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Obama Lunch With Boehner Ends With Standoff Over Budget

The lunch meeting between President Barack Obama and House Speaker John Boehner had the trappings of collegiality as they munched on hoagie sandwiches and potato chips from a local deli. It ended with a standoff.

Boehner renewed a threat to repeat last year’s showdown over federal debt while Obama rejected replaying the deadlock that brought the U.S. to the brink of default and insisted again that any deficit-reduction plan had to include more tax revenue.

Instead of setting up an agenda for legislation between now and the November elections, both sides at yesterday’s meeting staked out positions that will frame the election-year debate.

“I would have hoped that we all would have learned from what happened last summer,” said Senator Tom Harkin, an Iowa Democrat.

Obama is seeking to make the case in his re-election campaign that Republicans are blocking his initiatives to promote job creation while offering a rehash of proposals on taxes and regulation that haven’t worked in the past. Republicans, including presidential candidate Mitt Romney, have opened a concerted attack on Obama over the budget deficit and the nation’s debt.

Bruised by Battle

Both sides were bruised by the political battle over raising the debt limit last year. After months of negotiations on federal spending, Obama signed compromise legislation to lift the debt ceiling on Aug. 2, the day the Treasury had warned the nation’s borrowing authority would expire. One of the three major ratings companies, Standard & Poor’s, on Aug. 5 cut its rating on federal debt to AA+ from AAA, the first-ever downgrade of U.S. credit.

Public approval of Congress tied an all-time low of 13 percent in Gallup polling during August and Obama’s slipped to 42 percent.

Today, Boehner sought to cast as alarmists Democrats who have accused him of inciting financial market turmoil by raising the prospect of a default if Republican conditions for extending government lending authority aren’t met.

“It struck me as somewhat comical” that “people are looking at me like I’m the guy carrying a sword around town and am going to be bludgeoning someone,” the Ohio Republican told reporters. “All I’m suggesting is it’s time for us to talk about this.”

Over the Edge

House Democratic leader Nancy Pelosi, who attended the meeting, told reporters that Republicans were “going over the edge” with threats that may further erode investor confidence in the nation’s creditworthiness. “They did it before; here we go again,” she said.

“Our credit rating was lowered” even after Congress passed the debt-reduction legislation last year, she said. “This is not a wholesome debate,” and “we should snuff it out immediately.”

Other lawmakers in attendance at yesterday’s lunch were Senate Democratic leader Harry Reid of Nevada and Senate Republican leader Mitch McConnell of Kentucky.

The White House and Congress face a crush of tax and spending decisions at the end of this year. Income tax cuts first enacted under President George W. Bush will expire, as will a temporary reduction in the Social Security payroll tax. More than $1 trillion in automatic spending cuts are set to begin taking effect, extended unemployment benefits will run out and the government will again brush up against its $16.394 trillion legal cap on borrowing.

Attacking Obama

While Romney and congressional Republicans are attacking Obama on government spending and the nation’s debt, investors signaled they aren’t concerned about a U.S. default. Yields on the government’s benchmark 10-year notes reached a seven-month low of 1.76 percent at 5 p.m. New York time yesterday, according to Bloomberg Bond Trader prices. Rates are about one-quarter of the 50-year annual average of 6.49 percent.

Through last week, investors had offered $3.18 for every dollar of notes and bonds auctioned this year, the most since the government began releasing the data in 1992.

Obama called the meeting, his first with congressional leaders from both parties since February, as part of an effort to promote proposals for encouraging businesses to hire. He brought in lunch from Taylor Gourmet, a local deli where he had gone earlier in the day to talk about his plans.

Before going into the meeting, Boehner derided Obama’s proposals, saying the president is “playing small ball” while ignoring “big looming problems facing our country.”

‘Something Serious’

During the meeting, he told Obama that “as long as I’m around here, I’m not going to allow a debt ceiling increase without doing something serious about the debt,” according to an e-mailed statement from his office.

The White House responded in kind.

“You have to ask the speaker of the House whether or not he intends or he believes that it is the right thing to do for the American people, the American economy to play chicken with the full faith and credit of the United States government,” said presidential spokesman Jay Carney.

Boehner’s approach will increase pressure on Congress to come up with a solution, said Senator Mike Crapo, an Idaho Republican who backs a deficit-reduction agreement that would include more revenue than most Republicans would support and deeper spending cuts than most Democrats would favor.

‘Force the Issue’

“It’s a way to force the issue and to, I think, create greater pressure to move toward a more balanced, comprehensive approach,” Crapo said, adding that the debt ceiling and the expiration of tax cuts and unemployment benefits will build pressure on lawmakers. “As those things all start coming to a head, that just builds a circumstance in which Congress has to act.”

Harkin called Boehner’s debt limit comments “dangerous” and likened them to the speaker “holding a bomb and lighting a fuse ready to throw it.”

“The one thing the business community and the markets don’t need out there is someone threatening them,” he said.

The rhetoric signals just how tough it will be for both sides to find more than short-term solutions that “muddle through” when they are forced to make a series of big tax and spending decisions late this year, said John Pitney, a political scientist at Claremont McKenna College in Claremont, California.

“Summer reruns are starting early,” he said.

To contact the reporters on this story: James Rowley in Washington at jarowley@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

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