Lawmakers Step Up Talks on Cutting Deficit

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The Wall Street Journal
By: Janet Hook & Damian Paletta
June 10, 2011

Congressional leaders from both parties agreed on Thursday to accelerate their negotiations over reducing the federal deficit, signaling a heightened sense of urgency to avoid a potential default on the government's debt.

The negotiating group, led by Vice President Joe Biden, plans to meet three times next week, compared with the six meetings it has held since March. Lawmakers agreed to the stepped-up schedule in part because they were worried about recent signs that the economic recovery is slowing.

Republicans, who rode a wave of anti-spending sentiment in the 2010 elections, have said they are reluctant to allow expanded federal borrowing without a big deficit-cutting deal. But if no agreement to increase the federal debt limit is reached before Aug. 2, the United States could default, an unprecedented move that would likely send interest rates soaring, Obama administration officials have warned.

Mr. Biden and top lawmakers continued their series of meetings on Thursday, but appeared stuck in their efforts to craft a package of budget changes.

Democrats in the group pushed their party's argument that the deal should include tax increases and not just spending cuts. In earlier talks, negotiators have focused only on reducing expenditures.

"We continue to believe that any balanced package has to end big loopholes like subsidies for the oil and gas industry,'' Rep. Chris Van Hollen (D., Md.) said after the meeting.

But Republicans showed no sign of budging from their opposition to tax increases. That impasse could mean any deal to emerge from the Biden group could be far more limited than the $2.4 trillion package of cuts that Republicans say would be needed before they agree to lift the current $14.29 trillion ceiling high enough to last past the 2012 election.

The federal government's $3.7 trillion budget in fiscal 2011 is expected to have a deficit of $1.5 trillion.

Sen. Jon Kyl (R., Ariz.) said earlier this week that another option would be for Congress to enact a short-term debt increase with a more modest package of cuts.

Democrats and Republicans believe the group will have to produce some sort of package in order for lawmakers to agree to raise the debt ceiling. Sources familiar with the talks say the mood at the negotiations has been constructive and positive--less hostile and antagonistic than when the two parties earlier this year negotiated a package of spending cuts for the 2011 budget.

In the two weeks since the group last met, the political climate has become increasingly clouded by signs that the economic recovery is stalling. Reports released last week showed unemployment rising and job growth slowing substantially in May. Retail sales were lower than expected and there were signs of a slowdown in manufacturing.

A slower economy is likely to sap government tax revenues, making a deficit deal all the more elusive. But it also seemed to put pressure on lawmakers to break the logjam with more-frequent meetings.

"Overall there is more urgency because of [the] economic news,'' said one congressional aide familiar with the talks.

The bad news, however, has not yet pushed either party to give much ground.

"Many of the problems surrounding the lack of job creation and growth in this country have to do with the fact that there isn't a credible plan to manage down the debt and deficit in this country,'' House Majority Leader Eric Cantor (R., Va.) said after the meeting with Mr. Biden. "That's what we're trying to produce here and we had much substantive discussion today and look forward to more next week."

Democrats had hoped to make headway this week with a proposal to curb $4 billion in tax breaks for oil and gas subsidies because House Speaker John Boehner (R., Ohio) had at one indicated a willingness to discuss such a plan. He has since retracted the idea, though, and Republicans have signaled they won't allow it to be included.

"Everything is on the table except tax hikes, because tax hikes destroy jobs,'' said Michael Steel, a spokesman for Mr. Boehner.

Write to Michael R. Crittenden at michael.crittenden@dowjones.com and Corey Boles at corey.boles@dowjones.com

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