Obama Open to Short-Term Debt Increase Tied to Major Deal

U.S. Debt Compromise Pressure Intensifies
Sen. Tom Coburn, R-Okla. reveals his "Back in Black" plan to reduce the federal deficit, July 18, 2011, during a news conference on Capitol Hill. Photographer: J. Scott Applewhite/AP

The Obama administration signaled it may accept a short-term increase in the U.S. debt limit only if lawmakers need a few days to finish work on a broader agreement to cut the deficit.

President Barack Obama “must have a firm commitment to something big” on cutting the deficit before he would sign a short-term rise in the debt ceiling, White House spokesman Jay Carney told reporters at a briefing. He released a written statement later saying Obama “does not support a short-term extension” unless “a few days” are needed “for a bill to work its way through the legislative process.”

The president called congressional leaders to the White House today as the Aug. 2 deadline for raising the $14.3 trillion debt limit nears.

Obama met today for just under an hour with Senate Majority Leader Harry Reid, second-ranking Senate Democrat Dick Durbin, House Minority Leader Nancy Pelosi and second-ranking House Democrat Steny Hoyer. That meeting followed by a session of about 90 minutes with Speaker John Boehner and Majority Leader Eric Cantor, the top two House Republicans. Obama spoke by telephone with congressional leaders from both parties yesterday, Carney said.

Matter of Timing

Durbin said afterward that it’s “not practical” to write and pass legislation based on a $3.7 trillion deficit-cutting plan proposed by a bipartisan group of senators in time to meet the debt-ceiling deadline.

“Let’s be honest about this,” Durbin said at the Capitol. “It’s not written, it’s not scored, and we are down to 13 days.”

Reid is open to incorporating it in debt limit legislation “by reference,” perhaps directing a later deficit-reduction vote or turning the matter over to a new joint committee, he said.

Senator Tom Coburn, an Oklahoma Republican who helped negotiate the proposal, said he wants Congress to “go all-out” to accomplish cutting spending and raising the debt limit.

“My preference would be that we go all-out to try to accomplish this, to solve the problem,” Coburn said in an interview on Bloomberg Television. He acknowledged the resistance that the plan from the so-called Gang of Six senators faces within his own party: “We have made changes that some people cannot accept,” Coburn said.

Shares Slip

The Standard & Poor’s 500 Index slipped 0.1 percent to 1,325.84 in New York, a day after its biggest rally since March. A drop in Treasuries sent the 10-year yield up five basis points to 2.94 percent, erasing yesterday’s decrease.

Kent Conrad, a North Dakota Democrat and chairman of the Senate Budget Committee, said on Bloomberg Television that lawmakers have drafted legislation for the Senate proposal that could advance more quickly than some observers believe.

The plan, which calls for tax increases and spending cuts, was gaining momentum on Capitol Hill, where Republican lawmakers who have opposed using increased revenue to shrink the deficit said they were seriously looking at it.

“There are some good things in there,” Representative Dave Camp of Michigan, the Republican chairman of the tax-writing Ways and Means Committee, said in an interview. “I certainly like the lower rates and a simpler tax code, but I do think that revenue increases are an issue that we’ll have to deal with. We’re just not going to increase taxes.”

Republican Senator Marco Rubio of Florida, a fiscal conservative elected last year with Tea Party backing, said he too was looking at the plan to see whether he could support something that envisions $1 trillion more revenue.

‘Benefit of the Doubt’

“They would argue that this is not a tax increase, so I want to give them the benefit of the doubt,” Rubio said in an interview.

House Armed Services Committee Chairman Howard “Buck” McKeon said in a memo to Republicans on the panel that he doesn’t support the proposal “in its current form” because it would mandate $886 billion in defense and other security spending cuts over a decade. He also said he objected to the plan’s proposal to change military retirement benefits.

The proposal would require Senate committees to produce legislation to reduce spending and raise revenue. The Senate Finance Committee would be instructed to lower tax rates, eliminate the alternative minimum tax, and “reform” tax breaks for health care, charitable giving and homeownership.

Tax Brackets

The outline calls for three individual income tax brackets with a top rate between 23 percent and 29 percent, down from 35 percent today. The corporate rate would drop to a single rate of between 23 percent and 29 percent, down from a top rate of 35 percent today. The tax system would need to retain its current progressivity and retain benefits for low-income workers such as the earned income tax credit.

Some lawmakers hold out hope for the compromise offered by three Senate Republicans and three Democrats after months of opposition to new revenue among House Republicans.

“The fact that Republicans are coming out for revenues is certainly something of a breakthrough. They haven’t done that before,” Senator Charles Schumer, a New York Democrat, said today. “We hope it shows they’re willing to compromise. But of course we are running out of time. We need to assure the world we will not default on our debt.”

While House Republican leaders indicated a willingness to consider the proposal, they and other members of their fiscally conservative caucus continue to stress opposition to more taxes.

“Tax increases aren’t going to fly in the House,” said Representative Kevin Brady, a Texas Republican and a member of the Ways and Means Committee.

Backup Plan

That suggests a backup plan along the lines of one still being worked out by Reid and Senate Republican leader Mitch McConnell may offer the best chance for a compromise before Aug. 2, when the Treasury Department says the government will hit the debt limit. The plan would give Obama $2.4 trillion in new borrowing authority in installments.

Carney said that while the bigger accord is still possible, “we have to make sure there’s a backup plan.”

More than a dozen Senate Republicans have signed a bipartisan letter of support for the gang’s efforts, said Senator John Hoeven of North Dakota.

Most Republican leaders have been noncommittal, yet have signaled openness to some of the plan’s elements. Only one, third-ranking Republican Senator Lamar Alexander of Tennessee, has endorsed the plan.

Step Forward

“In this Congress, with this president, from the Republican point of view, this would be a big step forward,” Alexander said.

An NBC News/Wall Street Journal poll released yesterday showed that most Americans favor Obama’s approach to a compromise rather than Republicans’ position. According to the survey, conducted July 14-17, 58 percent backed Obama’s push for reducing the deficit by $4 trillion over the next decade through a combination of budget cuts and a tax increase, while 36 percent supported the Republican proposal to shave the deficit by $2.5 trillion solely by reining in spending. The poll’s error margin is plus-or-minus 3.1 percentage points.

The plan released yesterday by the Senate’s Gang of Six, led by Republican Saxby Chambliss of Georgia and Democrat Mark Warner of Virginia, proposes $500 billion in immediate spending cuts.

It then lays out targets and enforcement mechanisms for compelling future reductions, including between $85 billion and $202 billion in Medicare and other health spending, $80 billion from defense, $70 billion from education and labor programs and $11 billion from agriculture programs, according to a summary.

Tax Overhaul

It calls for a broad tax overhaul that would raise $1 trillion by limiting breaks for health, charitable giving, home ownership and retirement, while lowering individual and corporate tax rates. It would scrap the Alternative Minimum Tax, a system designed to prevent higher-earners from avoiding taxes.

Colorado Democratic Senator Michael Bennet said the proposal is the “best bipartisan plan that we’ve seen -- the only one.” Members of both parties in the Senate are pushing for an agreement that avoids a government default, Bennet said on Bloomberg TV.

“‘No’ is not an answer for the American people,” he said.

McConnell was noncommittal. “I don’t have an opinion yet,” he told reporters yesterday.

Boehner, an Ohio Republican, also tempered his reaction. The “plan shares many similarities with the framework” Boehner has discussed with Obama “but also appears to fall short in some important areas,” Boehner’s spokesman, Michael Steel, said in an e-mail yesterday.

Credit-Default Swaps

The cost of insuring Treasuries with credit-default swaps for five years fell to the lowest in a week, declining 1.7 basis points to 52.5 basis points as of 2:30 p.m. in New York, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Reid said today he will schedule a test vote for July 23 on a plan by House Republicans to raise the debt limit only if Congress approves a balanced-budget constitutional amendment. Senate Democrats say the plan won’t pass in their chamber. Reid said the vote may be held earlier if members agree.

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