Democrats Balk at Possible Debt Deal

Thursday, 21 Jul 2011 05:57 PM

 

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Democrats reacted angrily to reports that the White House is cutting a deal with House Republicans to boost the U.S. debt ceiling and reduce deficits by about $3 trillion over 10 years without immediate revenue increases.

President Barack Obama’s team has told congressional leaders it is pursuing such a deal, according to two officials familiar with the talks, as the White House and House Speaker John Boehner of Ohio denied one was at hand.

The officials, who described outlines of the plan on condition of anonymity, said congressional leaders were told it would enact spending reductions while calling for a future tax overhaul that could raise $1 trillion in additional revenue.

Obama summoned Democratic leaders from the House and Senate to a White House meeting at 5:30 p.m., a Democratic official said.

Little more than a week is left before the Aug. 2 deadline for raising the $14.3 trillion debt ceiling and averting a default. Negotiations for a deficit-cutting deal to set the stage for raising the cap were moving quickly, and some Democrats said they feared they might be asked to swallow a plan they couldn’t accept: steep reductions in programs including Medicare and Social Security, with no promise of higher tax revenue.

Lew Meeting

Senate Majority Leader Harry Reid of Nevada confronted White House Budget Director Jack Lew about such a possible deal at a closed-door lunch at the Capitol, and Lew said he wasn’t aware of any agreement, according to Senator Joe Lieberman of Connecticut, an independent who caucuses with the Democrats. Some Democrats believe they are being left out as Obama bargains with Boehner, Lieberman said.

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said a major budget deal that doesn’t include new revenue “obviously” couldn’t pass the Democratic- controlled Senate.

“We are very volcanic at this moment,” Senator Barbara Mikulski, a Maryland Democrat, said as she left the session with Lew. She said Democrats don’t want an agreement similar to last year’s deal between Obama and Republicans that extended Bush-era tax cuts for all taxpayers, including the wealthy.

‘False’

The news of a potential deal in the debt-limit dispute was first reported today by the New York Times and was quickly denied by White House press secretary Jay Carney. Boehner said in a Twitter message that reports of a deal were “false.” Lew, leaving his session with Senate Democrats, said, “There is no agreement.”

“There is no progress to report,” Carney said at a briefing in Washington. He said the administration is “absolutely confident” an agreement to avert a default can be reached before Aug. 2, when the Treasury Department says the U.S. would exhaust its borrowing authority.

Standard & Poor’s warned there is a 50 percent chance it will lower the U.S. government’s AAA credit rating by one or more levels within three months. S&P said today that, even if Congress raises the debt limit in time to avert a default, it might lower the U.S. sovereign rating to AA+ with a negative outlook if it isn’t accompanied by a “credible solution” on the debt level.

Borrowing Costs

Such a ratings change, which could come as soon as early August, would “modestly raise” the federal government’s borrowing costs, S&P said. If the U.S. defaults on some obligations after Aug. 2, even if it pays bondholders, S&P forecast short-term interest rates would rise by 50 basis points or 0.50 percentage points and long-term interest rates by 100 basis points or 1 percentage point.

Boehner plans to meet with rank-and-file Republicans tomorrow morning to brief them on the status of the talks. Republicans insist that any debt-ceiling boost be accompanied by spending cuts and measures to reduce the long-term debt without raising taxes.

Boehner told reporters he has prepared his membership for the possibility of a compromise with Democrats to raise the debt limit, and that he believed a majority of the 240 Republicans are prepared to do so. “We have a responsibility to act,” he said.

Tax Revenue

Democrats say more tax revenue must be part of any final compromise.

“The president always talked about balance, that there had to be some fairness in this, that this can’t be all cuts,” Reid told reporters at the Capitol. “There has to be a balance, there has to be some revenue with the cuts. My caucus agrees with that. I hope the president sticks with that. I’m confident he will.”

Lieberman said Democrats “are anxious that the president is negotiating with Speaker Boehner, and that somehow that an agreement made there will be forced on the Senate.”

At the same time, a bipartisan group of six senators who revived hopes this week for a grand bargain haven’t produced details sought by leaders, making it harder to add their proposals to any debt-ceiling endgame, said two Democratic aides familiar with the deliberations.

Gang of Six

The so-called “Gang of Six” outlined a $3.7 trillion deficit-reduction plan and Obama embraced it this week. Some Republicans have endorsed it or signaled openness to considering its elements. The group was meeting with Senate leaders today to determine which of their ideas -- if any -- would offer a way out of the current conflict.

Senate leaders have also discussed a fallback plan by Reid and Republican Leader Mitch McConnell of Kentucky to give Obama $2.4 trillion in borrowing authority. It could be combined with spending cuts and a committee charged with pushing through longer-term debt reduction in the coming months.

The two parties blamed each other for the stalemate. Reid said the House’s decision to be out of session this weekend presents “a bad picture” to Americans as the deadline nears for possible default on federal debt.

Michael Steel, a spokesman for Boehner, responded with an e-mail saying the House had passed its plan, which would condition a debt-ceiling increase on passage of a constitutional amendment requiring a balanced budget. Democrats say the plan can’t pass the Senate, which plans to vote on it tomorrow or July 23.

Opening Seen

Democrats seized on comments by Grover Norquist, president of Americans for Tax Reform, as providing an opening for Republicans to accept some revenue increases.

Norquist told the Washington Post editorial board that allowing the Bush-era tax cuts to expire as scheduled at the end of 2012 wouldn’t violate the no-tax-increase pledge that almost all Republican members of Congress have signed.

“Not continuing a tax cut is technically not a tax increase,” he said. Congress could allow the tax cuts to expire without a vote. Democrats have called for allowing the tax cuts for high-income taxpayers to expire while permanently extending most of the cuts.

Democratic Senator Chuck Schumer of New York said Norquist’s statement is a signal that House Republicans should “step back from the brink.”

Norquist’s group issued a statement later saying that letting the tax cuts expire would amount to a tax increase opposed by the group.

Americans for Tax Reform “opposes all tax increases on the American people,” the group said in an e-mailed statement. The Gang of Six plan appears to “dramatically increase taxes on the American people.”

--With assistance from Kate Andersen Brower, Catherine Dodge, Kathleen Hunter, James Rowley, Roger Runningen, Julianna Goldman, Peter Cook, Brian Faler and Richard Rubin in Washington. Editors: Laurie Asseo, Don Frederick

To contact the reporters on this story: Julie Hirschfeld Davis in Washington at Jdavis159@bloomberg.net; Laura Litvan in Washington at bfaler@bloomberg.net

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

© Copyright 2014 Bloomberg News. All rights reserved.

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