Taxes, Scale of Spending Cuts Remain Hurdles to U.S. Debt Limit Increase

A fight over taxes and the scale of spending cuts remain the biggest obstacles to a deficit-cutting plan that White House officials and congressional leaders say is necessary for an agreement to raise the U.S. debt ceiling.

House Republican leaders said yesterday they would place on hold a plan to privatize Medicare health coverage for the elderly because of political obstacles, and concentrate on finding common ground with President Barack Obama on spending cuts.

House Majority Leader Eric Cantor, a Virginia Republican, told reporters in the Capitol that “the reality is this president has excoriated” the Medicare proposal. House Speaker John Boehner, an Ohio Republican, said the party would be unable to prevail on the idea in the current Congress, though he also said everything remains on the table except tax increases.

After lawmakers met yesterday with Vice President Joe Biden to discuss their differences over budget-cutting, Cantor said “there are areas in which we can find some commonality” with the Obama administration. He declined to give specifics about the overlaps.

Many lawmakers are using a deadline to raise the U.S. debt limit in the next few months as an opportunity to force major changes in the federal budget. The Treasury Department said this week lawmakers will need to raise the $14.3 trillion debt cap by about Aug. 2.

Vice President Joe Biden, center, with House Majority Leader Eric Cantor, left, and Senator Daniel Inouye, said after the meeting, "We made progress." Photo: Andrew Harrer/Bloomberg Close

Vice President Joe Biden, center, with House Majority Leader Eric Cantor, left, and... Read More

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Vice President Joe Biden, center, with House Majority Leader Eric Cantor, left, and Senator Daniel Inouye, said after the meeting, "We made progress." Photo: Andrew Harrer/Bloomberg

Biden opened the talks by calling the negotiations with lawmakers on reducing long-term government deficits “hard business.”

‘We Made Progress’

“We made progress,” Biden told reporters after the two- hour session. Before it started, he said, “I’ve been in Congress for 36 years and I’m always optimistic.” The next meeting is scheduled for May 10, the vice president said.

Representative Tom Cole of Oklahoma, a Republican member of the Budget Committee who formerly led his party’s House campaign arm, said political realities point to a smaller-scale deal than Republicans have sought.

Republicans realize “there are some things we’d want that Democrats simply are not going to consent to,” Cole said. “The entitlement changes are longer-term changes, and they don’t need to be built into this year’s budget to arrive at a deal.”

“We can still come to an agreement on the 2012 budget that ratchets down spending, and hopefully that will set us up for something that is much more sweeping post-presidential election,” Cole said.

Gleeful Reaction

Democrats reacted gleefully to Republicans’ seeming retreat on their Medicare plan, charging that it was a reaction to a voter backlash against what Democrats characterized as a politically lethal proposal. Democrats say Republicans are trying to balance the budget on the backs of the poor and elderly.

“The Republicans are slowly realizing their plan to privatize Medicare is a political disaster, but until they renounce their vote for it, they are still going to own it,” Senator Chuck Schumer of New York, the Senate’s third-ranking Democrat, said in a statement.

Obama last month outlined a proposal to cut $4 trillion from deficits over 12 years. The House in April passed a Republican plan to cut spending by more than $6 trillion over a decade, privatize Medicare and turn the Medicaid health-care plan for the poor into a block grant program.

Lawmakers in both parties used the meeting with Biden at Blair House across the street from the White House as a chance to spell out their starting positions in the budget debate, said one participant, Democratic Representative Chris Van Hollen of Maryland. “There’s an intent to keep at this,” he said.

Mandatory Cuts

Cantor told reporters the Republican position is the House- passed budget, which calls for $715 billion in mandatory cuts over 10 years outside of Medicare and Medicaid. Those include cuts in farm subsidy payments and financial aid to graduate students.

After the meeting, lawmakers sent legislative staff to look for areas of overlap, including specific spending cuts, in Republican and Democratic proposals that could form the basis of an agreement, according to congressional aides who spoke on condition of anonymity because they weren’t authorized to describe the discussions.

Officials outlined a tentative schedule of twice-weekly meetings that would last through May, one congressional aide said.

Biden said that, while the debt limit and the budget aren’t “technically connected,” they are “politically connected.”

Cost Controls

Obama’s deficit-reduction plan would impose cost controls on Medicare. House Republicans would replace the entitlement program with one in which the government would provide subsidies so people could buy coverage on the private insurance market.

Obama and the House Republicans also take separate paths on taxes. Obama would eliminate Bush-era tax cuts for wealthy families upon their expiration in 2012 and add $1 trillion in taxes on high-income families over 12 years. House Republicans would continue all the Bush tax cuts and avoid tax increases.

Cantor and Senator Jon Kyl of Arizona, the Senate’s second- ranking Republican, were the two members of their party participating in the talks with Biden.

Four Democrats attended: Senate Finance Committee Chairman Max Baucus of Montana, Senate Appropriations Committee Chairman Daniel Inouye of Hawaii, House Assistant Democratic leader Jim Clyburn of South Carolina and Van Hollen, the House Budget Committee’s top-ranking Democrat.

Biden was joined at the meeting by Treasury Secretary Timothy Geithner, White House budget director Jack Lew and Gene Sperling, director of the National Economic Council.

Bond markets showed little concern over the U.S. deficit in trading yesterday, as a plunge in commodities and stocks and a rise in weekly jobless claims eased concern inflation is accelerating. Yields on benchmark 10-year Treasury notes fell to a six-week low. The 10-year note yield fell seven basis points to 3.15 percent, after touching the lowest since March 17.

To contact the reporters on this story: Mike Dorning in Washington at mdorning@bloomberg.net; Julie Hirschfeld Davis in Washington at   or Jdavis159@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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