Bipartisan panel starts search for $1.2tr savings

a NEW “super committee” in Congress begins work today on reducing US budget deficits, with the financial world watching to see just how serious Washington is about getting its fiscal house in order.

The joint select committee on deficit reduction – featuring six Republicans and six Democrats – was created early last month as part of the deal for $917 billion (£575bn) in spending cuts coupled with an increase in US borrowing limits. The special committee will now try to find at least $1.2 trillion more in savings over the next decade.

Democrats and Republicans are urging bipartisanship, but the panel will be working in a highly charged atmosphere after a bitter fight over raising the debt limit and with the shadow of the 2012 presidential campaigns hovering over it.

If Republicans cannot go along with tax rises, and Democrats form a wall of opposition to cuts to government healthcare or retirement benefits, it will probably be doomed to failure.

But if both sides keep everything on the negotiating table, and nobody walks out of the talks or is seen as trying to poison the atmosphere, some sort of deal might be reached.

A partial deal is also possible. If the panel cannot get to $1.2tr in savings over ten years, it could agree on several hundred billion dollars worth. The rest would be achieved through automatic spending cuts starting in 2013.

The committee will be under pressure from lobbyists – US defence contractors, for example, will fight deep Pentagon cuts.

Some healthcare industry lobbyists and liberal groups hope the committee fails. They fear they would suffer bigger cuts under a deal than if the super committee fails and the 2013 automatic spending cuts are instead triggered.

However, if economic growth further deteriorates in the US or if European debt problems jeopardise the American economy, there could be more pressure on the panel.

Congress has to vote on the committee’s recommendations by a 23 December deadline.