By KENT HOOVER
khoover@bizjournals.com

The super committee's failure to reach a deficit reduction deal will increase the uncertainty already felt by businesses and prompt efforts to avoid automatic across-the-board spending cuts.

Leaders of the Joint Select Committee on Deficit Reduction recently announced that they couldn't reach an agreement on a plan to trim federal deficits by at least $1.2 trillion over the next 10 years. Under the law that created this congressional committee, this failure will trigger $1.2 trillion in spending cuts beginning in 2013.

"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," read a joint statement issued by the super committee's co-chairs, Sen. Patty Murray, D-Wash., and Rep. Jeb Hensarling, R-Texas.

This failure could hurt economic growth even if it doesn't lead to another downgrade of the United States' credit rating or higher interest rates. Uncertainty about policies coming out of Washington, D.C., already have made business owners and CEOs hesitant to hire more workers or expand their operations, said Dean Zerbe, national managing director of alliantgroup, a provider of specialty tax services. The super committee's failure to reach agreement on deficit reduction heightens that uncertainty, he said.

It "just adds to these business guys thinking 'I don't know what tomorrow is going to bring,' " said Zerbe, a former senior counsel on the Senate Finance Committee.

Todd McCracken, president of the National Small Business Association, agrees.

"The No. 1 challenge facing small business today is economic uncertainty - something this failure will only exacerbate," he said.

The super committee's failure "represents a serious step back from the goal of creating a pro-growth environment that fosters job creation and investment," said Jay Timmons, president and CEO of the National Association of Manufacturers.

Inaction could cause 'decade-long slump'

John Engler, president of the Business Roundtable, said Congress and the White House shouldn't just accept defeat on deficit reduction and hope "something better comes along after the 2012 elections."

"America's economic future and our credibility on global fiscal matters depend squarely on our willingness to solve our own problems - now, not later," said Engler, a former Republican governor of Michigan.

Congress needs to go beyond the minimum $1.2 trillion in deficit reduction assigned to the super committee in order to stabilize the federal government's debt level, said Alice Rivlin, a former vice chair of the Federal Reserve who served on two deficit reduction commissions.

More than $4 trillion in deficit reduction is needed over the next decade, these commissions concluded. Otherwise, the national debt will keep growing faster than the economy. If that happens, another recession is inevitable, meaning the United States could be in for a "decade-long slump," Rivlin said.

Efforts start to avoid automatic cuts

Some members of Congress, meanwhile, already are focusing on how to avoid the automatic spending cuts, called sequestration, that will be put into place in 2013 if Congress doesn't enact a deficit reduction plan.

Half of these $1.2 trillion in cuts would come from defense and other security spending, and half would come from domestic programs other than Social Security and Medicaid.

Congress, however, has more than a year to find a way around them. Many Republicans say such deep cuts in the Defense Department's budget would threaten national security, and they've vowed to stop them. The cuts also could hurt the economies of states, particularly Virginia and Hawaii, that benefit the most from defense spending.

Timmons said, "Cuts in defense spending will have a massive ripple effect throughout the entire manufacturing economy, affecting large defense contractors, tens of thousands of small and medium-sized manufacturers in the defense supply chains, and over 1 million workers."

Across-the-board spending cuts also could hurt programs that are "absolutely fundamental" to growing the economy, such as spending on basic science, research and development, and infrastructure, said Bruce Katz, vice president of the Metropolitan Policy Program at the Brookings Institution.

Programs such as clean energy R&D not only should be protected from cuts, they should be "put on steroids," Katz said.

Sequestration is a "cut dumb strategy," he said.

Obama, however, said he has "a simple message" to those who want to scrap the sequestration trigger: "No. I will veto any efforts to get rid of those automatic spending cuts.

"There will be no easy off-ramps on this one," Obama said. "We need to keep the pressure up to compromise, not turn off the pressure."