Obama Steps Into U.S. Budget Deficit Negotiations Seeking to Break Impasse

Photographer: Bradley C. Bower/Bloomberg

President Barack Obama will meet with Senate Democratic leader Harry Reid and Republican leader Mitch McConnell next week in an effort to revive talks on the budget and deficit, the administration announced. Close

President Barack Obama will meet with Senate Democratic leader Harry Reid and... Read More

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Photographer: Bradley C. Bower/Bloomberg

President Barack Obama will meet with Senate Democratic leader Harry Reid and Republican leader Mitch McConnell next week in an effort to revive talks on the budget and deficit, the administration announced.

President Barack Obama is stepping into the negotiations on the deficit in an effort to revive talks stalled over differences on taxes and entitlements.

Obama summoned Senate leaders Democrat Harry Reid and Republican Mitch McConnell to the White House for separate meetings on June 27 aimed at breaking the impasse that scuttled a seven-week negotiating effort led by Vice President Joe Biden.

The two sides are seeking a path to cutting at least $1 trillion from the long-term deficit and raising the nation’s $14.3 trillion debt ceiling before an Aug. 2 deadline. Obama will have to show some leadership if there is to be any compromise, Representative Kevin McCarthy, the third-ranking House Republican, said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend.

“He’s got to get off the golf course, and he’s got to get engaged,” said McCarthy, a third-term representative from California. Last weekend, Obama played a round of golf with House Speaker John Boehner, an Ohio Republican, as part of a commitment to work toward more bipartisan camaraderie.

The administration is insisting that any deal must include raising government revenue by removing or limiting some tax breaks while Republicans say taxes must be off the table.

“We won’t support an approach that gives millionaires and billionaires $200,000 in tax cuts annually while 33 seniors pay for that with a $6,000 per person increase in their Medicare costs,” White House press secretary Jay Carney told reporters yesterday. “We just don’t believe that that’s a fair or balanced approach to solving this problem.”

Medicare Spending

McCarthy rejected any tax increases and said a bipartisan deal must include limits on Medicare spending to save the government health insurance program for the elderly from bankruptcy.

“If you ignore Social Security, Medicare and Medicaid, in a few short years, it’ll take every single dollar that government brings in,” McCarthy said. He also dismissed ideas of eliminating tax breaks for oil companies or raising fees on banks as ways to narrow the U.S. deficit.

Moody’s Investors Service this month said it will put the U.S. government’s Aaa credit rating under review for a downgrade unless there’s progress on increasing the limit by mid-July. Standard & Poor’s in April put the U.S. on notice that it risks losing its top credit rating unless policy makers agree on a plan by 2013 to reduce budget deficits and the national debt.

Speaker Boehner said Republican conditions for raising the debt ceiling include no tax increases, spending cuts and a government spending overhaul.

‘He Must Lead’

“If the president and his allies want the debt limit increased, it is only going to happen via a measure that meets these tests,” Boehner said in a statement. “If the president wants this done, he must lead.”

Administration officials including Treasury Secretary Timothy Geithner said they were confident a deal can be reached to raise the debt limit by Aug. 2.

“We are going to avoid a default crisis because we are a country that meets its obligations,” Geithner told reporters yesterday in Manchester, New Hampshire. “We have no alternative.”

House Majority Leader Eric Cantor and second-ranking Senate Republican Jon Kyl walked away from the Biden-led talks on June 23, putting the onus primarily on Obama and Boehner to bridge the partisan divide.

Seeking Agreement

Biden and the six lawmakers involved in the talks -- Cantor, Kyl and four Democrats -- had sought to reach the broad outlines of a plan by yesterday. The decision by Cantor and Kyl to leave the talks followed a contentious session a day earlier during which Democrats pressed Republicans to agree to tax increases, according to an aide familiar with the talks.

“It is my hope that the president requested this meeting in order to finally explain what it is that he’s prepared to do to solve our nation’s fiscal crisis,” McConnell, a Kentucky Republican, said in an e-mailed statement yesterday.

“With Republicans threatening to give up amidst internal divisions, Senator Reid is prepared to step in and make sure we stay focused on creating jobs and cutting the deficit,” said Adam Jentleson, a spokesman for Reid.

Republicans are pressing to cut spending on entitlement programs such as Medicare and Medicaid. Democrats want to eliminate tax breaks for corporations including oil and gas companies, according to Maryland Representative Chris Van Hollen, a Democratic participant in the Biden group.

Democratic Priorities

Democrats proposed phasing out tax breaks for those earning more than $500,000 a year, Van Hollen told reporters on a conference call yesterday.

A final deal “will have to include some Democratic priorities,” Senator Charles Schumer, a New York Democrat, said on the call.

Speaking at a political fundraiser June 23 in New York, Obama said he’s “prepared to bring down our deficit by trillions of dollars” and that spending cuts must be “balanced” with tax increases on the wealthy.

“As it gets closer and closer, you’re talking about simply a debt-ceiling solution, not a deficit and debt solution,” said Bill Frenzel, a Republican former member of the House Budget Committee and scholar at the Brookings Institution in Washington. “Instead of making the $4 trillion or $5 trillion arrangement they need to make to stabilize the debt in a decade, they’ll probably do something to coast them through the end of the year or perhaps through the election.”

Economic Risk

The U.S. debt risks exceeding the size of the entire U.S. economy by 2021, according to the nonpartisan Congressional Budget Office.

McCarthy, rejecting an idea put forward by McConnell of resorting to short-term increases in the debt limit, said lawmakers and the administration “can get to the point where we solve this problem” if Obama becomes more involved.

A handoff to the White House will force Obama to be specific about what kinds of tax increases he supports to help close the budget deficit, something Democrats have avoided amid tension in their party over raising tax rates versus closing tax loopholes for corporations.

It also increases pressure on Boehner, who would have to find enough Republican votes to pass a possible deal that might draw opposition from much of his caucus.

“It’s going to involve twisting a lot of arms and calling in favors,” said Paul Weinstein, a former White House official and senior adviser to Obama’s fiscal commission. “It’s not pretty for either side.”

To contact the reporters on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net; Julianna Goldman in Washington at Jgoldman6@bloomberg.net

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

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