Expectations low in talks over U.S. deficit deal

WASHINGTON Tue Nov 8, 2011 5:29am IST

U.S. 100 dollar notes are seen at a bank in this picture illustration in Seoul September 20, 2011.  REUTERS/Lee Jae-Won/Files

U.S. 100 dollar notes are seen at a bank in this picture illustration in Seoul September 20, 2011.

Credit: Reuters/Lee Jae-Won/Files

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WASHINGTON (Reuters) - A special U.S. committee charged with reducing the federal deficit entered a critical week for reaching a deal amid expectations its members will fail to bridge their differences over taxes before a Nov. 23 deadline.

"Every member understands that time is running out," said House of Representatives Democrat Chris Van Hollen, who is on the so-called super committee. "This is the moment to get it done if we're going to get it done," he said in an interview with MSNBC's "Morning Joe" program on Monday.

Van Hollen downplayed speculation that the 12-member bipartisan committee could ask Congress to give it more time to reach a deal. "More time won't get us there unless we're really, really close," he said.

Democrats and Republican sources in Congress did not sound optimistic on Monday about a deal to cut huge U.S. deficits that are running at around $1 trillion a year.

"I don't think the super committee is going to succeed, because our Republican colleagues have said no net revenues," Democratic Senator Charles Schumer said on "Morning Joe."

Republicans want any revenues raised by closing various tax breaks and loopholes to be used for lowering top individual and corporate tax rates rather than deficit reduction. They argue lower rates will generate more economic activity that will bring more tax revenues to federal coffers.

Democrats urged a more "balanced" approach and demanded higher taxes on the wealthy and eliminating some corporate tax breaks in exchange for concessions on government healthcare and retirement programs.

A Democratic aide told Reuters there had been no progress toward a deal.

A Republican aide, who also asked not to be identified because of the sensitivity of the negotiations, said Democrats have refused to move off their demand for $1.2 trillion in tax increases, more than President Barack Obama called for a few months ago.

"They are going backwards," the aide said.

The six Republicans on the panel held a closed meeting on Monday -- without their Democratic counterparts -- and again, there was no outward sign of forward movement.

While the full 12-member panel did not meet last week and has no plans to meet this week, the Republican and Democratic co-chairs have been in regular contact, as have many of the individual members with each other, aides said.

The legislation that created the panel gave it until Nov. 23 to come up with a plan to cut deficits by at least $1.2 trillion over the next 10 years. But in reality the deadline is even closer -- the committee must publicly post the entire legislation at least two days before any vote by the panel.

There have been few signs that committee members can break through familiar partisan differences over taxes and spending for retirement and health programs for the elderly and poor.

NO TAXES PLEDGE

Grover Norquist, head of the powerful anti-tax lobbying group Americans for Tax Reform, told the Reuters Washington Summit that if Democrats refused to budge from their demand for tax increases, then the next best option was for the super committee to deadlock and for $1.2 trillion in automatic spending cuts to kick in, beginning in 2013.

"Tax increases violate the pledge that most Republicans -- 98 percent of Republicans -- have taken," he said.

Norquist's group has persuaded hundreds of Republican lawmakers, and a few Democrats, to sign a pledge promising never to support any type of tax increase.

Failure by the super committee to agree on a plan could stoke fears among investors around the world that the U.S. political system is incapable of coming to grips with the country's huge debt.

Under the current law, half of the automatic spending cuts, if triggered, would fall on defense programs and the other half on domestic programs.

Republican Senators John McCain and Lindsey Graham are collaborating on legislation that would undo at least some of the automatic spending cuts aimed at the Pentagon.

"He reserves the right to pursue all options to ensure that any cuts mandated by a sequester don't leave us with a hollow military," said McCain spokesman Brian Rogers.

A senior Senate Democratic aide said Republicans would face "a long road to get that passed and at the end of the road is the president, who isn't likely to sign it."

At least one influential lobbyist was optimistic of a deal.

Bruce Josten, executive vice president of the U.S. Chamber of Commerce, told the Reuters Washington Summit: "I think the 9 percent approval rating in Congress right now ... coupled with the fear of sequestration, is going to drive those 12 people in that room to get as close as they possibly can, if not achieve, the $1.2 trillion" in deficit reduction.

(Additional reporting by Donna Smith and Thomas Ferraro; Editing by Philip Barbara)

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