U.S. “Supercommittee” in Dangerous Deadlock

Disagreement on deficit reduction could precipitate a further downgrading of the United States’ credit rating.

The Joint Select Committee on Deficit Reduction, made up of six Republicans and six Democrats from both chambers of Congress, was established in the summer and charged with proposing measures to cut the budget deficit by $1.2 trillion over the next 10 years. Although their deadline for issuing their recommendations is officially not until Wednesday, it effectively expires today, because any agreement must first be submitted to the Congressional Budget Office for review.

Meanwhile, although negotiations were still ongoing when this edition of Rzeczpospolita went to press, the outlook in Washington was decidedly glum. Republicans were still unwilling to agree to tax increases, while Democrats were protesting against what they see as excessive tax cuts.

According to the Washington Post, it is likely that the members of the “supercommittee” will officially admit defeat as early as today. Commentators believe that this announcement could have serious consequences for U.S. security and the country’s economic and political situation, because a failure on the part of the supercommittee will trigger an automatic mechanism of tax increases in the amount of $1.2 trillion, which will begin to impact arms expenditures and various social programs from mid-2013 onward.

Some economists believe that a failure to reach an agreement will lead to the United States’ credit rating being downgraded by the ratings agencies and roil the financial markets. Economists have pointed out that, when Standard & Poor’s first downgraded the U.S. from AAA to AA+ back in August, the agency explained its decision by highlighting, among other things, the increased inefficiency of U.S. public institutions, which had failed to push through deep-enough cuts in the summer against the backdrop of the debate over an increase in the debt ceiling. In early November, Morgan Stanley’s Christine Tan predicted that failure by the supercommittee would give S&P cause to downgrade the United States’ rating from AA+ to AA.