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From Big Talk Back to Small Steps in Debt-Ceiling Talks From Big Talk Back to Small Steps in Debt-Ceiling Talks

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From Big Talk Back to Small Steps in Debt-Ceiling Talks

The 'grand bargain' proposition was always something of a fantasy, and the retreat to a mini-deal won't be that easy to pull off either.

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Senate Minority Leader Mitch McConnell, R-Ky., listens to a question while addressing the media on the budget talks on July 6.(Mark Wilson/Getty Images)

Talk from the White House and House Speaker John Boehner, R-Ohio, of a “big” deficit reduction deal of $4 trillion looks like it was just that --talk.

After the big pronouncements on Thursday, it took only three days for hopes of a grand bargain to collapse and validate the prior assumption that such an agreement was well outside the realm of political possibility.

 

Citing differences over taxes, Boehner backed away from talks of a broader deal late Saturday, and called for President Obama and congressional leaders to work on a smaller measure, based on the cuts identified in the [Vice President] Biden-led negotiations.”

Senate Minority Leader Mitch McConnell, R-Ky., on Sunday also ruled out a larger deal, saying Democrats had insisted on “big tax increases” unacceptable to Republicans.

That has been the consistent GOP position for months, underscoring the jarring nature of reports late Wednesday that Boehner had floated the possibility of a deal with $1 trillion in new tax revenue.

 

But statements from both sides have since indicated that offer was not the breakthrough it may have seemed. Democrats and Republicans never really confronted the gulf between them on whether a deal should include new tax revenue, but instead were discussing ways to circumvent the issue. That proved impossible.

Boehner wanted new tax revenue mostly to be assumed from expected economic growth. And he wanted to address revenue in a tax overhaul package that Democrats would agree to work on later this year, after completion of a debt ceiling deal. Elimination of tax “loopholes” would be worth less than tax cuts achieved by lowering rates.

A Republican familiar with talks said Boehner “insisted on a trigger that mandated deep spending cuts and other consequences if the tax reforms were not implemented before the end of 2011.” The White House did not agree. The Republican also said the sides remained far apart on entitlement reforms eyed as part of the package. 

And then there was the issue of time, which weighed in against a larger deal. The deadline for raising the debt ceiling is August 2. Experienced legislators say it is almost impossible for Congress to move a $4 trillion package, or even one worth half that, in that short a period. Senate Majority Leader Harry Reid, D-Nev., has said a deal must be reached by the end of this week to allow time for passage by August 2.

 

Though talks among White House and senior congressional aides in the last few days seem to have been serious, talk of a bigger deal seems to have represented only a desire to show willingness to discuss a bold option, even if that willingness was not matched by ability to overcome political hurdles. That was especially true for House Republicans, who lacked a clear path to delivering votes for such a deal.

Sen. Chuck Schumer, D-N.Y., who heads Democrats' Policy and Communications shop, said Saturday that Obama "has called the Republicans' bluff by offering them exactly the type of grand bargain they said they wanted, only to have it rejected.”

While the White House announced it will still seek a bigger measure, negotiations will focus on identifying deficit cuts of about $2.4 trillion, enough to raise the debt ceiling past November under the GOP’s demand for matching debt ceiling growth with reductions.

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But even that size deal, based on the Biden talks, will be a tough one to pull off. It would presumably include more than $1 billion in discretionary cuts left to appropriators through a trigger, perhaps $300 billion over 10 years in mandatory cuts to items like agricultural subsidies and federal worker pensions, and hundreds of billions of dollars saved through reduced interest. But negotiators never agreed on the discretionary piece, with Democrats holding out for a “firewall” assuring defense spending would be cut. And such an agreement still would be short of the $2.4 trillion.

To get there, Democrats in the Biden talks sought up to $400 billion in steps, such as barring an accounting approach used by many manufacturers, that the GOP considers tax increases. And while the White House has floated hundreds of billions of dollars in savings wrung from Medicare and Medicaid providers, they have refused to agree to those without GOP compromise on the tax issue.

That leaves many handicappers believing negotiators will be unable to agree on more than $2 trillion in savings by August 2. Congress might then have to pass a short term increase lasting just weeks to allow time for further talks. Or, although Obama reportedly told lawmakers he would veto such a deal, he and other negotiators, their views altered by the nearing prospect of default, might unhappily embrace a deficit cut that lasts only partway into next year.

Regardless, after a few days of dialing up the potential size of a deal, lawmakers have now taken the first of what look likely to be multiple steps in the opposite direction.

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