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.