WASHINGTON — The congressional committee tasked with reducing the federal deficit is poised to admit defeat as soon as Monday, and its unfinished business will set up a year-end battle over emergency jobless benefits and an expiring payroll tax holiday.
Those provisions are among a host of measures set to lapse at the end of December. During nearly three months of negotiations, the so-called “supercommittee” had been weighing whether to extend at least some of them as part of a broader plan to shave a minimum of $1.2 trillion over the next decade.
Democrats and many economists consider particularly urgent the need to extend jobless benefits and the one-year payroll tax cut. With national unemployment stuck at 9 percent and the ranks of the long-term unemployed at record levels, the government is providing up to 99 weeks of support to about 3.5 million people.
Meanwhile, the payroll tax cut, enacted last December, allows most American workers to keep an additional 2 percent of their earnings, a boon to tight household budgets as well as the economic recovery. Economists at J.P. Morgan Chase recently estimated that if Congress does not extend the two measures, economic growth next year could decline by as much as 2 percentage points, enough to revive fears of a new recession.
Time is also running out for doctors who see Medicare patients. They are scheduled to absorb a 30 percent cut in government reimbursements in January. A long list of tax breaks, including an inflation adjustment that protects more than 30 million families from paying the alternative minimum tax, also will be eliminated unless Congress acts.
Although many of the expiring provisions have received bipartisan support in the past, this year they face a welter of political obstacles, none more important than cost. Extending them all through 2012 threatens to add nearly $300 billion to annual budget deficits, and therefore to future borrowing, darkening the nation’s fiscal outlook at the very moment lawmakers had hoped to reassure financial markets with fresh savings.
Sen. Jeff Sessions of Alabama, the ranking Republican on the Senate Budget Committee, said he was uneasy about extending the payroll tax holiday, calling the national debt “a greater threat to us” than the weak economy.
“If the supercommittee fails, I think there will be a stark realization by every member of the U.S. Senate that we’re at the end of the year and these complex challenges have not been dealt with,” Sessions said. “It’s likely to be a really difficult period.”
The policy battle comes as the parties are gearing up for a high-stakes election season dominated by economic concerns, with both the White House and Congress in play. The political pressure that has helped keep the 12-member supercommittee from compromising on hot-button issues such as taxes is sure to grow more intense.
The panel remained gridlocked Saturday with the clock ticking toward a deadline of midnight Monday. Although the official deadline is midnight Wednesday, the committee is legally barred from voting on any plan not made public at least 48 hours in advance.
Republicans on the supercommittee held a conference call Saturday morning, and aides said members from both parties continued to talk. But neither side was predicting a last-minute breakthrough. Instead, seven panel members booked appearances on the Sunday talk shows, as both sides readied their best arguments for why the other is at fault.
If the supercommittee does not finish on time, it would lose special procedural powers to push a tax-and-spending plan through a bitterly divided House and Senate, leaving congressional leaders without an easy path to compromise on the expiring provisions and with a potentially nasty holiday-season fight on their hands.
“We don’t have the answers,” Sen. Richard Durbin of Illinois, the No. 2 Democrat in the Senate, conceded as it became evident that the panel’s effort had stalled. “The supercommittee was put in place” to develop “a strategy to take us through the election” by resolving the toughest outstanding budget problems, he said. “If they don’t succeed, then we have to address these issues.”
Durbin said he is “prepared to add to the deficit at this moment” to extend the economic measures and “bring us out of this recession.” But many Democrats have conflicting emotions about the measures, especially the one-year payroll tax cut, which would add more than $100 billion to budget deficits and reduce Social Security’s dedicated financing stream.
Republicans are also divided. Rep. Nan Hayworth of New York said she is “extremely sympathetic to extending” the payroll tax holiday, but Rep. Jason Chaffetz of Utah said he would have trouble supporting it without matching cuts in spending.
“I’m in favor of lower taxes. But, when you don’t couple it with a spending decrease, it’s a real problem,” Chaffetz said. “And we don’t seem to be able to cut anything around here.”
Democrats on the supercommittee pressed to use savings from the drawdown of troops in Iraq and Afghanistan to cover the cost of economic measures. But Republicans on the panel wanted to use the war savings to cover the cost of fixing the alternative minimum tax and protecting payments to doctors who see Medicare patients.
Without the political cover of a supercommittee deal to reduce borrowing by the $1.2 trillion target, aides in both parties say it would be difficult to claim savings for any purpose from what some lawmakers have taken to calling “the overseas contingency account.”
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