The expectation of failure has been built in by markets
To no one’s surprise, the congressional supercommittee set up to agree on a deficit reduction deal – is reportedly stalemated a few days to their November 23 deadline.
Republicans on the committee have offered to close tax loopholes worth $300 billion while dropping marginal tax rates further and permanently extending Bush-Era tax cuts.
Democrats have not bothered to respond to the proposal, labeling it ridiculous for seeking to cut $300 billion from the deficit, while increasing it by $4 trillion through lower taxes.
They have offered instead, to cut spending by $876 billion but also to allow the Bush tax cuts to expire at the end of 2012 to bring in revenue. This taboo to Republicans, most of whom have signed Grover Norquist’s compact to oppose all tax increases.
Democrats have also proposed raising additional revenue through closing tax loopholes and ending certain tax breaks.
The markets have little expectation of a deal by the committee or from Congress in general, so major market consequences from failure are unlikely.
The $1.2 trillion in automatic cuts in 2013 that will be triggered by failure will help to cut the deficit, as will letting the Bush tax cuts expire.
Republicans will then likely block further stimulus efforts or temporary cuts in the payroll tax, but as long as the economy continues to grow, this may be the best outcome available.
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