CQ TODAY ONLINE NEWS
June 23, 2011 – 9:48 p.m.

Debt Talks Fall to Obama, Boehner

By Joseph J. Schatz, CQ Staff

President Obama and House Speaker John A. Boehner are expected to take control of the debt limit talks, with all the attendant risks and political opportunities, after their deputies said on Thursday they could go no further themselves.

With the prospect of an Aug. 2 government default looming over the proceedings, the two top leaders must weigh the merits and dangers of a long-term deficit agreement that deals with Medicare, taxes and defense spending.

Alternatively, the two men could decide that no major deal is within reach, or politically palatable, and thus opt for a short-term debt stopgap measure.

Republican leaders are putting the onus on Obama, who is just beginning his re-election campaign, to abandon his insistence that any deficit reduction deal include new taxes. The GOP also wants the White House to concede that an increase in the $14.3 trillion debt ceiling be accompanied by equally large spending cuts.

The Biden Group: Click here to view chart

“There is not support in the House for a tax increase, and I don’t believe now is the time to raise taxes in light of our current economic situation,” House Majority Leader Eric Cantor, R-Va., said Thursday in a statement as he pulled out of deficit talks led by Vice President Joseph R. Biden Jr. “Regardless of the progress that has been made, the tax issue must be resolved before discussions can continue.”

Obama, who met with Boehner at the White House on Wednesday evening, has said he wants a plan that reduces the debt by $4 trillion over 12 years. But such a plan probably would require changes to Medicare and Medicaid, a tricky proposition given resistance from Democrats.

Yet it remains unclear just how strong a hand Boehner holds. The Ohio Republican faces a restive caucus of conservatives demanding major spending cuts, many of whom are unlikely to vote for a debt limit increase anyway — meaning that Boehner will need Democratic votes. And the Speaker has acknowledged the importance of avoiding a default, which the White House and most economists say would spark an economic calamity.

At the same time, Democrats are insisting that any major reductions in federal spending programs be accompanied by tax increases GOP leaders have pledged not to accept.

Given those conflicting currents, Republican leaders may have to choose what is more important to them: avoiding tax increases or achieving major spending cuts.

Cantor Defers to Boehner

Cantor’s decision to leave the tax negotiations to Boehner was not unexpected. Lawmakers have long assumed that Boehner and Obama would have to strike the ultimate deal, despite two months of negotiations by the Biden group and separate efforts to reach a deficit deal, such as the one by the Senate’s Gang of Six.

The Biden talks are now in “abeyance,” said White House spokesman Jay Carney. A possible Friday meeting was canceled.

Debt Talks Fall to Obama, Boehner

Boehner said the White House has to get involved more directly if negotiators are to reach an agreement by the end of the month. “If we’re going to meet that timeline, the president is going to have to engage,” he said.

“I think we’re beyond gangs of five and gangs of six, though the work they’ve done has been extremely important,” said Majority Leader Harry Reid, D-Nev. “I think it’s now, with what Kyl and Cantor [have] done, I think it’s in the hands of the Speaker and the president and, sadly, probably me.”

Treasury Secretary Timothy F. Geithner says he can avoid a government default until Aug. 2. McConnell suggested on June 19 that if negotiators cannot reach an agreement on entitlement spending reductions, Congress might consider a short-term increase in the debt limit. Cantor countered that he wants a long-term deal.

In a statement Thursday morning, Cantor said that “there is not support in the House for a tax increase. . . . Regardless of the progress that has been made, the tax issue must be resolved before discussions can continue.”

Boehner said he supported Cantor’s move, saying the talks could resume if Democrats “take tax hikes out of the conversation.”

It became apparent Wednesday that the talks were at an impasse, a Republican congressional aide said, when White House negotiators would not agree to reductions in less controversial, non-entitlement spending without accompanying tax increases.

Democrats are pressing Republicans to accept reductions in a variety of tax programs, pointing to Senate GOP support for curbs in ethanol subsidies last week.

But House Republicans refuse to publicly embrace that stance. “Tax hikes are just a non-starter. The only path forward on revenues is tax reform, where the facts will allow both the White House and Republicans to claim victory,” another GOP aide said.

By all accounts, the Biden group has identified a large pot of spending cuts across the federal government. Once the tax issue is settled, Cantor said, “we have a blueprint to move forward to trillions of spending cuts and binding mechanisms to change the way things are done around here.”

‘Real Spending Cuts’

Boehner reiterated that any spending cuts must exceed the size of any debt limit increase and that the rollbacks “have to be real spending cuts, no targets.”

Yet Rep. Chris Van Hollen, D-Md., one of two House Democrats in the Biden group, made clear to reporters that the impasse was not just about taxes — it was about Democrats’ insistence that any major spending reductions, like those sought by Republicans, include tax increases as a “balanced” approach.

“If you’re asking for significant changes in those areas, why shouldn’t we be asking oil and gas companies to get rid of their taxpayer-financed subsidies?” Van Hollen said, appearing beside House Minority Leader Nancy Pelosi, D-Calif.

Debt Talks Fall to Obama, Boehner

Van Hollen said that in addition to the “menu” of industry-specific tax breaks Democrats propose to eliminate, they are also targeting “tax exemptions for the very wealthy in this country.”

He said his party was willing to consider a range of spending cuts, including reductions in farm subsidies, and discretionary spending levels similar to those laid out by Obama in April at George Washington University. In that speech, Obama said he wanted to trim $400 billion from projected discretionary security spending through 2023, while saving $770 billion in non-security spending during the same period.

“We’re all going to have to make some very hard choices,” Pelosi added.

A key question going forward will be how closely Obama remains in step with congressional Democrats. Obama is expected to reject any fundamental entitlement spending changes. Still, a major deficit reduction agreement would probably benefit the president politically more than congressional Democrats.

Obama is likely to look to his party allies on the Hill to support him and to swallow at least some significant spending curbs demanded by Republicans. Some Democrats from more conservative states and districts may be happy to do this; others will not.

Still, the White House has not publicly accepted Boehner’s demand that the debt limit increase be paired with equally large cuts. And as the clock ticks down to Aug. 2, Boehner may find himself under pressure to cut a short- or long-term deal that many conservatives will not support.

“Is he going to work with Democrats to work something out, or is he going to walk away?” asked Rep. Allyson Schwartz, D-Pa.

Paul M. Krawzak and Brian Friel contributed to this story.