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The 'supercommittee' collapsed, so what happens now?

The failure of a congressional deficit-cutting "super committee" meansthe tough work of putting the United States' finances on a stable pathwill likely have to wait until 2013 at the earliest.

The failure of a congressional deficit-cutting "super committee" means
the tough work of putting the United States' finances on a stable path
will likely have to wait until 2013 at the earliest.

Barring some
unforeseen development, the Republican and Democratic co-chairs of the
committee are due to issue a joint statement on Monday conceding defeat
in their three-month search for a debt deal, aides told Reuters on
Sunday.

With the intensifying 2012 election campaign stoking
already bitter partisanship in Washington, the U.S. Congress will be
hard-pressed to reform expensive government benefit programs and an
archaic tax code that are seen as the keys to improving the country's
fiscal health.

Given the complexity of passing such legislation through Congress, it could even be 2014 before real progress is made.

That
timetable could test the patience of global financial markets that so
far have been willing to continue investing heavily in the United States
as Europe grapples with a spiraling debt crisis.

The super
committee has squandered a rare opportunity to take major action against
the United States' fiscal problems because it had extraordinary powers
to quickly move legislation through a gridlocked Congress.

The
likely fallout from the committee's inability to agree on at least $1.2
trillion in deficit-reduction over 10 years also includes:

--Added difficulties extending payroll tax cuts, unemployment benefits and
other expiring tax breaks
, which are seen as important economic
stimulants. The hope had been to include them in any super committee
deal that would have been spirited through Congress by December 23 under
rules prohibiting amendments and procedural roadblocks.

Now they
will have to find another way through the legislative maze. Analysts
says failure to extend the payroll tax cuts and enhanced jobless
benefits could shave more than a percentage point off U.S. economic
growth.



--Increased investor uncertainty.
Investors already have
little confidence Republicans and Democrats can bridge a yawning
ideological divide over tax policy and who should shoulder the burden
for reducing deficits. The U.S. Congress has had trouble passing even
routine legislation this year, leading to repeated disruptions of
government services.

--The committee's failure is unlikely to
trigger another downgrade of the U.S. credit rating.
Rating agencies
have said they will look at a range of factors in making any decision
but that the committee's washout will not be decisive.

--Republicans are already making noises about altering the $1.2 trillion
in automatic spending cuts, or sequesters, that are due to kick in 2013

as a result of the super committee's failure. They want to soften the
planned $600 billion defense cuts. If Congress starts tinkering with the
sequesters, however, financial markets could become unnerved by the
unraveling of savings seen as already "in the bank." Again, the 2012
elections could determine the fate of these cuts.



--Democrats and
Republicans will try to use the super committee's dead end for
political gain.
Democrats will say the outcome is further evidence
Republicans just want to protect the rich from sharing the burden of
deficit reduction. Republicans will argue that, once again, Democrats
fail to grasp the gravity of escalating costs of healthcare benefits.

--The White House had been bracing for days for the committee's failure
and believes President Barack Obama can weather it without major
political fallout and may even be able to score points against
Republicans as he seeks re-election.

Aides believe Obama will be
able to seize the chance to further paint Republicans as obstructionist,
a strategy they hope will be more potent because of polls showing most
voters back his proposal to increase taxes on wealthier Americans.

--Bush-era tax cuts are back in the firing line. They face extinction at
the end of 2012 after super committee Republicans tried and failed to
win permanent extension. That might please some Democrats, who see
trillions of dollars in additional revenues in 2013 to reduce budget
deficits.

Obama is likely to engage Republicans to at least
extend the across-the-board tax cuts for the middle class. The
presidential and congressional election results in November could decide
if the wealthy see their taxes rise.

--One thing is certain: The
super committee will disband having not agreed on one penny of
deficit-reduction.
Instead, it will have actually contributed to the
government's $1 trillion-a-year budget deficits, having spent government
funds paying for staff and other expenses.