The Wall Street Journal
By: Naftali Bendavid, Carol E. Lee & Janet Hook
July 22, 2011
President Barack Obama and House Speaker John Boehner are moving toward a deficit-reduction deal that could cut as much as $3 trillion in spending and overhaul the tax code by the end of next year to raise up to $1 trillion, according to people familiar with the talks.
Until now, Republicans have shot down every proposal that involved higher taxes. But Democrats could be the major obstacle to this package because they worry that upfront spending cuts would be ironclad while any tax increases would be subject to later agreement.
With prospects of a government default looming in early August, leaders on both sides denied Thursday that a deal was close. But the White House provided an outline of the deal to Democratic congressional leaders, aides said.
It's unclear where $3 trillion in spending would be cut. But among recently discussed ideas are an array of cuts to federal programs, raising the Medicare eligibility age to 67, and relying on a different formula that would slow cost-of-living increases to Social Security and Medicare beneficiaries.
Mr. Obama met Thursday evening at the White House with top four Senate and House Democrats to discuss the emerging deal, one day after meeting Wednesday night with them and, separately, House Republican leaders.
Other Democratic officials portrayed the nascent deal as somewhat fuzzier. They said the two sides hoped to commit to a package of cuts to federal programs, perhaps around $1.5 trillion over 10 years, and would postpone not only a tax overhaul but also cuts to safety-net programs until sometime before the end of 2012.
What remains to be hashed out, these officials said, is the amount of revenue that would be raised from the tax overhaul, as well as how to guarantee that revenue flow, with an expiration of the upper-end Bush tax cuts still on the table.
Earlier Thursday, a closed-door gathering of Senate Democrats erupted in anger when White House Budget Director Jacob Lew entered, participants said. "As he walked into the room, it was like Mt. Vesuvius,'' said Sen. Barbara Mikulski (D., Md.). "You can't ask us to vote when we have not been part of the deal.''
Speaking after that meeting, Majority Leader Harry Reid (D., Nev.) said, "This can't be all cuts. There has to be balance. There has to be revenues."
Mr. Obama and Mr. Boehner had been working for weeks on such a "big deal," which would pave the way for a congressional vote to raise the debt limit, until Mr. Boehner announced on July 9 a large-scale deal was unattainable due to Democrats' insistence on raising taxes.
Democrats, meanwhile, said Republicans were refusing to consider ending tax breaks for the wealthy.
Since then, other proposals have bubbled up, but all have faced immediate attack.
That has prompted growing tension and rising tempers in Congress as both sides grasp for any package with even a slim chance of attracting bipartisan support.
The Treasury Department says the government could begin defaulting on its obligations after Aug. 2 unless Congress raises the current debt ceiling of $14.29 trillion. Many Republicans and some Democrats say they won't do that unless the debt limit increase is tied to a deficit-reduction package.
Officials from credit rating and financial services firms told House Republicans, in a closed-door meeting Thursday, that if the government's debt is downgraded, it would result in severe consequences for Main Street.
Mr. Boehner has brought House Majority Leader Eric Cantor (R., Va.), a leading critic of Mr. Boehner's earlier attempt to strike with Mr. Obama, into his latest discussions in an effort to increase the chances that the plan that emerges can be sold to House Republicans.
Mr. Boehner could still face strong dissent within his own ranks because of the possibility of tax increases. "Given Boehner's track record, we should all be alarmed," the Tea Party Nation emailed supporters when news of the discussions broke. At the same time, some GOP lawmakers may see the delayed tax proposal as a chance to fight that battle another day while getting immediate spending cuts.
Even while their subordinates have proposed various plans in recent weeks, Messrs. Obama and Boehner continued to voice hopes for a more sweeping agreement. The two leaders want a package that could cement their legacies by tackling the government's long-term fiscal woes. And White House officials believe a sweeping bipartisan deficit-reduction deal could help Mr. Obama's re-election effort.
Many rank-and-file members, while sticking to their positions, also have their sights on an approach that will get them past the next election.
Under an earlier version of the plan, Bush-era tax cuts would expire at the end of next year for couples with taxable income of $250,000 or more. This would guarantee that if a tax overhaul is not enacted, the government would reap increased revenue.
Mr. Boehner ultimately rejected that idea, and the issue remains unresolved.
Both sides warned that an agreement is not near. "There is no deal," Mr. Boehner told radio host Rush Limbaugh. White House spokesman Jay Carney used similar language. And White House officials said Mr. Obama has never considered an agreement that did not include revenue increases.
The latest developments came a day after the House passed a plan to cut 2012 spending by $111 billion and cap future spending at a steadily shrinking percentage of the economy. It would increase the debt ceiling, but only if Congress approves a constitutional amendment to balance the federal budget.
The Senate is expected to defeat that proposal Friday. Mr. Reid abruptly announced Thursday he would hold a vote to set it aside, calling it "perhaps some of the worst legislation in the history of this country," adding that "I am not going to waste the Senate's time day after day after day" on it.
A group of senators known as the Gang of Six unveiled a proposal Tuesday to cut the deficit by $3.7 trillion, including about $1 trillion in revenue increases. But it has received a cold welcome from liberal Democrats as well as conservative Republicans
Senate leaders now plan to put forth their own plan, crafted by Mr. Reid and Senate Minority Leader Mitch McConnell (R., Ky.), allowing Mr. Obama to raise the debt limit in three increments by the 2012 election--what many see as a last-ditch option to avoid a default.
contributed to this article.
Write to Naftali Bendavid at email@example.com