Bloomberg News

Obama Aides Said to Be Divided on Strategy for Fiscal Talks (1)

August 26, 2013

U.S. President Barack Obama

While U.S. President Barack Obama has said he won’t negotiate on the debt ceiling, the budget fight with Republicans may get intertwined with the need later this year to raise the government’s $16.7 trillion debt ceiling. Photographer: Brendan Smialowski/AFP via Getty Images

Facing a sixth fiscal showdown with congressional Republicans, President Barack Obama’s economic and political advisers are divided over how far to push in pursuit of a deal on the budget and the nation’s debt limit, according to two people familiar with the discussions.

The debate centers on how comprehensive an agreement the White House should seek to end the automatic, across-the-board spending cuts known as sequestration, which is set to slash $109 billion from projected defense and domestic discretionary spending in 2014.

Obama’s economic advisers, including the new Office of Management and Budget Director Sylvia Mathews Burwell and National Economic Council Director Gene Sperling, are at odds with his political team, including senior adviser Dan Pfeiffer and deputy chief of staff Rob Nabors, according to the people, who asked for anonymity to talk about internal deliberations.

The economic team is pushing to explore a deal that replaces sequestration with targeted cuts and spending increases, according to the people. The political aides argue that the bigger the agreement the more likely it is to collapse, the people said.

Republican leaders and White House officials have said they are determined to avoid a shutdown of the federal government or risking a default by refusing to raise the debt ceiling. While Obama has said he won’t negotiate on the debt ceiling, the budget fight with Republicans may get intertwined with the need later this year to raise the government’s $16.7 trillion debt ceiling.

Avoiding Shutdown

“We’re very hopeful that we can avoid a shutdown,” Burwell said in an Aug. 23 interview on Bloomberg Television’s “Political Capital with Al Hunt.”

While administration officials say they are confident that Republicans will get most of the blame from voters if there’s no agreement -- a view bolstered by polls -- they haven’t reached consensus on how far to press that advantage.

The president has yet to indicate his preferred approach. One administration official described the debate as involving both strategy and policy as the White House prepares its options. The official, who spoke on condition of anonymity to discuss private talks, said there weren’t competing camps with hardened positions.

Congress returns from a five-week recess Sept. 9 with government funding and the debt ceiling at the top of the agenda. Treasury Secretary Jacob J. Lew notified congressional leaders today that the limit would be reached in mid-October.

Sequestration Replacement

House Speaker John Boehner told his colleagues on a conference call last week that the across-the-board government spending cuts will stay in place until Obama proposes a replacement package.

House Appropriations Committee Chairman Hal Rogers of Kentucky is pressing for a one- or two-month extension of current annual spending levels to fund government operations after the Oct. 1 start of the new fiscal year, which would have the budget fight colliding with a vote on the debt ceiling.

White House press secretary Jay Carney repeated that the administration “will not negotiate” on the debt ceiling.

Complicating the differences over federal spending, a group of Republicans led by Senators Ted Cruz of Texas, Marco Rubio of Florida and Mike Lee of Utah say they’re willing to force a government shutdown unless funding is cut off for the president’s signature health care law.

Markets Calm

Bond investors have shrugged off such political confrontations. After months of lawmakers fighting over raising the nation’s debt limit in 2011, yields on 10-year Treasury notes declined to 2.61 percent on Aug. 2 of that year, from 3.18 percent on July 1, 2011, and continued to fall to 1.88 percent at year-end.

The U.S. 10-year yield fell three basis points, or 0.03 percentage point, to 2.79 percent at 4:20 p.m. in New York, according to Bloomberg Bond Trader prices.

In recent appearances, the president has put the blame on “a strong faction” of Republicans who are focused on trying to block his plans rather than do what’s best for the economy.

“They’re threatening to shut down the government and have another financial crisis unless, for example, we get rid of the health care reform that we fought to pass,” he said Aug. 23 in a speech on higher education costs at Lackawanna College in Pennsylvania.

Additional Revenue

Obama is seeking to replace automatic spending cuts with other reductions and additional revenue. He will oppose efforts by House Republicans to spare defense from further cutbacks at the expense of domestic programs, such as education, Burwell said.

“The president has been clear on that point,” she said.

Public opinion may aid the White House. A poll conducted for Fox News Aug. 3-5 found public approval of congressional Republicans at 24 percent, with 66 percent of registered voters saying they disapproved. The poll’s margin of error was plus or minus three percentage points. The same poll showed Obama’s approval rating at 42 percent.

The fiscal negotiations are occurred against a backdrop of shrinking U.S. deficits. The budget shortfall narrowed from more than 10 percent of the gross domestic product at the end of 2009 to 5.7 percent of GDP for the 12 months ended March 31 -- the smallest gap in four years, according to data compiled by Bloomberg.

The automatic spending cuts of about $1 trillion over 10 years are equally divided between defense and other domestic, discretionary programs such Head Start for preschool children.

They were part of deficit-reduction legislation Congress passed in 2011 that extended the government’s borrowing authority, a standoff that brought the U.S. to the brink of default.

To contact the reporter on this story: Hans Nichols in Washington at hnichols2@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net


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