Deficit Negotiators Hit Reset

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The Wall Street Journal
By: Carol E. Lee, John D. McKinnon & Naftali Bendavid
July 11, 2011

Divisions on Spending Cuts and Tax Increases Remain as Debt-Limit Clock Ticks.

President Barack Obama and Republican leaders in Congress clashed Sunday over the scope of an effort to cut the federal deficit, one that could be shorn of its most ambitious elements, including revamping the tax code and significantly reducing growth in benefit programs.

Mr. Obama urged the top eight congressional leaders from both parties during a meeting that lasted about 75 minutes at the White House to strive for the largest possible package, some $4 trillion over 10 years. Republicans, however, made a pitch for a scaled-down plan of roughly $2 trillion over 10 years that doesn't include about $1 trillion in tax increases the White House is seeking.

Republicans have tied a vote on raising the government's $14.29 trillion borrowing limit to a deficit-reduction deal, and the tone of the Sunday meeting was tense and confrontational at times.

Republican and Democratic leaders have said they won't let the U.S. default, but the Treasury Department says the government could begin defaulting on its financial obligations, including debt payments, after Aug. 2 if the debt ceiling isn't increased.

Officials from both parties said the leaders didn't make any major progress toward reaching a deal that could win support from conservatives opposed to tax increases and liberals opposed to Medicare cuts.

Mr. Obama plans to host the same leaders again Monday and hold a news conference. The president asked Republicans to lay out at the Monday meeting the type of deficit reduction deal they would like to see, a Democratic official familiar with the discussion said.

An effort last week to negotiate an ambitious deficit-reduction deal reached an impasse Saturday because of forces still likely to bedevil negotiations over a smaller deal: tax increases and cuts to entitlement programs.

Mr. Obama and House Speaker John Boehner (R., Ohio) privately discussed and then announced their support last week for a framework for reaching a deal to reduce future deficits by $4 trillion over the next 10 years.

But Mr. Boehner backed away Saturday night as progress on a range of issues slowed. Emerging details of what it would take to reach the $4 trillion figure also made rank-and-file members of both parties balk.

He said negotiators should focus instead on a deal roughly half its size. Negotiators on each side also suggested the other side was being over-cautious.

In the meeting Sunday, Mr. Obama tried to break the logjam over taxes by saying he is willing to reform the tax code in a way so Republican members of Congress wouldn't have to vote for a tax increase, a Democrat familiar with the discussion said.

Republicans restated their position that a $4 trillion plan, which would presumably include tax increases, couldn't pass the House, and they emphasized the lack of time to pull the deal together and push it through, according to people briefed on the session.

When Mr. Boehner made the point about timing, these people said, Mr. Obama responded that until then, the speaker had cited no concerns about the time.

Mr. Boehner told the group that he believes a package based on the work of the negotiating group led by Vice President Joe Biden is the most viable option at this point, according to a Boehner aide.

U.S. Treasury Secretary Timothy Geithner said the Obama Administration is still looking for a major deal on debt and the debt ceiling. Video courtesy Reuters.
.Such a deal would still be a heavy legislative lift. The Biden negotiations fell apart last month when Democrats and Republicans reached an impasse over taxes, suggesting a smaller deal may not be any easier to achieve than the large deal.

Rep. Chris Van Hollen (D., Md.), a participant in the Biden talks, said the group had only identified roughly $1 trillion in cuts, and said on CNN's "State of the Union" program that those were contingent on Republicans agreeing to some new taxes.

Mr. Boehner also restated his position that a deal requires spending cuts that are greater than the amount of the debt-ceiling increase and that no tax increases can be included. "The president agreed with the speaker that their previous talks did not produce any agreement," the aide said.

Democratic officials briefed on Sunday's meeting said Mr. Obama didn't back down from his commitment to a big deal. "They definitely did not agree to scale back the size," one official said.

But Republicans expressed dismay that Democrats weren't pushing harder for a deal including major savings in Medicare and Social Security.

"It's disappointing that the president is unable to bring his own party around to the entitlement reform that he put on the table,'' said Don Stewart, spokesman for Senate Republican Leader Mitch McConnell, of Kentucky.

Senate Majority Leader Harry Reid lashed out at Republicans, saying this is just the latest in a series of bipartisan budget efforts they have derailed. "Every time we try to do something big about the deficit, you guys walk away,'' he said, according to a Reid aide.

Democratic officials noted that in the meeting, Mr. Boehner kept a lower profile and that his No. 2 in the House, Rep. Eric Cantor of Virginia, did most of the talking for the Republicans.

Mr. Boehner came under fierce pressure from Republicans Friday, including from Mr. Cantor, who rejected one cornerstone of the big deal: $1 trillion in tax increases along with corporate and individual tax reform.

At the same time, the White House was slow to move on significant changes to spending programs such as Medicare and Medicaid, a senior GOP aide said. "Rather than going to big issues, we spent a lot of time nickel and diming," the aide said.

A Friday jobs report showing the unemployment rate rose to 9.2% in June hardened the Republican argument against tax hikes.

"I'm for the biggest deal possible, too," Mr. McConnell said in an interview on Fox News Sunday. "But we're not going to raise taxes in the middle of this horrible economic situation."

People briefed on the Sunday meeting said Mr. Obama told congressional leaders they should meet every day until they reach a deal.

Treasury Secretary Timothy Geithner said Sunday the parties should agree on the outlines of a deal this week to meet the Aug. 2 deadline.

Mr. Geithner also said the financial markets could soon begin to react with concern, which could drive up interest rates and make borrowing more expensive.

The president told the lawmakers Sunday night he would reject a series of short-term debt ceiling increases because they would create too much uncertainty.

Messrs. Obama and Boehner began to seriously negotiate a $4 trillion deficit-reduction deal the week of June 27, when the speaker indicated he was open to raising revenues through the tax code, a senior administration official said.

To generate the revenue Mr. Obama needed to make a $4 trillion deal palatable for Democrats, Mr. Boehner agreed to explore letting the Bush-era tax cuts for the wealthiest Americans expire as scheduled in January 2013, while extending the cuts for Americans making under $250,000 a year.

In exchange, Mr. Obama would agree to significant savings in Medicare, Medicaid and Social Security and comprehensive tax reform to simplify the tax code and lower rates by early 2012.

--Janet Hook
and Damian Paletta contributed to this article.

Write to John D. McKinnon at and Naftali Bendavid at

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This page contains a single entry by CFED published on July 11, 2011 3:53 PM.

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