With timing clearly designed to avert a hemorrhaging sell-off on Wall Street, House Speaker John Boehner late Friday declared dead negotiations with the White House on a large-scale deficit reduction package. An angry and frustrated President Obama said he’d been “left at the altar now a couple of times” by Boehner as deficit talks foundered and summoned Hill leaders to the White House Saturday morning to begin work on a debt-ceiling bill to avoid the nation’s first-ever default. Boehner said he would attend.
In dueling press conferences, Obama and Boehner argued passionately over who was to blame and why.
“This was an extraordinarily fair deal,” Obama said. “If it was unbalanced, it was unbalanced in the direction of not enough revenue. It is hard to understand why Speaker Boehner would walk away from this kind of deal.”
Obama then declared “we have run out of time” and characterized the Saturday morning White House session with the bipartisan and bicameral congressional leaders as deadly serious.
“They are going to have to explain to me how it is that we are going to avoid default,” Obama said. “And they can come up with any plans that they want and bring them up here and we will work on them. The only bottom line that I have is that we have to extend this debt ceiling through the next election, into 2013.”
Later, Boehner appeared in the Capitol and accused Obama of “moving the goal posts” and undermining a tax deal that would have included $700 billion in new revenue (derived from lower and flatter rates, not tax increases) over 10 years.
"Dealing with the White House is like dealing with a bowl of Jell-o,” Boehner said.
Obama complained about not being able to get his phone calls to Boehner returned. The speaker did not deal directly with that snafu but said he did not believe his relationship with Obama —generally cordial to date—had been “permanently damaged.”
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He said Congress “can act next week and not jeopardize the full faith and credit of the United States government.”
Surprisingly, House Republicans blamed Obama for seeking an additional $400 billion in taxes, a maneuver they said was set in motion by the bi-partisan Gang of Six. Earlier in the week, the group of 6 senators—three from each party—who earlier in the week floated a proposal that raised far more tax revenue, Republicans said, than the tentative accord they had ironed out with White House Chief of Staff Bill Daley and Treasury Secretary Tim Geithner. Boehner said those tax increases would have hit “people who create jobs” and constituted a deal-breaker.
“What is absolutely true is we wanted more revenue than they had initially offered,” Obama said. "But as you’ll see, the spending cuts that we were prepared to engage in were at least as significant as the spending cuts that you’ve seen in a whole range of bipartisan proposals, and we had basically agreed within $10 billion, $20 billion -- we were within that range. So that wasn’t the reason this thing broke down. When you look at the overall package, there’s no changing of the goalposts here."
Obama’s sense of urgency and passion appeared to carry the moment as he again positioned himself as the top risk-taker in high-wire talks that once aimed at achieving $4 trillion in deficit reduction over 10 years. When Boehner scotched those talks two weeks ago, Obama and the speaker revived them and appeared on course for a slightly less ambitious package of $3 trillion to $3.5 trillion in savings—built heavily around spending cuts with
Time is no one’s friend, least of all Americans with 401K accounts or tax-deferred college savings accounts as well as companies and institutional investors fearful of Wall Street volatility if, by the time trading starts Monday, no deal to avert a default by Aug. 2 emerges.
The flashes of temper triggered a deep sense of dismay in a Capitol city slogging through a record-breaking heat wave. The prospect of cooler heads prevailing felt far more like a hope than an expectation. The path to a debt ceiling increase is by no means clear.
House Republican aides said they are starting from scratch on a debt-ceiling increase bill and will not consider Senate GOP Leader Mitch McConnell’s so-called “last resort” plan to grant Obama an immediate increase in the debt ceiling in tandem with his request for dollar-for-dollar spending cuts and creation of another deficit-reduction commission.
That means America faces its first-ever default without a legislative remedy in sight. Obama said he would sign no debt-ceiling increase that did not last until 2013. Senate Majority Leader Harry Reid agreed. According to congressional estimates, America’s revenue flow runs about $160 billion behind its obligations each month. An extension from August to January of 2013 would require about $2.7 billion in cuts to meet Boehner’s demands. At this point, no one in Washington has a deal that would cut spending that deeply, extend the current $14.3 trillion debt limit that far and do so with no new taxes.
This reality may force Obama to compromise and shorten the horizon of a debt-ceiling increase. Republicans had proposed a plan to extend it until February or March while negotiations on tax reform and entitlement restructuring progressed. It’s unclear if this minimalist approach will satisfy Obama.
Boehner informed all House Republicans at 6 p.m. by letter that the talks—focused on 10-year savings of $3 trillion to $3.5 trillion—had imploded. Boehner blamed Obama for demanding higher taxes and refusing to accept structural reforms to entitlement programs such as Medicare and Medicaid.
The killer issue, as it has been throughout, was tax increases. Senior House GOP aides they had reached a tentative agreement on cuts of $300 billion to Medicare over 10 years and reductions of between .25 percent and .50 percent in program spending over the next 10 years. These savings were to be achieved by raising the eligibility age, increasing premiums and co-payments and other measures.
There was also an understanding the White House would accept up to $125 billion in 10-years savings on Medicaid and the children’s health insurance program. Those agreements, GOP aides said, did not shift and represented what they hoped would be the foundation of significant entitlement reform.
But there were disagreements, deep and unresolved, about how any deal would guarantee future tax reform and entitlement restricting. These components were to be part of a second phase of budget changes built on the agreement to raise the debt ceiling and institute yearly and enforceable cuts in domestic discretionary spending—including defense.
Republicans wanted Obama to guarantee that if entitlement reform wasn’t enacted and tax reform didn’t lower individual and corporate rates that he would drop the individual mandate requiring every American to produce health insurance in his health care reform law. The White House never agreed to this demand.
House GOP aides also said the White House had agreed to shift the inflation calculations embedded in the current Consumer Price Index (CPI) to the so-called “chained” index that economists say more accurately reflects buying trends and behavior in times of inflation. The chained rate – or chained-CPI – is less generous to recipients of Social Security because it less aggressively adjusts inflation upwards, meaning the rate of benefit increases slows. According to congressional estimates, shifting to the chained CPI rate would cost Social Security beneficiaries $112 billion over ten years. The plan envisioned using these savings to extend the solvency of Social Security, not to lower current deficits. House GOP aides said the White House later backed off this agreement and fought for an inflation adjustment that would have resulted in 25 percent less savings and therefore a shorter extension of the program’s solvency.