'Super-committee' on brink of US deficit failure

The committee has been locked in talks and hearings for several months

Talks in Washington aimed at cutting the US government's borrowing are on the verge of failure.

A congressional "super-committee" was tasked in the summer with finding $1.2tn (£762bn) in savings to avoid automatic deep spending cuts.

But the talks between Democrats and Republicans are widely reported to have collapsed, with formal confirmation expected later on Monday.

Meanwhile, the US national debt has just risen above $15tn (£9.5tn).

The deficit-reduction committee was set up in August, the result of a last-minute deal between the two sides in Congress to raise the debt ceiling and avert a potential default on US debt payments.

Its members were instructed to find at least $1.2tn in savings by 23 November. That deadline is effectively Monday, as any plans agreed by the committee would need to be submitted for analysis by the Congressional Budget Office 48 hours before the formal deadline.

Democratic Senator John Kerry held out hope for a last-minute agreement, saying on Monday that a deal remained on the table, but that failure would mean the forthcoming presidential election would be dominated by the deficit debate.

Continue reading the main story If the committee fails, it is likely to have a major impact on financial markets, both at home and overseas. But any political failure is also likely to have a much broader effect on overall business and consumer confidence. If Americans are worried that Washington cannot work things out, they may rein in spending and damage the already weak US recovery. In the bond markets, America's cost of borrowing could start to creep up. Whilst many doubt that the US would ever turn into Greece, the debt problems in Europe are a nasty reminder of what can happen when governments borrow too much, fail to curb spending and people lose faith in their ability to repay loans.

"If we fail to do this today it will define 2012 going forward," Mr Kerry said.

Without an agreement, the committee faces the prospect of being held responsible for automatic cuts totalling some $1tn to defence and domestic spending, due to come into effect in 2013.

Much of the burden - almost $500bn - is expected to fall on defence and national security budgets, despite the Pentagon already facing a $450bn reduction in its budget.

US Defence Secretary Leon Panetta has spoken out against the prospect of further defence cuts, saying they would "hollow" out US military capabilities.

White House spokesman Jay Carney said on Monday that the defence cuts planned for 2013 are "deeper than we think is wise", but said the Obama administration does not think Congress should undo the automatic cuts.

"Instead of pointing fingers and playing the blame game, Congress should act," the Associated Press reported him as saying.

'Little common ground'

Disagreements have centred on whether tax increases should form part of the budget reduction measures, with Democrats in favour of such rises but Republicans opposed.

Republicans are also seeking cuts in benefits and healthcare schemes including Medicare and Medicaid, programmes dear to Democrats.

Continue reading the main story “ Start Quote The failure of a system specifically designed to force agreement would dramatically underscore the magnitude of the problem” End Quote

Following weeks of negotiations, a last-minute proposal that included some new taxes raised hopes, but could not muster enough support.

Republicans proposed a package of $644bn in savings, including $543bn in spending cuts, $3bn of new revenue generated by closing a tax loophole for businesses to buy private jets, and $98bn saved from lower interest payments.

Democrats rejected the offer, saying it focused too heavily on spending cuts.

Earlier, Democrats produced a plan worth $3tn that included $1.3tn in revenue from tax rises, around $400bn in Medicare savings, and between $200bn to $300bn in new economic stimulus.

But it did not attract support among Republicans, who oppose tax increases.

The Republican and Democratic heads of the 12-member committee are now expected to issue a statement later on Monday, probably after the US markets have closed, saying they have been unable to reach a deal.

Continue reading the main story Automatic spending cuts in 2013 Half of the cuts - estimated at $454bn - would hit defence spending

Non-security programmes would be trimmed by $294bn

About $170bn of cuts would be made to mandatory spending

$31bn in savings by reducing Medicare premiums

Savings of $169bn from reduced interest payments on national debt Source: US Congressional Budget Office

On Sunday, several committee members appeared on US political talk shows and confirmed that the panel's work had all but ended.

"Our Democratic friends were never able to do the entitlement reforms," Republican Senator Jon Kyl said on NBC TV. "They weren't going to do anything without raising taxes."

Democratic Senator Patty Murray, one of the committee's co-chairs, told CNN that the Republicans' position on taxes was the sticking point.

"The wealthiest Americans, who earn over a million a year have to share too. And that line in the sand, we haven't seen Republicans willing to cross yet," she said.