WASHINGTON (Reuters) ? A congressional "super committee" convenes on Thursday to launch its search for at least $1.2 trillion in new deficit reductions as global financial markets look for signs that the world's largest economy is trying to get its fiscal house in order.
When the panel of 12 congressional Democrats and Republicans holds its opening meeting to set the rules of the road, it will do so under difficult circumstances.
It has until only November 23 to grapple with divisive questions of whether to cut popular social safety net programs and whether wealthy corporations or individuals should be taxed more -- and it is doing so with the 2012 national elections coming into focus.
Kicking off the tax debate, aides to Democrats on the House Ways and Means Committee offered up a slew of options for raising revenues, including ending some tax breaks for major U.S. oil companies, reducing the value of tax breaks for the wealthy and other revenue raisers. It also looks at ways to lower government costs for the Medicare healthcare plan for the elderly.
The paper, obtained by Reuters, does not endorse any of the options and many Democratic lawmakers had not yet even seen the ideas, according to congressional aides.
But Senate Republican leader Mitch McConnell was optimistic on Wednesday about the panel's prospects for success.
"We certainly know they will meet their goals," he told reporters. Then, on an even more upbeat note, he added, "And we'll see whether they can even go beyond that."
His party's bitter fight with Democrats over raising the U.S. debt ceiling this summer brought the country to the brink of a default and led to an unprecedented downgrade of the U.S. AAA credit rating.
Going beyond $1.2 trillion in savings would hearten financial markets and U.S. credit rating agencies, which want to see a couple trillion dollars more saved.
As the super committee stares down a national debt that will soon race past the size of the entire $14.9 trillion economy, its members know that failure to tackle deficits could result in another downgrade of the government's debt rating.
That would be a new blow to a shaky U.S. economy at a time when European countries also are struggling with a massive debt crisis that threatens to ripple across the world.
"The country is facing a fiscal train wreck; progress toward addressing that is one of the most important things policymakers can do right now," said Andy Laperriere, an analyst with the ISI Group in Washington.
HYBRID PLAN
Pressure to reduce government budget deficits is fueled largely by conservative Tea Party activists' successes in the 2010 congressional elections but also by the knowledge that tackling debt would inject confidence into the U.S. economy.
"You can't bring down the debt and deficit over the long-term if you don't grow the economy," warned Steny Hoyer, the No. 2 Democrat in the House of Representatives, underscoring his party's insistence that deficit-reduction must be paired with economic stimulus.
It is also a message that President Barack Obama aims to deliver to a joint session of Congress later on Thursday when he lays out his plan for creating more jobs.
With only about 10 weeks to come up with a plan that Congress would then vote on by December 23, the super committee must come up with a plan that does not fall victim of the partisan bickering that has sharply divided Capitol Hill and the acrimony of the 2012 national elections.
The super committee's debate has been portrayed as an either/or situation.
Either a majority of the panel agrees to at least $1.2 trillion in new savings over 10 years -- on top of the $917 billion agreed to last month and $38 billion in April -- or automatic spending cuts will be triggered, beginning in 2013.
But it might not be that clear-cut. One emerging scenario envisaged by budget experts is a plan that combines some budget savings with automatic spending cuts.
That could be a three-legged plan structured this way:
--Hundreds of billions of dollars worth of spending cuts and some revenue increases over 10 years;
--The remainder of the 10-year, $1.2 billion in savings would be automatically triggered;
--Big additional savings would kick in beyond 2021. This bit could make savings to Social Security, Medicare, Medicaid and Social Security -- the national retirement and healthcare plans for the elderly and poor.
But even such a hodgepodge will be difficult as Democrats would likely insist on tax cuts being coupled with benefit cuts over the long term.
"Republicans are more dug in on not raising taxes and Democrats are more dug in to not do anything meaningful on entitlements without tax increases," Laperriere said.
(Editing by Cynthia Osterman)
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