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7:30 am
Thu November 17, 2011

Supercommittee Scenarios: How The Debt End Game May Play Out

Originally published on Thu November 17, 2011 1:40 pm

The congressional supercommittee — charged with developing a plan for cutting the nation's deficits by $1.2 trillion over 10 years — is days away from its Thanksgiving deadline.

But at this point, no deal is on the table, and pessimism is growing. Economists are worried: Failure to reach a deal would add yet another cloud of uncertainty to an already-dark outlook.

The supercommittee grew out of a heated fight in August in Congress over whether to raise the nation's debt ceiling.

The group — made up of six Democrats and six Republicans from the House and Senate — was charged with finding ways to reduce deficits by $1.2 trillion over a decade. If they couldn't agree on a plan by Nov. 23, then automatic cuts would start to lock into place to do the job that could not be accomplished through compromise.

While no one can predict exactly what will happen between now and the committee's deadline, here are some scenarios that may play out.

No Deal

After months of meetings, Democrats and Republicans end their work in a hopeless deadlock. Everyone goes home for Thanksgiving with no deal done, and the nation's fiscal future goes on a kind of autopilot known as "sequestration."

Those automatic cuts would reduce defense-related spending by as much as $600 billion over the coming decade. The first of the cuts would begin in 2013. Defense Secretary Leon Panetta has warned that such auto-cutting would severely harm the military strength of the United States.

No Deal: Congress Rescinds Automatic Cuts

The supercommittee fails to reach a deal. But rather than allow automatic spending cuts to go forward, Congress rescinds sequestration. The nation returns to where it was in August — that is, with no budget compromises in place and a debt spiraling upward.

No Deal: Obama Insists On Automatic Cuts

President Obama has hinted he might veto legislation to rescind the automatic cuts. In a recent phone call to the co-chairmen of the supercommittee, Obama said, "The sequester was agreed to by both parties to ensure there was a meaningful enforcement mechanism."

If he were to veto legislation to rescind sequestration, Republicans probably could not round up enough votes to override that veto. As a result, the automatic spending cuts would start to move into place for fiscal 2013, which begins Oct. 1, 2012.

If triggered, the automatic cuts would reduce U.S. defense spending by 23 percent in 2013. "We would have to formulate a new security strategy that accepted substantial risk of not meeting our defense needs," Panetta told Congress in a letter.

No Deal: Congress Overrides Veto, Kills Automatic Cuts

Congress decides to rescind sequestration; Obama vetoes that legislation and then Congress overrides his veto. Congress is back to square one and starts looking for new ways to restrain debt without resorting to automatic cuts.

No Deal: Congress Moves The Goal Posts

The supercommittee fails to reach a compromise by Nov. 23. But the members say they need more time and move the deadline to Dec. 23.

Deal: Congress Cuts Deficits By $1.2 Trillion

The supercommittee reaches a compromise, comes up with a plan for reducing the deficit by $1.2 trillion and sends the package to the Senate and House for up-or-down votes.

Deal: Congress Cuts Deficits By $4 Trillion

The supercommittee decides to "go big" and reaches a huge compromise that involves major changes to entitlement programs like Medicare and raises tax revenues.

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