‘Super committee’ fails to reach agreement

President Barack Obama and congressional leaders traded blame Monday for the failure of the congressional “super committee” to forge a deficit reduction deal, but they also called for Congress to work out an agreement before painful automatic budget cuts take place in 2013.

Earlier, the co-chairs of the bipartisan special joint committee said in a statement that “after months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.”

Committee’s failure angers CNN.com readers

Markets dropped as news spread of the panel’s expected failure. The Dow Jones Industrial Average fell 248 points Monday, with a minor recovery after being down more than 300 points earlier in the afternoon.

Initial reaction had Democrats and Republicans blaming each other for the inability of the bipartisan committee to negotiate at least $1.2 trillion in deficit reduction measures.

Obama said Republicans in Congress rejected what he called a balanced approach to deficit reduction that included tax increases on the wealthy.

“Despite the broad agreement that exists for such an approach, there are still too many Republicans in Congress that have refused to listen to the voices of reason and compromise that are coming from outside of Washington,” Obama told reporters after the super committee announced its failure.

Senate Majority Leader Harry Reid, D-Nevada, said Democrats “were prepared to strike a grand bargain that would make painful cuts while asking millionaires to pay their fair share, and we put our willingness on paper,” but Republicans “never came close to meeting us halfway.”

His GOP counterpart, Sen. Mitch McConnell of Kentucky, argued that an agreement “proved impossible not because Republicans were unwilling to compromise, but because Democrats would not accept any proposal that did not expand the size and scope of government or punish job creators.”

Republican presidential contenders complained that Obama had failed to display necessary leadership to forge an agreement, an accusation rejected by White House Press Secretary Jay Carney.

“Congress assigned itself a job; assigned 12 of its own members a task – a task that wasn’t really that difficult to achieve if there was a willingness to compromise,” Carney said of the so-called super committee created under the debt ceiling agreement earlier this year. He added: “Congress needs to meet its responsibilities.”

Others lamented and criticized the missed opportunity.

“On its current course the federal government is projected to spend almost $44 trillion over the next 10 years, and it is nothing short of an embarrassment, an absolute national disgrace and failure of leadership that we cannot agree on even a paltry $1.2 trillion in deficit reduction over that time frame,” Republican Sen. Bob Corker of Tennessee said in a statement.

Meanwhile, independent Sen. Joe Lieberman of Connecticut, who caucuses with the Democratic majority, called for a “bipartisan rebellion” in Congress to strike a deficit deal in the wake of the committee’s failure.

Noting that three deficit reduction plans have been proposed, including one by a special commission appointed last year by Obama, Lieberman called for “a vote on the Senate floor before the end of this year, and show that elected officials in Washington are capable of protecting the economic future of the American people.”

All three of the plans Lieberman referenced came from bipartisan groups, and all called for a comprehensive package of spending cuts, increased tax revenue and reforms to entitlement programs such as Social Security and Medicare.

Obama and Democrats consider such an approach the only balanced and fair way to reduce mounting federal deficits and spread the impact across all sectors of society. Republicans seek to shrink government spending and the overall size of government, and therefore reject virtually any kind of increased tax revenue.

Both Obama and House Speaker John Boehner, who failed to strike a major deficit reduction agreement earlier this year, called for Congress to continue working for an outcome that would best serve the national interest.

“This process did not end in the desired outcome, but it did bring our enormous fiscal challenges into greater focus,” said a statement by Boehner, R-Ohio. “I am confident the work done by this committee will play a role in the solution we must eventually find as a nation.”

Legally, a majority of the 12-member committee had until midnight Wednesday to reach an agreement, but any deal needed to be announced for legislative reasons by the end of Monday.

Failure by the committee, evenly split between six Democrats and six Republicans from the House and Senate, sets in motion an alternative timetable for $1.2 trillion in spending reductions starting in January 2013.

Leaders on both sides of the aisle are unhappy with the nature of the fallback plan, which cuts evenly from domestic and defense programs. Social Security, Medicaid, food stamps, veterans’ benefits and other politically sensitive programs are spared the budget ax.

Pressure has already started to undo a number of cuts included in the fallback plan, which was a product of the summer debt-ceiling agreement. Defense Secretary Leon Panetta and key Republicans argue that the military will be undermined by excessive reductions to the Pentagon budget.

McConnell raised the idea of softening the automatic cuts in his statement, trying to depict it as a responsibility belonging to the president.

“The good news is that even without an agreement, $1.2 trillion will still be cut from the deficit,” McConnell’s statement said. “Now it falls on the president to ensure that the defense cuts he insisted upon do not undermine national security.”

However, Obama made clear that he would veto any attempt to undo or alter the automatic spending cuts, known as a sequester mechanism.

“The only way these spending cuts will not take place is if Congress gets back to work and agrees on a balanced plan to reduce the deficit by at least $1.2 trillion,” he told reporters. “That’s exactly what they need to do. That’s the job they promised to do. And they’ve still got a year to figure it out.”

Obama also sought to reassure markets and ratings agencies that even without an agreement by the special committee, the automatic cuts now scheduled to occur mean significant deficit reduction steps will take place.

“One way or another, we will be trimming the deficit by at least $2.2 trillion over the next 10 years,” he said, referring to a previous agreement for cutting $1 trillion in spending and the required $1.2 trillion in further cuts triggered by the committee’s failure.

The ratings agency Standard & Poor’s issued a statement Monday that said the committee’s failure to reach agreement would not bring a downgrade of the U.S. credit rating, as long as the resulting automatic spending cuts remain intact.

At the same time, it remains unclear how the sharply divided Congress will reach agreement on a series of looming budget decisions, including an expiring payroll tax cut and calls for a new extension of unemployment benefits. Both questions need to be dealt with by the end of December.

Democrats have blasted Republicans for not being more receptive to higher taxes on the wealthy, while Republicans insist Democrats are unwilling to make necessary spending cuts to popular domestic programs.

Super committee member Sen. John Kerry, D-Massachusetts, told CNN on Monday that Republicans undermined any prospect for genuine compromise by being unwilling to phase out the Bush-era tax cuts for upper-income Americans.

“We got totally hung up by people who were insisting that not only could they not raise any additional revenue from the wealthiest people in the world, but they wanted to give them an additional tax cut,” Kerry said. “This is insanity.”

Fellow panel member Sen. Jon Kyl, R-Arizona, said Democrats risked throwing the economy back into a recession by trying to use the super committee’s mandate to raise taxes on small businesses and other drivers of job creation.

“Our Democratic friends said we won’t cut one dollar more without raising taxes,” Kyl said. “That tells you a lot about the ethos in Washington. We went into the exercise to try to reduce federal government spending. What we get from the other side is, no, we won’t make more cuts unless you raise taxes.”

At the center of the dispute is conservative activist Grover Norquist, head of the group Americans for Tax Reform and author of a popular GOP campaign pledge never to raise taxes.

Democrats portray Norquist as an ideological thug who has effectively imposed a reign of terror over congressional Republicans petrified of crossing his group and incurring the wrath of the GOP’s anti-tax base.

“Grover has been the 13th member of the (super committee) without being there,” Kerry said. “I can’t tell you how often we hear about the pledge.”

New York Mayor Michael Bloomberg told CNN that the magnitude of the deficit problem requires both increased revenue and decreased spending.

“You have to do both, and I don’t care what you promise your constituents, I don’t care what your constituents want. Those are the facts,” said Bloomberg, an independent who has been both a Democrat and a Republican.

Norquist dismissed such criticism Monday, saying the American people opposed bigger government, and he predicted that the collapse of the talks would set the stage for next year’s campaign.

This is “what the election of 2012 will be about,” Norquist said. Do “you want (President Barack) Obama’s European-sized government or an American-sized smaller government?” There is a “clear distinction between the parties and the direction the country should go in.”

It became increasingly clear over the course of the past week that the ideological chasm between Democrats and Republicans on the issue of taxes had simply become too wide.

Some key Republicans broke with their party’s anti-tax orthodoxy by backing a proposal by panel member Sen. Pat Toomey, R-Pennsylvania, that included $400 billion in increased revenue.

Toomey’s plan would have lowered overall income tax rates while limiting tax breaks in a way that would raise $250 billion. Republicans estimated the reform would have sparked enough economic growth to generate another $110 billion.

A change in how tax brackets are adjusted for inflation would have raised another $40 billion.

The plan also included $800 billion in spending cuts, thereby hitting the minimum threshold of $1.2 trillion in deficit reduction.

Democrats, however, called the measure unacceptable in part because it didn’t phase out the Bush tax cuts for the wealthiest Americans, estimated by nonpartisan budget analysts to cost $800 billion over the next decade.

Democrats countered with a proposal to generate $400 billion in new revenue strictly from increased tax collections. At the same time, they wanted to spend $700 billion to help boost the economy, including an extension of the payroll tax cut, extended unemployment benefit payments and money to permanently prevent cuts in payments to doctors who treat Medicare patients.

Democrats want to offset those costs with money saved from winding down the wars in Iraq and Afghanistan – a move characterized by some legislators in both parties as an accounting gimmick.

Republicans were also bitterly critical of Democrats for their alleged failure to consider more serious reforms to popular entitlement programs such as Medicare and Medicaid.

Last week, panel Republicans floated a last-ditch $640 billion proposal – not enough to meet the committee’s $1.2 trillion mandate, but enough to help mitigate the impact of the fallback cuts and at least claim partial success.

The plan featured roughly $540 billion in spending cuts and fees, the sources noted. Among other things, it raised $3 billion in revenue by closing a highly publicized tax loophole for corporate jet owners.

Democrats balked, however, for the same reason they also rejected larger GOP proposals: a lack of “shared sacrifice” in the form of higher taxes on the wealthy, the sources said.

“No person could look at that (alternative plan) and say it met the test of fairness and balance,” said panel member Rep. Chris Van Hollen, D-Maryland.

CNN’s Jessica Yellin, Alan Silverleib, Tom Cohen and Lisa Desjardins contributed to this report.