ANALYSIS - Obama, GOP shift tax, budget fight into 2012
WASHINGTON (Reuters) - President Barack Obama and Republicans in Congress are digging in to fight the 2012 U.S. election campaign over the budget and taxes, leaving a congressional "super committee" in political no man's land.
On one side is Obama vowing to defend social programs and proposing new taxes on the rich; on the other side are the Republicans opposing any new taxes and demanding deep social program cuts. What's a super committee to do?
Probably the bare minimum required, then call it a day, leaving U.S. voters to make the tough decisions about fiscal policy at the polls in November 2012, analysts said.
"It leaves the committee in a difficult position," said Keefe Bruyette & Woods policy analyst Brian Gardner.
That is no surprise to skeptics who have long doubted the 12-member, bipartisan super committee's capacity for a fiscal policy breakthrough, yet it will disappoint some.
The bitter debate in Washington had moderated after Congress took its summer break. Lawmakers had gotten an earful from disgusted constituents back home and the mood on Capitol Hill seemed more respectful. Cooperation was in the air.
The super committee, known formally as the Joint Select Committee on Deficit Reduction, is supposed to find by Nov. 23 at least $1.2 trillion in added budget savings over 10 years. Some had been hoping that it would do much more.
A chance of that remains, but political positioning is quickly overtaking the panel's agenda and an ideological standoff that prevailed through most of the year is returning -- a worry for financial markets keen for signs that the United States government is getting its fiscal house in order.
"Chances for a super committee deal have faded significantly in the past week, as both sides have dug in their heels," said Greg Valliere, chief political strategist at consultancy Potomac Research Group.
"This move by Obama has made a deal even less likely."
ROSE GARDEN TALK
Obama released a plan on Monday at the White House calling for more than $3 trillion in deficit cuts over 10 years, with roughly half of the savings coming from higher taxes on the wealthy and big corporations.
"This is purely politics, aimed at Obama's demoralized base. It undoubtedly has been poll-tested, so now Obama has a populist campaign issue. There's obviously no chance this could pass" on a vote in Congress, Valliere said.
The president vowed on Monday to shield middle-class social insurance programs from cuts unless Congress raises taxes on the wealthy and corporations. His plan will go to the super committee, which can do as it pleases with his proposals.
"I will not support any plan that puts all of the burden for closing our deficit on ordinary Americans," Obama said.
"We are not going to have a one-sided deal that hurts the folks who are most vulnerable."
Republican reaction to Obama's plan was swift and predictably negative.
"Veto threats, a massive tax hike, phantom savings, and punting on entitlement reform is not a recipe for economic or job growth -- or even meaningful deficit reduction," said Senate Republican leader Mitch McConnell.
"The good news is that the joint committee is taking this issue far more seriously than the White House."
Republican Senator Pat Toomey, a super committee member, praised Obama for putting ideas on the table, but he said the president's plan looked like "political posturing."
"With the select committee's deadline looming, we do not have time to waste on political games and pushing big tax increases that will only make our economy weaker," he said.
The U.S. budget deficit in 2011 is expected to be about $1.3 trillion. The national debt stands at $14.7 trillion.
Most fiscal experts agree that restructuring of social programs, such as the Medicare and Medicaid healthcare programs for the elderly and poor, is needed to reduce the deficit, along with basic tax reforms that bring in more revenues.
Democrats see unfairness in the present tax system that allows many of the well-to-do and large corporations to dodge taxes. Multibillionaire Warren Buffett, for instance, has said that he pays a lower effective tax rate than many of his employees.
LEVIN: OBAMA 'ON TARGET'
"The president's proposed 'Buffett rule' is right on target," said Representative Sander Levin, the top Democrat on the tax-writing House Ways and Means Committee, referring to Obama's proposal for a tax on millionaires.
Two years ago, only 287,000 out of about 172 million U.S. taxpayers made 9.5 percent of all reported U.S. income. Of those highest earners, Internal Revenue Service data also showed that 1,470 owed no federal income taxes in 2009.
Today's top tax rate, 35 percent, is half what it was 30 years ago. The last time the tax code was thoroughly overhauled was in 1986, when President Ronald Reagan, a Republican, raised corporate taxes and cut the top tax rate.
"The very wealthy in our country have seen their incomes skyrocket while middle class income has stalled and poverty has risen. We need an approach to deficit reduction that is balanced and a tax system that fairly represents today's reality," Levin said in a statement.
(Additional reporting by Richard Cowan, Alister Bull, Caren Bohan, John Whitesides, Deborah Charles and David Cay Johnston; editing by Mohammad Zargham)
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