beyond lofty soundbites. During a critical time in last
summer’s debt ceiling debate, the group was unable to agree on even a
general framework. They finally stepped forward with a sketchy plan in
the late summer, but by this time the fiscal debate had shifted to the
budget talks involving Obama and House Speaker John Boehner.

While Senate Majority Leader Harry Reid and Senate Minority Leader
Mitch McConnell agree on almost nothing, they both appear to share a
deep skepticism, even a scorn, for the “Gang of Six.”

The battle over the implementation of across-the-board spending has
already begun.

Obama, in his Monday evening briefing, took a hard, seemingly
inflexible stance.

“Already some in Congress are trying to undo these automatic
spending cuts. My message to them is simple: No,” Obama said.

“I will veto any effort to get rid of these automatic spending cuts
to domestic and defense spending, There will be on easy off ramps on
this one. We need to keep the pressure up to compromise, not turn off
the pressure,” he added.

But Republicans have said the across-the-board spending cuts would
be especially punishing for defense programs. Senate Minority Whip Jon
Kyl has said he expects an effort to “work around” the coming defense
cuts while keeping intact the $1.2 trillion in net savings.

Finally, Congress and the White House will be in intense talks over
the next five weeks on what to do with a raft of expiring tax and policy
provisions.

At the center of this discussion will be an attempt to extend last
year’s agreement to reduce for one year the employees’ share of the
Social Security payroll tax from 6.2% to 4.2% of earnings. Just
extending this provision for one year would cost about $120 billion.

Democrats also want to renew expiring unemployment insurance
benefits.

The cost of an overall package would be well over $200 billion.
House Speaker John Boehner has said this package must be fully offset
with other spending cuts.

The battle over finding offsets to pay for this package is likely
to consume Congress until the next of the year.

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

[TOPICS: M$U$$$,MFU$$$,MCU$$$,M$$CR$]