Bloomberg News

Obama Summons Lawmakers for ‘Hard Bargaining’ on Deficit Cut

July 08, 2011

(Adds Boehner comment in fifth paragraph.)

July 8 (Bloomberg) -- President Barack Obama is summoning top congressional Republicans and Democrats to a rare Sunday meeting at the White House to begin “hard bargaining” on a broad debt-reduction deal.

At the July 10 session Obama will make his latest bid to break a partisan impasse over whether to include cuts in entitlement programs and tax increases in an agreement. Both sides in the debate are signaling openness to compromise on each front.

Republicans, pressed by Obama to consider raising taxes to reduce the debt, are weighing whether to close loopholes and eliminate some tax breaks in exchange for a commitment from Democrats that Congress will act later on a broad overhaul that lowers tax rates, a Republican congressional aide said.

Democrats said they are considering a proposal to curb the growth of entitlement programs including Social Security through a change in the way the government measures inflation, which would cut future annual benefit increases.

House Speaker John Boehner cautioned today that there is “no imminent deal about to happen” because “there are serious disagreements” about resolving “this very serious problem.”

“We are this far apart,” the Ohio Republican said, spreading his arms wide in front of him. The speaker said he didn’t think the gap “has narrowed in the last several days.”

His assessment reflected the one Obama gave reporters yesterday after a 90-minute White House session with congressional leaders -- a meeting the president termed “very constructive.”

Political ‘Pain’

“Everybody acknowledged there’s going to be pain involved politically on all sides” for an accord to be achieved, the president said after the talks with leaders.

Obama was meeting today with House Democratic Leader Nancy Pelosi of California, who said yesterday that Democrats in Congress won’t support any cuts in Social Security or Medicare benefits.

At his weekly press conference today, Boehner said that even if an agreement were reached, “we’ve got to have a bill that can pass through the House and the Senate,” which is controlled by Democrats. “This is a Rubik’s Cube we haven’t quite worked at yet,” the speaker said.

Staff aides will prepare possible compromises to be considered at the next meeting, the president said.

Seeking a Deal

Obama and congressional leaders are seeking a deficit- slashing deal to pave the way for a vote in Congress to increase the government’s $14.3 trillion debt limit, a move the Treasury Department says is needed by Aug. 2 to avert a default on the nation’s financial obligations.

Behind closed doors in his Cabinet Room yesterday, Obama told the lawmakers he won’t sign any agreement that fails to raise the debt limit through the 2012 election, said a congressional aide familiar with the negotiations who spoke on condition of anonymity.

He polled those gathered about their preferences on the scale of a deficit-cutting plan, ranging from small, which he defined as $2 trillion to $2.5 trillion; medium, at $3 trillion to $3.5 trillion; or large, at $4 trillion to $4.5 trillion, the aide said. All present chose either medium or large while Obama said he wanted a large deal, according to the aide.

Obama asked the leaders to return in three days with detailed ideas and to be prepared for a long meeting, the aide said. In public, the president said he hoped participants would be ready for a round of “hard bargaining.”

Tax Preferences

One option Republicans are considering involves closing some tax loopholes or ending preferences in return for a deadline for Congress to overhaul the tax code and lower rates, possibly for both corporations and individuals, according to a Republican congressional aide who spoke on condition of anonymity. The aide didn’t say when the loopholes would be closed or whether Republicans would insist that such a plan not create any additional revenue for the government.

Republicans will only consider such moves if Democrats agree to bargain on changes to Social Security that could result in future benefit cuts, the aide said.

“They’re looking at the concept of tax reform in the debt agreement,” said Representative Dave Camp, a Michigan Republican and chairman of the Ways and Means Committee. He wouldn’t provide details. “If there is a tax agreement in the debt ceiling, we’ll be prepared to move forward with that,” he said.

The White House and some congressional Democrats have been willing discuss such changes, though they insist that any Social Security savings be plowed back into the program.

Senators’ Group

Separately, the five remaining members of a bipartisan group of senators whose efforts to reach a debt-reduction compromise fell apart earlier this year may offer their ideas soon, Senator Mike Crapo of Idaho said in an interview this week.

The team led by Democrat Mark Warner of Virginia and Republican Saxby Chambliss of Georgia has discussed setting benchmarks for cutting future debt and deficits, enforced by the threat of automatic spending cuts and tax increases if the savings were not achieved.

Boehner told Republican lawmakers on his way into yesterday’s meeting that he put the odds of a broad debt reduction deal at “maybe 50-50.”

Senate Minority Leader Mitch McConnell of Kentucky called the meeting “a good conversation,” and wouldn’t comment further. Nor would others who attended, including Senate Majority Leader Harry Reid, a Nevada Democrat, and Senator Jon Kyl of Arizona, the second-ranking Republican. The White House would provide no details on what was discussed.

Obstacles to Agreement

Democratic and Republican leaders alike face substantial obstacles to an agreement, with both parties’ base supporters opposed to compromises that would pave the way for a deal.

Some Democrats and groups that support them reacted with anger and alarm to word that the White House was open to the inflation adjustment for Social Security.

Representative Jan Schakowsky of Illinois said in an interview she reminded fellow House Democrats at a closed-door meeting that “Social Security has nothing to do with the deficit, nothing to do with the debt, nothing to do with anything, so it should simply not be part of this.”

Liberal groups pressured Democrats to resist such cuts.

‘Plain Wrong’

Justin Ruben of MoveOn.org issued a statement saying the group’s “members, who worked tirelessly to elect the president, could not be more clear: Balancing the budget by cutting Social Security or Medicare benefits is just plain wrong.”

One leading Republican publicly rejected the idea of closing tax loopholes and eliminating incentives as part of a debt agreement.

That “should happen in a conversation about broad based tax reform -- reform that flattens the code while lowering rates,” said Senator Orrin Hatch of Utah, the top Republican on the Finance Committee. “The president has chosen instead to target tax expenditures willy nilly with little regard for the policy implications of these tax hikes.”

He said “conservative Republicans” have promised never to back a “net tax increase” and will stick to that pledge.

--With assistance from Steven Sloan, Richard Rubin, James Rowley, Margaret Talev, Roger Runningen, Peter Cook, Heidi Przybyla and Brian Faler in Washington. Editors: Laurie Asseo, Mark McQuillan.

To contact the reporters on this story: Julie Hirschfeld Davis in Washington at Jdavis159@bloomberg.net; Mike Dorning in Washington at mdorning@bloomberg.net

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


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