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Credit downgrade mounts pressure on debt panel

By Tom Cohen, CNN
"My hope is that Friday's news will give us a renewed sense of urgency," President Obama said on Monday.
"My hope is that Friday's news will give us a renewed sense of urgency," President Obama said on Monday.
  • Analysts say the panel's membership will signal the chances for progress
  • President Obama calls for political will from both parties
  • The downgrade of the U.S. credit rating increases the pressure

Washington (CNN) -- If there is any silver lining to the downgrade of the U.S. credit rating, it might be that it adds more motivation for the special congressional committee tasked with drafting a long-term solution to the nation's mounting federal deficits.

"There's no question about the fact that this does indeed raise the pressure," said William Galston, a senior fellow specializing in governance studies at the Brookings Institution, a nonprofit public policy think tank. "This increases the stakes, which already were very high."

Under the debt ceiling deal passed by Congress and signed by President Barack Obama last week, a panel of 12 legislators -- six Democrats and six Republicans, equally divided between the House and Senate -- will be created to try to work out $1.5 trillion in deficit reduction after an initial round of more than $900 billion in spending cuts.

If the committee fails to reach agreement or Congress fails to pass whatever package it recommends, a trigger mechanism will enact further across-the-board cuts in government spending, including for the military.

Grueling negotiations over the debt-ceiling agreement, including threats of a possible government default if the deal collapsed, prompted Standard and Poor's to downgrade the United States from AAA to AA+ last Friday. Wall Street reacted Monday with a drop of more than 600 points, one of its worst days in history.

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Now, the special congressional committee will be under even greater scrutiny when it begins its work in coming weeks.

The credit rating downgrade by one agency effectively put the government on notice, Galston said, adding that S&P "fired a shot across the bow of the economy."

"It didn't puncture the bow, but the next one might," he said.

Obama helped raise the pressure on Monday.

"I realize that after what we just went through, there's some skepticism that Republicans and Democrats on the so-called 'super committee,' this joint committee that's been set up, will be able to reach a compromise," the president told reporters. "But my hope is that Friday's news will give us a renewed sense of urgency."

The S&P downgrade prompted accusations of blame between Democrats and Republicans, exacerbating the already bitter partisan divide over the deficit talks.

Democrats labeled it the "tea party downgrade," saying the demand by conservative Republicans to link the need to raise the debt ceiling with the politically charged issue of deficit reduction put the government's fiscal reputation at unnecessary risk.

"If we learned nothing else from the news on Friday, it was that political gridlock can be damaging, at least in the short term, to our economy and can dampen consumer confidence, can roil the markets, if you will, and that we need to take action to address that," White House press secretary Jay Carney told reporters Monday.

To Republicans, it was the failure by the president and Democrats to seriously address excessive government spending that brought the downgrade.

"Anyone who has looked at the numbers cannot seriously discount S&P's concerns over our government's rising public debt burden," House Majority Leader Eric Cantor, R-Virginia, wrote in a memo to his caucus Monday.

In his remarks to reporters, Obama said plenty of work on a feasible deficit reduction plan already has been done, starting with the deficit commission he appointed last year and continuing with the Senate "Gang of Six" proposals unveiled last month as well as the negotiations he conducted with House Speaker John Boehner, R-Ohio.

"It's not a lack of plans or policies that is the problem here," Obama said. "It's a lack of political will in Washington. It's the insistence on drawing lines in the sand, a refusal to put what's best for the country ahead of self-interest or party ideology. And that's what we need to change."

The talks initially involved a broad deficit-reduction plan intended to reduce the mounting gap between how much the government spends and how much revenue it collects. Obama pushed for a comprehensive plan that included spending cuts, increased tax revenue and entitlement reforms, while Republicans sought to shrink government by proposing spending cuts and reforms without increased revenue.

With the battleground now shifting to the special congressional committee, both sides have continued to make their cases. Obama said Monday that after the spending reductions in the first phase of the debt-ceiling deal, "there's not much further we can cut."

"What we need to do now is combine those spending cuts with two additional steps -- tax reform that will ask those who can afford it to pay their fair share. And modest adjustments to health care programs like Medicare," he said.

Cantor immediately rejected Obama's stance as unrealistic, telling his caucus colleagues in Monday's memo that they must continue pushing for spending cuts instead of compromising on tax increases sought by Obama and Democrats.

"Over the next several months, there will be tremendous pressure on Congress to prove that S&P's analysis of the inability of the political parties to bridge our differences is wrong," Cantor said in the memo. "In short, there will be pressure to compromise on tax increases. We will be told that there is no other way forward. I respectfully disagree."

Congressional leaders have until August 16 to appoint members to the congressional committee, which is required to complete its work by November 23. Congress then has until December 23 to vote on the proposal, with no amendments permitted.

A simple majority on the panel -- 7 of 12 members -- is needed to approve whatever package it comes up with, meaning that it will take a lone member of either party to push something through by voting with the other side. The committee's proposal would then need a simple majority in each chamber of Congress to make it to Obama's desk.

To Galston and Norman Ornstein, a resident scholar at the American Enterprise Institute, the likelihood of a compromise will depend on who gets on the panel.

While both sides have some differences between moderates and extremists, those divisions are more pronounced on the right, where tea party conservatives in the House nearly undermined their party leader, Boehner, by rejecting his debt-ceiling proposal during the protracted wrangling last month.

Ornstein said Boehner will surely appoint three conservative hardliners in the House with his picks for the panel, so the chance for a compromise deal rests with the choices by Senate Minority Leader Mitch McConnell, R-Kentucky.

In particular, if McConnell chooses one of the "Gang of Six" Republicans -- Sens. Saxby Chambliss of Georgia, Mike Crapo of Idaho or Tom Coburn of Oklahoma -- or anyone else who has endorsed the possibility of increased revenue through tax reform as part of a deficit reduction deal, "then there is a chance the committee comes up with a better package," Ornstein said.

"If McConnell picks (Sen.) John Kyl (of Arizona) and two other hardliners, my guess is there is nothing in the downgrade that's going to shake true believers" of GOP anti-tax ideology, Ornstein said, adding that he thinks "there's a good chance McConnell will pick one with modest flexibility."

Galston, however, said he's seen no indication so far that either side will pick moderates inclined to compromise.

CNN's Deirdre Walsh contributed to this report.