October 26, 2011 7:38 pm

Hints of progress in effort to slash US deficit

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Democrats on the congressional committee charged with slashing US budget deficits presented a plan for more than $2,500bn in savings over the next 10 years, seeking to rekindle “grand bargain” budget negotiations that faltered in July.

In a sign that talks within the 12-member panel are rapidly gaining momentum, a majority of its Democratic members offered some cuts to benefits from Medicare, the popular government healthcare scheme for the elderly, as part of a package that would also include more than $1,000bn in higher tax revenue and some short-term stimulus for the troubled US economy. About half of the savings would come from spending cuts, and the rest from taxes.

One congressional aide said the move reflected an effort on the part of Democrats to “engage” with Republicans and draw them into negotiations on a deal that would exceed the official mandate of the panel, which is to find $1,500bn in deficit reduction measures over the next 10 years.

Details are sketchy, as the negotiations are shrouded in secrecy. But Republicans, who are adamantly opposed to any tax increases, signalled they would oppose such a compromise, dismissing it as a non-starter and a political stunt.

But the Democratic plan will still serve as the opening salvo as the talks move into the critical final weeks ahead of their November 23 deadline for a deal. Unveiled during a closed session of the committee by Max Baucus, chairman of the Senate finance committee, the Democratic plan roughly tracks the contours of a large-scale fiscal agreement discussed three months ago between Barack Obama, the president, and John Boehner, the Republican speaker of the House of Representatives.

Those negotiations ultimately fell apart, however, and Congress settled for a less ambitious agreement that was nonetheless sufficient to raise the US debt limit and avoid a default. The severe political divisions over tax and spending that hampered those discussions have continued to resurface since then, and appear difficult to resolve efficiently.

If a majority of seven members of the so-called “supercommittee” do not agree on at least $1,200bn in savings over the next month, automatic across-the-board spending reductions would be triggered, starting in 2013. In addition, credit ratings agencies could move to inflict further punishment on America’s credit score, after Standard & Poor’s downgraded the US’s triple-A rating in August.

“We aren’t there yet, but I am confident that we are making progress, said Patty Murray, the Democratic senator from Washington state that co-chairs the panel.”If this committee is going to work -- and I believe that it must -- we all need to be willing to make some tough decisions and real compromises. I am willing to do that, and I know many of my colleagues are as well,” Ms Murray said at a public hearing of the committee on Wednesday - the first since September.

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