President Obama and Republican and Democratic congressional leaders failed to achieve a breakthrough during talks Sunday evening at the White House over a long-term plan to reduce the deficit – an agreement that is essential before Congress can raise the debt ceiling.
Those negotiations lasted less than 90 minutes and will resume on Monday. Obama told reporters that “we need to” finish up negotiations within ten days if there is to be time to convert a deal into legislation and prevent the Treasury from running out of borrowing authority. He also said that he won’t sign an agreement that doesn’t provide the Treasury with borrowing authority to 2013.
During last night’s session, Obama pressed for the $4 trillion deal that he and House Speaker John Boehner, R-Ohio, secretly negotiated early last week but that congressional Republicans have rejected -- largely because it would require an increase in taxes. Treasury and Federal Reserve Board leaders warn of a financial catastrophe unless Congress raises the $14.3 trillion debt ceiling by August 2.
But with Republicans now determined to take a more minimalist approach to deficit reduction, the focus of the critical negotiations is rapidly shifting back to a more modest $2 trillion in savings over the coming decade. Late Saturday night Boehner said in a statement that the best approach may be to focus on “producing a smaller measure based on the cuts identified in the Biden-led negotiations.”
Ironically, Cantor and other Republicans pooh-poohed the Biden negotiating team when Obama first ordered it to begin meeting on May 5, saying that it would make little progress. Instead, over seven weeks, the legislative team identified $2.1 to $2.3 trillion in potential savings, according to a Republican aide.
Approximately $1.1 to $1.3 trillion of the savings were in discretionary spending – the annual expenditures for running the government and funding programs. Another $275 to $325 billion was found in other mandatory spending including farm subsidies, federal employee pension contributions and funds raise by auctioning off rights to the wireless spectrum. Some $200 billion to $400 billion in savings in Medicare and Medicaid were targeted. Biden’s group also identified ways to save $325 billion to $350 billion in savings on interest payments.
Those cuts were tentatively agreed to by a small bipartisan group of House and Senate members. But the talks abruptly ended last month after House Majority Leader Eric Cantor, R-Va., and Senate Minority Whip Jon Kyl, R-Ariz., pulled out when Biden insisted that negotiators consider raising tax revenues as well as cutting spending.
An aide to the Speaker said Boehner told the Sunday White House gathering that Republicans consider “fundamental principles that must be met for any increase in the debt limit: spending cuts and reforms that are greater than the amount of the increase, restraints on future spending, and no tax hikes. The Speaker believes a package based on the work of the Biden group is the most viable option at this time for moving forward.”
GOP members of Congress overwhelmingly oppose any measure that smacks of a tax increase. Senate Republican Leader Mitch McConnell of Kentucky said Sunday there is no way Republicans would support a tax increase as part of a deficit reduction package because of the adverse impact it would have on a weak economic recovery. “To get a big package would require big tax increases in the middle of an economic situation that’s extraordinarily difficult with 9.2 percent unemployment — we think it’s a terrible idea, it’s a job killer,” McConnell said on “Fox News Sunday.”
A Friday jobs report showed unemployment rose to 9.2 percent in June and only 18,000 jobs were created. Both parties used the bleak unemployment report as further argument about what they want out of a deficit reduction deal. Republicans insist that now is the worst time to raise taxes and say that there isn’t enough support in the House to pass a bill. Democrats continue to argue that cutting spending in a fragile economy is not the answer to jumpstart job creation.
“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, McConnell’s spokesperson. “And it's baffling that the President and his party continue to insist on massive tax hikes in the middle of a jobs crisis while refusing to take significant action on spending reductions at a time of record deficits.”
Senior administration officials said earlier in the day the President hasn’t abandoned hope of a bigger deficit reduction package, although it wasn’t clear late yesterday whether Obama was still holding out for inclusion of fresh revenue in the final package. “We’re going to try to get the biggest deal possible, a deal that’s best for the economy,” Treasury Secretary Timothy Geithner said on NBC’s “Meet the Press.”
White House chief of staff Bill Daley said that Obama "is not giving up." "This president is committed to bringing economic soundness to this country, and that takes a big deal," Daley said on ABC News’ "This Week."
Senate Majority Leader Harry Reid, D-N.V. stressed the need for a deficit reduction deal that is balanced between spending cuts and revenue increases.
Despite the continued uncertainty over the final outcome of the talks, McConnell pledged that Congress will raise the federal debt limit despite opposition from members of his own party. “Nobody is talking about not raising the debt ceiling. I haven’t heard that discussed by anybody,” McConnell said. He said he would describe a “contingency plan” later this week if a deal isn’t reached.
But not all participants from the Biden group agree on the amount of savings that was identified. Rep. Chris Van Hollen, D-Maryland, the ranking member of the House Budget Committee, told The Fiscal Times that only $1.1 trillion in deficit reduction was identified and that those savings were contingent on Republicans agreeing to some new taxes.
“The numbers the Republicans put out are grossly exaggerated and grossly inflated,” Van Hollen told The Fiscal Times. “There was certainly no final agreement on those things. To the extent that those [cuts] were even identified on a contingent basis, their numbers are way off. I think we were on a path that could have led to hitting $2.4 trillion. It’s very disappointing that the Republicans have backed away from that agreement because they want to protect tax breaks for oil and gas companies and private jets.
Van Hollen said they had “fruitful and productive discussions” in the Biden group but that they didn’t resolve some critical issues such as how much to cut from defense and non-defense spending.
According to the non-partisan Committee for a Responsible Federal Budget, there are areas of savings overlap between House Republicans and the White House that total at least $1 trillion in common ground deficit measures. These include: selling excess federal property for $10 billion to $15 billion; reduce farm subsidies by $5 billion to $35 billion; increase federal civilian pension contributions for $65 billiion to $120 billion and eliminate some interest subsidies on school loans for savings between $20 billion and $65 billion over 10 years.
More on the debt limit debate from The Fiscal Times: