Bloomberg News

Republicans Attack Obama Bid to Forge Debt ‘Grand Bargain’

July 12, 2011

(Updates with White House response, Obama comments to CBS and Cornyn comments beginning in fourth paragraph.)

July 12 (Bloomberg) -- The top Senate Republican attacked the credibility of President Barack Obama’s efforts to forge a “grand bargain” of spending cuts and tax increases, saying the president himself was an obstacle to an agreement on the debt.

Senator Mitch McConnell and other Republican leaders said Obama is putting an expansion of government ahead of the goal of reaching a bipartisan accord to cut the U.S. deficit. He said Democrats’ “smoke and mirrors” proposals prevented the type of $4 trillion deficit reduction that Obama is seeking.

“As long as this president is in the Oval Office, a real solution is unattainable,” McConnell of Kentucky said on the Senate floor today in his toughest comments about the negotiations since bipartisan talks began.

White House Press Secretary Jay Carney called McConnell’s remarks “unfortunate,” saying, “this president is going to be in office for at least another 18 months, and I think that the American people expect Congress to work with him.”

Carney said Obama has been willing to do “tough things that will not be easy to convince Democrats to go along with.”

Obama has pressed Republican leaders to seek bigger deficit savings than the range between $2 trillion and $2.5 trillion they have targeted and to compromise on their opposition to tax increases. The two parties are in talks aimed at raising the $14.3 trillion U.S. debt ceiling before Aug. 2, the date when the government is projected to exhaust its borrowing authority.

‘Now is the Time’

“Now is the time to deal with these issues,” Obama said at a White House news conference yesterday. “If not now, when?”

In an interview for “CBS Evening News with Scott Pelley,” Obama raised the possibility that the federal government might not be able to pay Social Security and veterans’ benefits if an agreement isn’t reached in time.

“I cannot guarantee that those checks go out on Aug. 3 if we haven’t resolved this issue,” Obama said. “Because there may simply not be the money in the coffers to do it.”

The parties are divided over taxes and entitlement programs. In addition to rebuffing Democratic calls for more tax revenue, Republicans are pushing to cut programs such as Medicare and Social Security. The White House has indicated a willingness to consider savings including an increase in the Medicare-eligibility age as part of a larger deal.

‘Something Big’

“I was one of those who had long hoped we could do something big for the country,” McConnell said. “But in my view the president has presented us with three choices: smoke and mirrors, tax hikes, or default. Republicans choose none of the above.”

McConnell’s criticism was echoed by House Speaker John Boehner, an Ohio Republican, who said the “president talks a good game, but when it comes to actually putting these issues on the table and making decisions, he can’t quite pull the trigger.”

McConnell held a private meeting with Senate Republicans to get their views on the negotiations at the White House scheduled to resume at 3:45 p.m. today.

Senator John Cornyn, a Texas Republican and member of the Republican leadership team, said the lawmakers discussed options going forward in the talks, which are at a standoff over tax increases. He said Republicans want to pressure Democrats by highlighting some of the ideas they are pushing that aren’t popular with the public and can’t pass Congress.

Senate Votes

He said McConnell is weighing a plan to take some of Obama’s ideas and try to put them before the Senate for a vote.

Another potential option for Republicans is to see whether the Republican-led House would pass a short-term debt limit increase to “put pressure” on Democrats to accept spending cuts, Cornyn said.

Obama yesterday rejected any short-term extension. He also rebuffed a Republican presentation on spending cuts discussed in earlier talks led by Vice President Joe Biden, a Democratic official said. Obama said the total -- which a Democratic official put at $1.7 trillion -- fell short of both his goal and the threshold Republicans set for a debt-limit increase large enough to carry the nation through the 2012 elections, another Democrat said.

Letter From Chamber

The U.S. Chamber of Commerce, the Business Roundtable and other organizations today released a letter to Obama and Congress urging action “to raise the debt ceiling as expeditiously as possible.”

The letter, which the chamber said was signed by 470 chief executives, supports long-term efforts to reduce federal deficits while saying that failure to increase the government’s borrowing authority “would create uncertainty and fear, and threaten the credit rating of the United States.”

House Democrats met this morning to review the bigger deal that Obama is offering to Republicans even as aides said the Medicare and Social Security compromises Obama has been willing to consider are largely moot given that Republicans refusal to engage on revenue. Democrats said the debt negotiations have become so strained, it may take Wall Street and business groups stepping in with a warning to force an agreement.

“We certainly would hope that the Chamber of Commerce would step up,” said House Democratic Caucus Chairman John Larson of Connecticut. “We have heard from Wall Street but I think they have to be more vociferous and more present in terms of the looming, impending danger.”

U.S. Stocks

U.S. stocks rose, after the biggest two-day drop since March for the Standard & Poor’s 500 Index. The S&P index rose 0.1 percent to 1,320.60 at 12:32 p.m. in New York.

Yields on benchmark Treasury 10-year notes were little changed after surging earlier as concern that Europe’s debt crisis may spread stoked demand for the U.S. government debt’s safety. The 10-year note yield fell as much as 11 basis points to 2.81 percent, the lowest since Dec. 1, before trading little changed at 2.91 percent, at 1:45 p.m. in New York, Bloomberg Bond Trader prices show.

U.S. Treasury Secretary Timothy Geithner said the Obama administration is aiming to reach a deal on raising the debt ceiling as soon as this week.

“We want to wrap up the broad outlines of this agreement by the end of this week, certainly by the end of next week,” Geithner said today at a symposium in Washington.

Republicans have demanded at least a dollar in spending cuts over 10 years for every dollar they agree to raise the debt limit, which would have to go up more than $2 trillion to get through the elections. The Republicans last weekend lowered their objective for deficit reduction to the range of $2 trillion to $2.5 trillion.

Democratic congressional leaders also objected to the figure presented yesterday by Republicans, saying spending cuts that had been discussed in the Biden-led talks were contingent on tax-revenue increases, said a Democratic official.

--With assistance from Heidi Przybyla, Margaret Talev, Hans Nichols, Kate Andersen Brower, Julie Hirschfeld Davis, James Rowley, Roger Runningen, Ian Katz and Cheyenne Hopkins in Washington. Editors: Mark McQuillan, Laurie Asseo.

To contact the reporters on this story: Mike Dorning in Washington at mdorning@bloomberg.net; Laura Litvan in Washington at llitvan@bloomberg.net

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


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