To the surprise of very few, it appears the Super Committee has apparantly failed. The Super Committee is the 12 member bi-partisan committee of Representatives and Senators that was created to put together a package to reduce the national debt by $1.2 trillion dollars. The law creating the committee gave it a deadline to report by Thanksgiving. That is 3 days away.
Although the official deadline is midnight Wednesday, the committee is legally barred from voting on any plan that was not made public at least 48 hours in advance. So Monday is drop dead day. What happens now?
For starters, the $15 trillion dollar national debt will not be reduced. This sends all the wrong messages to the financial markets and to the rating agencies. Days before the Super Committee had its first meeting, Standard and Poors downgraded the credit rating of the nation for the first time in history. Why? Because Congress can not find a way to reduce the debt, let alone govern.
Secondly, a whole lot of financial matters that Congress could not agree on were punted to the Super Committee. With the committee’s demise, those issues are back before Congress. One of these was the extension of unemployment benefits for the long term unemployed. Republicans traditionally are opposed to extensions of unemployment and if it is not part of the super committee’s report, an extension of benefits is likely to face tough sledding.
Another issue is the extension of the payroll tax cut Obama and the Democratic Congress enacted a year ago. It expires December 31st. If it is not extended, every person who works will immediately see a 2% reduction in their take home pay first check of January. Republicans are generally opposed to the payroll tax cuts. They prefer instead additional tax cuts for corporations and millionaires.
Failure of Congress to pass these two measures could very likely tip the country into a recession. At the very least, it will stifle the recovery that seemed stronger in October.
Economists at J.P. Morgan Chase recently estimated that if Congress does not extend those two measures, economic growth next year could drop as much as two percentage points according to an article by Lori Montgomery and Rosalind S. Helderman in the Washington Post.
Workers and un-employed workers are not the only ones likely to suffer at the hands of the do-nothing Congress. Doctors who see Medicare patients will absorb a 30 percent cut in government reimbursements in January unless Congress acts. This could reduce the number of doctors who are willing to treat seniors thus spreading the misery to the elderly as well.
And 30 million families who have been protected from paying the alternate minimum tax could end of paying it next year if a long list of tax breaks is not extended. These tax breaks would add $300 to the deficit this year and it may be a hard swallow for a Congress even though not extending them would be constitute a breech of the Norquist pledge Republicans have signed.
Congress will be leaving town for Thanksgiving next week—a week long celebration. What they intend to do about any of this remains to be seen. If they do anything at all, it will be at the last possible second.
Stay tuned if you can stomach it.
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