Can America escape its $1.3 trillion black hole?

An impasse in Congress over spending cuts could send the US spinning into recession

Washington

The United States found itself last night on an express train to historic cuts in domestic and military spending that could quickly shrink its global standing and threaten a fresh recession in the wake of the unceremonious collapse late on Monday of bipartisan deficit-cutting talks.

Click here to view the graphic 'In the red: How the deficit crisis could unfold'

Numbness mixed with panic settled over Washington following the admission of defeat by the bipartisan super-committee formed in August to find ways to cut federal spending by $1.3 trillion over 10 years. The legacy of its failure promises to be complicated. All sides darted in different directions to start the blame game. In New Hampshire, President Barack Obama appealed to Congress at least to extend middle-class tax breaks that are set to expire, while runners for the Republican presidential nomination excoriated him for a failure of leadership in another debate.

If there is panic it is partly because the terms under which the committee was created stipulated that, in the event of its failure, a swathe of cuts would automatically come in to effect to achieve the same reduction in spending. They are due to begin biting in January 2013 and hold terror mostly for Republicans because they would include a $500bn dive in funding for the Pentagon.

Mr Obama is already warning Congress against making any attempt to challenge the automatic nature of those cuts even if his own Defence Secretary, Leon Panetta, is on the record warning that they would spell catastrophe for the US military. If carried out, he says, the US would have "the smallest ground force since 1940, the smallest number of ships since 1915 and the smallest Air Force in its history".

Democrats have reason to quake also, however, because half of the automatic cuts will affect programmes close to their hearts like education and healthcare. Common sense would suggest that the prospect of these cuts will drive Congress to try again to negotiate a package of spending reductions before they come into effect. But that may be pie-in-the-sky as the US enters an election year.

The super-committee's failure will now compound the sense across the country that Congress is incapable of accomplishing anything, a perception that is bad for everyone on Capitol Hill but probably also for Mr Obama as well. The mood has been further darkened by a downwards revision of US economic growth in the last quarter from 2.5 per cent to 2 per cent.

"It's the chief executive's job to bring people together and to provide leadership. I don't see that happening," Michael Bloomberg, the Mayor of New York, told reporters, adding that the failed talks were another "damning indictment of Washington's ability to govern this country".

If Mr Obama indeed seemed to be absent as the super-committee writhed in recent weeks it was by design. His aides did not want him to be associated with a venture that looked set to fail. Yet it was a strategy that risked making him look gutless.

"Americans expect their President to be a leader, not a calculating politician taking a back seat so he can get re-elected," said Kirsten Kukowski of the Republican National Committee. "The longer Obama punts on important issues, the more Americans will start questioning whether he's the same President they were sold in 2008."

The sharp fall in stock prices on Monday and further losses yesterday were seen by many as a sign that investors were again also losing faith in the ability of the US to control its own fate. So far at least the main rating agencies seem disinclined to downgrade America's debt status. That would surely change, however, if Congress found a way to undo the automatic cuts and replace them with nothing much.

While the automatic cuts indeed promise to do what the super-committee could not do in terms of slaying the budget deficit – the gap between spending and revenue might be cut by half especially if tax cuts for the rich are allowed to expire at the end of 2012 – there are fears that the drop-off in federal spending would be too sudden and would tip the country back into recession.

The battle next year over the tax cuts for the rich alone is likely to be seismic. At the core of the current dysfunction in Washington is the unwillingness of Republicans to contemplate anything but the tiniest increases in taxation. Democrats who are committed to protecting social-protection programmes say some revenue-raising measures are vital.

"We start [from] fundamentally different premises," Senator Pat Toomey, a Republican and former member of the defunct committee, said of the other party yesterday. "They are advocates for big government. If we are gong to have a European-style large government then you need bigger taxes to fund that."

The more immediate problem for Mr Obama however is the scheduled expiry at the end of next month of breaks in what middle-income earners pay in Social Security tax.

A failure to renew them could cost the average American family $1,000 next year, he said in New Hampshire.

Suggested Topics
VIDEO
Have you tried new the Independent Digital Edition iPad app?
News
Plans to decriminalise non-payment of television licence fees would cost the BBC £500m according to estimates drawn up within the Corporation
people
News
people
Life & Style
The new low cost smartphone of Motorola, 'Motorola Moto G', is displayed in Sao Paulo, Brazil on November 13, 2013. The smartphone, with dimensions 65.9mm W x 129.9mm H x 6.0 - 11.6mm D is equipped with a Qualcomm Snapdragon 400 with quad-core 1,2 GHz CPU, a 4.5-inch display and Android Operating System 4.3 and a suggested price of $ 179 USD.
techData assessing smartphones has revealed tens of millions of phones are at risk of being harvested
Arts & Entertainment
Jessica Pare as Megan Draper and Jon Hamm as the troubled, melancholy Don Draper
tvAnd six other questions we hope Mad Men series seven will answer
Arts & Entertainment
Cody and Paul Walker pictured in 2003.
film
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Online Advertising Account Executive , St Pauls , London

£26K-30k + Bonus, Private Medical Insurance, Company Pension: Charter Selectio...

Advertising Account Executive - Online, Central London

£25K-28k + Bonus, Private Medical Insurance, Company Pension: Charter Selectio...

Senior Infrastructure Consultant

£50000 - £65000 Per Annum potentially flexible for the right candidate: Clearw...

Public Sector Audit - Bristol

£38000 per annum + Benefits: Pro-Recruitment Group: Do you have experience of ...

Day In a Page

Homelessness: Why is the supported lodgings lifeline under threat?

Why is the supported lodgings lifeline under threat?

Zubairi Sentongo swapped poverty in Uganda for homelessness in Britain. But a YMCA scheme connected him with a couple offering warmth and shelter
A History of the First World War in 100 Moments: When the world’s biggest shed took over Regent’s Park

A History of the First World War in 100 Moments

When the world’s biggest shed took over Regent’s Park
The pain of IVF

The pain of IVF

As an Italian woman vows to keep the babies from someone else’s eggs, Julian Baggini ponders how the reality of childbirth is often messier than the natural ideal
Supersize art

Is big better? Britain's latest super-sized art

The Kelpies are the latest addition to a growing army of giant sculptures. But naysayers are asking what a pair of gigantic horse heads tells us about Falkirk?
James Dean: Back on the big screen

James Dean: Back on the big screen

As 'Rebel without a Cause' is re-released, Geoffrey Macnab reveals how its star perfected his moody act
Catch-22: How the cult classic was adapted for the stage

How a cult classic was adapted for the stage

More than half a century after it was published 'Catch-22' will make its British stage debut next week
10 best activity books for children

10 best activity books for children

Keep little ones busy this bank holiday with one of these creative, educational and fun books
Arsenal 3 West Ham United 1: Five things we learnt from the battle between the London sides

Five things we learnt from Arsenal's win over West Ham

Arsenal still in driving seat for Champions League spot and Carroll can make late charge into England’s World Cup squad
Copa del Rey final: Barcelona are paying for their complacency and not even victory over Real Madrid will put things right

Pete Jenson on the Copa del Rey final

Barcelona are paying for their complacency and not even victory over Real Madrid will put things right
Rafa to reign? Ten issues clay courts will serve up this season

Rafa to reign? Ten issues clay courts will serve up this season

With the tennis circus now rolling on to the slowest surface, Paul Newman highlights who'll be making the headlines – and why
Exclusive: NHS faces financial disaster in 2015 as politicians urged to find radical solution

NHS faces financial disaster in 2015

Politicians urged to find radical solution
Ukraine crisis: How spontaneous are the pro-Russian protests breaking out in Ukraine’s east?

Ukraine crisis

How spontaneous are the pro-Russian protests breaking out in Ukraine’s east?
A History of the First World War in 100 moments: The first execution at the Tower of London for 167 years

The first execution at the Tower of London for 167 years

A history of the First World War in 100 moments
Fires could turn Amazon rainforest into a desert as human activity and climate change threaten ‘lungs of the world’, says study

New threat to the Amazon rainforest:

Fires that scorch the ‘lungs of the Earth’
Liverpool, Chelsea and Manchester City: And the winner of this season’s Premier League title will be...

Who’s in box seat now? The winner of the title will be ...

Who is in best shape to take the Premier League prize?