'Super committee' fails to reach agreement By Ted Barrett Kate Bolduan and Deidre Walsh, CNN updated 5:00 PM EST, Mon November 21, 2011 Washington (CNN) Facing harsh reaction from financial markets and a frustrated public, the congressional "super committee" negotiating a possible deficit reduction agreement announced Monday it has failed to reach a deal. A statement from the panel's co-chairs said that "after months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee's deadline. Despite their failure, the committee's co-chairs said "we remain hopeful that Congress can build on this committee's work and can find a way to tackle this issue in a way that works for the American people and our economy." Markets dropped as news spread of the panel's expected failure. The Dow Jones Industrial Average fell 248 points Monday, with a minor recovery after being down more than 300 points earlier in the afternoon. The acknowledgment of failure came after last-minute talks Monday on what one participant billed as a "new idea" in an effort to salvage agreement on a deficit reduction deal. A previously unscheduled afternoon meeting involving some committee members from both parties broke up shortly before 2:30 p.m. Democratic Sen. Max Baucus of Montana told reporters the topic was a "new idea," but offered no further details. "Both sides are feeling angst, and real angst at the possibility of no agreement, so they are working harder and more creatively to see what can be accomplished," Baucus said. "That is happening on both sides." Other Democrats in the meeting, including committee co-chair Sen. Patty Murray of Washington, said talks were continuing but provided no specifics or predictions. Legally, a majority of the 12-member committee has until midnight Wednesday to reach an agreement, but any deal needs to be announced for legislative reasons by the end of Monday. Failure by the committee -- evenly split between six Democrats and six Republicans from the House and Senate -- sets in motion an alternative timetable for $1.2 trillion in spending reductions starting in January 2013. Leaders on both sides of the aisle are unhappy with the nature of the fallback plan, which cuts evenly from domestic and defense programs. Social Security, Medicaid, food stamps, veterans' benefits and other politically sensitive programs are spared the budget ax. Pressure has already started to undo a number of cuts included in the fallback plan, which was a product of last summer's debt-ceiling agreement. Defense Secretary Leon Panetta and key Republicans argue that the military will be undermined by excessive reductions to the Pentagon budget. It is also unclear how the sharply divided Congress will reach agreement on a series of looming budget decisions, including an expiring payroll tax cut and calls for a new extension of unemployment benefits. Both questions need to be dealt with by the end of December. At the same time, the committee's failure has triggered a furious political blame game. Democrats have blasted Republicans for not being more receptive to higher taxes on the wealthy, while Republicans insist Democrats are unwilling to make necessary spending cuts to popular domestic programs. Super committee member Sen. John Kerry, D-Massachusetts, told CNN on Monday that Republicans undermined any prospect for genuine compromise by being unwilling to phase out the Bush-era tax cuts for upper-income Americans. "This is a matter of fundamental fairness," Kerry said. "We are stuck on this insistence of making the Bush tax cuts for the wealthy permanent. I think the American people will judge that to be insane." Fellow panel member Sen. Jon Kyl, R-Arizona, said Democrats risked throwing the economy back into a recession by trying to use the super committee's mandate to hike taxes on small businesses and other drivers of job creation. "Our Democratic friends said we won't cut one dollar more without raising taxes," Kyl told CNN. "That tells you a lot about the ethos in Washington. We went into the exercise to try to reduce federal government spending. What we get from the other side is, no, we won't make more cuts unless you raise taxes." At the center of the dispute is conservative activist Grover Norquist, head of the group Americans for Tax Reform and author of a popular GOP campaign pledge never to raise taxes. Democrats portray Norquist as an ideological thug who has effectively imposed a reign of terror over congressional Republican petrified of crossing his group and incurring the wrath of the GOP's anti-tax base. "The pledge to Grover Norquist keeps coming up," Kerry said. "Grover has been the 13th member of the (super committee) without being there. I can't tell you how often we hear about the pledge." Norquist dismissed the Democrats' accusations Monday, telling CNN that congressional liberals were to blame for the super committee's failings. He also predicted that the collapse of the talks would set the stage for next year's campaign. This is "what the election of 2012 will be about," Norquist said. Do "you want (President Barack) Obama's European-sized government or an American-sized smaller government?" There is a "clear distinction between the parties and the direction the country should go in." So far, it is clear that the super committee process is galvanizing both conservative and liberal pressure groups. An interfaith group held a prayer vigil Sunday in Lafayette Park near the White House to urge Congress not to make budget cuts that would likely affect the poor. "We gather this time with an audacious purpose, and that is to ask God ... to move the hearts of policy makers that they will act and make decisions with compassion and fairness," said the Rev. Michael Kinnamon, general secretary of the National Council of the Churches of Christ. Similar vigils will be held this week in Los Angeles; Richmond, Virginia; Philadelphia and Dallas. While there doesn't appear to have been any one specific tipping point in the super committee's deliberations, it became increasingly clear over the course of the past week that the ideological chasm between Democrats and Republicans on the issue of taxes had simply become too wide. Some key Republicans broke with their party's anti-tax orthodoxy by backing a proposal by panel member Sen. Pat Toomey, R-Pennsylvania, that included $400 billion in increased revenue. Toomey's plan would have lowered overall income tax rates while limiting tax breaks in a way that would raise $250 billion. Republicans estimated that the reform would have sparked enough economic growth to generate another $110 billion. A change in how tax brackets are adjusted for inflation would have raised another $40 billion. The plan also included $800 billion in spending cuts, thereby hitting the minimum threshold of $1.2 trillion in deficit reduction. Democrats, however, called the measure unacceptable in part because it didn't phase out the Bush tax cuts for the wealthiest Americans, estimated by nonpartisan budget analysts to cost $800 billion over the next decade. For their part, Democrats countered with a proposal to generate $400 billion in new revenue strictly from increased tax collections. At the same time, they wanted to spend $700 billion to help boost the economy, including an extension of the payroll tax cut, extended unemployment benefit payments and money to permanently prevent cuts in payments to doctors who treat Medicare patients. Democrats want to offset those costs with money saved from winding down the wars in Iraq and Afghanistan -- a move characterized by some legislators in both parties as an accounting gimmick. Republicans were also bitterly critical of Democrats for their alleged failure to consider more serious reforms to popular entitlement programs such as Medicare and Medicaid. Last week, panel Republicans floated a last-ditch $640 billion proposal -- not enough to meet the committee's $1.2 trillion mandate, but enough to help mitigate the impact of the fallback cuts and at least claim partial success. Republicans said the plan included "low-hanging fruit" agreed to by both parties in the past, according to multiple sources. The plan featured roughly $540 billion in spending cuts and fees, the sources noted. Among other things, it raised $3 billion in revenue by closing a highly publicized tax loophole for corporate jet owners. Democrats balked, however, for the same reason they also rejected larger GOP proposals: a perception there wasn't enough "shared sacrifice" in the form of higher taxes on the wealthy, the sources said. "No person could look at that (alternative plan) and say it met the test of fairness and balance," said panel member Rep. Chris Van Hollen, D-Maryland. CNN's Alan Silverleib, Tom Cohen and Lisa Desjardins contributed to this report.