The breakdown in talks over raising the debt ceiling has put Democrats and Republicans back on a collision course with just 40 days remaining to meet a deadline that, if missed, could send financial markets and interest rates into a tailspin.
By pulling out of debt-ceiling talks after Democrats insisted on $400 billion in new taxes, GOP leaders said they intended to send a loud-and-clear message to President Barack Obama: No new taxes!
“We’ve known from the beginning that tax hikes would be a poison pill to any debt-reduction proposal,” GOP Senate Minority Leader Mitch McConnell declared Thursday. “Those who are proposing them now either know this, or they need to realize it quickly.”
Leading Republicans protested Friday that Democrats have known from the beginning that tax hikes were a complete non-starter for the Republican caucus.
|Rep. Fred Upton: "We sent a message very early that a straight extension of the debt ceiling is not acceptable." (Getty Images Photo)
In an exclusive Newsmax.TV interview, GOP Rep. Fred Upton of Michigan, the influential chairman of the House Committee on Energy and Commerce, said the dispute over taxes is precisely the reason Republicans pushed for a straight up-and-down vote one month ago on whether to raise the debt ceiling by $2.4 trillion, without corresponding spending cuts. That proposal lost by an overwhelming 318-to-97 margin, with more than 80 Democrats crossing the aisle to vote with Republicans.
“From the very get-go, the administration has known that this Congress is not going to raise taxes,” Upton told Newsmax. “That is not going to help us on the jobs front. If you raise taxes, it’s going to cost us jobs.
“So that is just not going to be part of the equation. We sent a message very early that a straight extension of the debt ceiling is not acceptable . . . I guess that message hasn’t been heard as loud as we thought it would when we had that vote last month.”
GOP Arizona Sen. Jon Kyl and House Majority Leader Eric Cantor pulled out of the budget talks Thursday because they said they felt Democrats were trying to strong-arm them to accept tax increases.
With time running short for an agreement that would keep the government fully operational, Republicans and Democrats are calling for the president and House Speaker John Boehner to step in to get the negotiations back on a more realistic footing.
“I would expect to hear from him,” Boehner told reporters, adding that Cantor “has made it clear that these conversations could continue if they take the tax hikes out of the conversation.”
Both Boehner and Obama figure to suffer politically, if either capitulates on taxes. Obama is on record calling for reducing what he calls “spending in the tax code,” a euphemism for getting rid of the Bush-era tax breaks for citizens and business owners earning more than $250,000 a year.
Also, Obama said in his budget speech in April that continuing to give tax breaks to those in upper income brackets, while cuts are made in discretionary spending for social programs, “is not going to happen as long as I’m president.”
That said, for an incumbent president to steer the government into a shutdown less than 18 months before seeking re-election would be a huge political risk. The Hill Associate Editor A.B. Stoddard recently told Newsmax that Obama’s safest route to re-election is to combine Medicare reform that would extend its sustainability with an extension on the debt-ceiling.
“He has this fantasy he’s going to wait until 2013, when he has a Republican Senate and a Republican House to go down in history and reform entitlements,” Stoddard says. “It needs to happen now.
“If he does it now, he wins independents. Mitt Romney nor anyone can go out and say, ‘He’s a budget-buster.’ Anything that he and John Boehner sign and agree to together, I mean that’s it, that’s the end of it. Unless the economy were in tatters, I think that’s the key to re-election is to work on Medicare reform that gets signed into law and solves this whole debt-ceiling issue. I think that’s the path to re-election for the president.”
If the president rejects that logic, it would be difficult to avert a shutdown because Boehner’s wiggle room within his own caucus is thought to be negligible. In April, he incensed tea party conservatives by agreeing to a deal with Obama that provided a continuing resolution to fund the government in return for what was described as $38 billion in cuts. That was already substantially less than the $100 billion Republicans had promised during the 2010 midterm campaign.
A subsequent Congressional Budget Office analysis, however, found the deal actually saved only about $352 million in 2011 spending. And when emergency military funding for the wars was added in, the CBO reported, federal government spending will actually increase by $3.3 billion this year. The speaker’s office has maintained that the cuts will save more than $350 billion over the course of a decade, but when the continuing resolution came up for a vote in the House, Boehner needed Democratic support to pass the measure because 59 members of his own caucus rebelled and voted against it.
History suggests that Boehner or any other Republican who votes for tax increases in this political climate could pay dearly for it in the next election cycle. And that is precisely the warning that conservative Sen. Jim DeMint of South Carolina fired across the bow of GOP politicos.
“Based on what I can see around the country, not only are those individuals gone, but I would suspect the Republican Party would be set back many years,” DeMint said in an interview for the ABC Subway Series. “It would be the most toxic vote. I can tell you if you look at the polls, Democrats, Republicans, Independents, they do not think we should increase the debt limit.”
In a recent exclusive Newsmax interview, GOP Rep. Paul Ryan of Wisconsin said he “understands the thinking” of Republicans willing to risk a partial shutdown of the federal government rather than raise the debt ceiling, unless the deal includes corresponding spending cuts and precludes tax increases.
“The Democrats in the Senate, they’ve decided for the second year in a row [to] not even bother passing a budget,” Ryan told Newsmax. “That means there’s no opportunity to get spending cuts other than the debt limit.
“We don’t want to see the country default,” he added. “We don’t want to see the country stop paying Social Security checks to recipients, or Medicare, or Veterans Benefits. We don’t want to see them stop funding our troops when they’re out fighting for us.
“What we want to see are real spending cuts and controls in conjunction with any debt-limit increase. So we see this as an opportunity in conjunction. And what we tell president, and we tell this publicly as well, is that, for every dollar of debt limit that he wants increased, we should cut more than a dollar’s of spending.”
As for the negative impact on bond markets if the United States is unable to reach a deal to raise its debt limit, Ryan said failing to rein in spending also could precipitate a crisis.
“Because what the credit markets would conclude is that the Americans are done: ‘The Americans have no fiscal discipline, they can’t get spending under control, so we bondholders are less likely to get paid in full because these Americans are reckless fiscally,” Ryan told Newsmax during an interview for a special feature for the August edition of Newsmax magazine. “So we believe that you can’t just raise it, a blanket check increase in the debt ceiling, you’ve to have real spending cuts.
“The problem up here is not the level of taxation,” Ryan said. “The problem here is spending, and that’s what we’re focusing on. The president is trying to get us to raise taxes. We’re not going to do that. We’re going to cut spending. And if he wants to raise the debt limit and prevent default, then he’s going to have to cut spending.”
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