US Democrats Reject Latest Deficit-Cutting Plan

A high-profile congressional effort to trim stubborn U.S. budget deficits appeared near collapse Friday as Democrats rejected a scaled-back proposal from Republicans that contained few tax increases.

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With Democrats and Republicans on a deficit-cutting "super committee" deadlocked ahead of a Wednesday deadline, House of Representatives Speaker John Boehner, R-Ohio, floated an offer to try to break the logjam on tax increases and benefit cuts.

The plan would save $643 billion over 10 years, about half of the panel's goal of $1.2 trillion — but the two sides were unable to even agree what was in the plan.

Boehner aides said it included $229 billion in new revenues and fees. Democrats said it would only generate $3 billion in new revenue from closing a tax break for corporate jets.

"To have something on the table that does not ask the wealthiest people in the country to share (the burden) ... is unconscionable," said Senator John Kerry of Massachusetts, a Democratic member of the super committee.

The panel will need to have a deal in place well before its Wednesday vote.

The panel will work through the weekend if necessary, said Republican Representative Jeb Hensarling of Texas, a committee co-chair. "We are painfully aware of the deadline and it is staring us in the face," he told reporters.

A senior Democratic aide said the two sides are nowhere near an agreement.

But a House Democratic leadership aide said talks were continuing on ideas other than Boehner's plan.

Unlike budget standoffs in April and August, failure would not lead to a government shutdown or a sovereign debt default.

Instead, automatic spending cuts of $1.2 trillion over 10 years, split evenly between military and domestic programs, would kick in starting in 2013.

Congress is already facing rock-bottom approval ratings after a year of down-to-the-wire budget battles, and failure to reach a deal would likely incite further disgust among voters as the 2012 election season heats up.

Bush Tax Cuts A Factor

Many Republicans worry the automatic cuts to military programs could compromise national security. Democrats feel less urgency as programs for the poor and the elderly, such as Medicare and food stamps, would be largely shielded from the cuts.

They also see an advantage as temporary tax cuts enacted under President George Bush are due to expire at the end of 2012 and Republicans are eager to forge a deal that would overhaul the tax code before that time in order to avoid a higher tax burden on the wealthy.

Some Republicans have said they could support tax increases in return for an overhaul of benefits like Medicare , expected to expand dramatically as the population ages. But they face fierce opposition within their own party.

Democrats also hope to include measures to stimulate the struggling economy.

The panel must release any plan it comes up with at least 48 hours before a vote. That would point to Monday as a final deadline, but lawmakers must give budget analysts time to crunch the numbers as well.

Several members said they hoped to have a framework in place by the end of the day Friday.

Market Reaction Unclear

It's not clear how investors would react to failure.

Markets plunged in August after a divisive battle over extending the government's borrowing authority prompted ratings agency Standard & Poor's to issue a first-ever U.S. debt downgrade.

The other two major agencies have said they would not necessarily follow suit if the super committee deadlocks, as long as the automatic cuts are allowed to kick in.

Investors' expectations are extremely low, which might limit the scope of market reaction. Most are distracted by the debt crisis in Europe, which may ensure a safe-haven status for Treasury bonds and the dollar even if the committee fails to agree on substantive cuts.

However, the automatic cuts may be seen as another negative for the U.S. economy and could roil the stock market.

Failure to reach a deal would also make it harder for Congress to extend a range of provisions, from payroll tax cuts to enhanced unemployment benefits, due to expire at the end of the year.

Economists warn the economy could suffer if those measures are not kept in place.

There is a third option. Super committee members could set aside divisive issues like taxes and benefits and put together a much smaller package containing measures both sides easily can agree upon, such as selling off radio and television frequencies and cutting federal pensions and farm subsidies.

That would reduce the severity of automatic spending cuts.