Obama steps into high-stakes debt-limit talks

JIM KUHNHENN

Asso­ci­ated Press

WASHINGTON (AP) — Strug­gling to break a per­ilous dead­lock, Pres­i­dent Barack Obama took direct con­trol Fri­day of national debt-limit nego­ti­a­tions with both Repub­li­cans and Democ­rats. With the White House warn­ing the nation’s eco­nomic sta­bil­ity is at stake, it’s one of the most severe tests yet of Obama’s presidency.

The key dis­agree­ment is over taxes. Democ­rats, includ­ing Obama, say a major deficit-reduction agree­ment must include tax increases or the elim­i­na­tion of tax breaks for big com­pa­nies and wealthy indi­vid­u­als. Repub­li­cans are demand­ing huge cuts in gov­ern­ment spend­ing and insist­ing there be no tax increases.

Absent an agree­ment that cuts long-term deficits, Repub­li­cans say they will not vote to increase the nation’s bor­row­ing, which will exceed its $14.3 tril­lion limit on Aug. 2. The admin­is­tra­tion has warned that if Con­gress does not raise the debt ceil­ing, it could mean the first U.S. finan­cial default in his­tory and send eco­nomic shock­waves around the world.

Dis­cus­sions led by Vice Pres­i­dent Joe Biden that were designed to trim about $2 tril­lion from long-term deficits abruptly stalled this week, lead­ing Obama to step in Fri­day and sum­mon the top Sen­ate lead­ers to the White House.

On Mon­day morn­ing, Obama and Biden plan to meet with Sen­ate Major­ity Leader Harry Reid, D-Nev., and in the early evening he will sit down with Sen­ate Repub­li­can leader Mitch McConnell of Ken­tucky. McConnell and House Speaker John Boehner have repeat­edly said that no deal can include tax hikes.

Amid an eco­nomic slow­down, per­sis­tently high unem­ploy­ment and a loom­ing dead­line for action, the nego­ti­a­tions will chal­lenge Obama’s abil­ity to forge a com­pro­mise that gives all sides a rea­son to claim victory.

Obama restated his posi­tion to Boehner in per­son and to McConnell by phone on Wednes­day, offi­cials said. On Thurs­day, the two Repub­li­cans who had been nego­ti­at­ing with Biden — House Major­ity Leader Eric Can­tor, R-Va., and Sen. Jon Kyl, R-Ariz. — aban­doned those talks.

Ulti­mately, there was only so much that those dis­cus­sions would yield, and it was clear that Obama and the top lead­ers in Con­gress at some point would have to step in.

Both sides repeated their nego­ti­at­ing posi­tions on Friday.

“The pres­i­dent is will­ing to make tough choices, but he can­not ask the mid­dle class and seniors to bear all the bur­den for deficit reduc­tion and to sac­ri­fice while mil­lion­aires and bil­lion­aires and spe­cial inter­ests get off the hook,” White House spokesman Jay Car­ney said.

Democ­rats and the White House seemed ready to por­tray Repub­li­cans as beholden to the rich and the energy indus­try. The White House has pro­posed rais­ing about $600 bil­lion in new tax rev­enue, includ­ing by end­ing sub­si­dies to oil and gas com­pa­nies, an idea that failed in the Senate.

The admin­is­tra­tion also would tax pri­vate equity or hedge fund man­agers at higher income tax rates instead of lower cap­i­tal gains rates, change the depre­ci­a­tion for­mula on cor­po­rate jets and limit item­ized deduc­tions for wealthy taxpayers.

One pro­posal advanced by Demo­c­ra­tic nego­tia­tors would reduce the value of deduc­tions for peo­ple earn­ing more than $500,000. In addi­tion, the White House is insist­ing that Bush era tax cuts end after 2012 for fam­i­lies earn­ing more than $250,000.

“What we’ve seen on the Repub­li­can side over­all is all take and no give,” said Rep. Chris Van Hollen, one of the Demo­c­ra­tic nego­tia­tors in the Biden talks. “Any seri­ous approach requires compromise.”

In a state­ment fol­low­ing the White House invi­ta­tion to Monday’s talks, McConnell said Obama needs to decide between tax hikes or a bipar­ti­san agree­ment. “He can’t have both,” McConnell said.

“Sadly, the Democ­rats’ response has been a mys­ti­fy­ing call for more stim­u­lus spend­ing and huge tax hikes on Amer­i­can job cre­ators. That’s not seri­ous, and it is my hope that the pres­i­dent will take those off the table on Mon­day so that we can have a seri­ous dis­cus­sion about our country’s eco­nomic future,” McConnell said.

Boehner warned the pres­i­dent that includ­ing any tax increase would doom a vote on rais­ing the debt ceiling.

But Obama, Boehner and McConnell have been through this before.

The three nego­ti­ated a deal in Decem­ber that extended Bush-era tax breaks for two years. And Obama and Boehner worked out an agree­ment in April that cut short-term spend­ing and avoided a gov­ern­ment shutdown.

The risks this time are higher.

Many econ­o­mists and gov­ern­ment ana­lysts say the gov­ern­ment needs to get con­trol of its long-term debt by tam­ing its deficits. The non-partisan Con­gres­sional Bud­get Office this week called the nation’s bud­get out­look “daunt­ing” and said that with­out major changes in poli­cies, an aging pop­u­la­tion and ris­ing health care costs would result in a surg­ing fed­eral debt.

An increase in the debt ceil­ing of $2 tril­lion to $2.5 tril­lion would be needed to allow the gov­ern­ment to oper­ate until early 2013, get­ting pol­i­cy­mak­ers past the Novem­ber 2012 elec­tions. Trea­sury Sec­re­tary Tim­o­thy Gei­th­ner has said a debt default would be as dev­as­tat­ing as the finan­cial cri­sis that hit in 2008.

Pub­lic and pri­vate polls show that increas­ing the debt ceil­ing is highly unpop­u­lar with vot­ers, par­tic­u­larly among Repub­li­cans. Many GOP law­mak­ers fear that a vote to increase the debt ceil­ing will make them vul­ner­a­ble to pri­mary elec­tion chal­lenges from other Republicans.

Gei­th­ner, speak­ing to busi­ness lead­ers in New Hamp­shire Fri­day, said he was con­fi­dent the impasse would be resolved.

And even Can­tor said the pri­vate Biden-led talks had “estab­lished a blue­print” for agree­ment on sig­nif­i­cant cuts in spending.

Posted by AP News on Jun 24 2011. You can follow any responses to this entry through the RSS Feed. Comments can be made below.