White House Budget Director Jacob (Jack) Lew offered an upbeat forecast for the outcome of fiscal talks between the Democrats and Republicans, saying the two sides are moving slowly towards an agreement over long term deficit reduction and raising the debt ceiling. Lew all but ruled out the possibility of an impasse that could trigger the first default in U.S. history.
“The whole world is watching whether we will be able to get our fiscal house in order,” Lew said during an appearance before the Economic Club of Washington, D.C. on Monday, and whether Democratic and Republican House and Senate negotiators meeting with Vice President Joe Biden have “a shared sense of purpose.” Lew said confidently, “I’m actually . . . optimistic” about the outcome.
Asked directly by financier David M. Rubenstein, president of the economic club, whether he thought efforts by the Obama administration and congressional leaders to raise the $14.3 trillion debt ceiling to avert default on U.S. debt would fail, Lew responded: “I do not.”
“I think that having now been to quite a number of meetings with both of the leaders of the House and the Senate, I think there is a shared understanding that it is just unthinkable for us to default on U.S. debt,” Lew said. “I can’t argue that it will be pretty. Things rarely happen early in Washington. Actually, this is one where there’s a very strong reason to do it sooner rather than later” to avoid roiling the markets and the economy.
The bipartisan group of six lawmakers and Biden will meet for the fourth time today to discuss the outlines of a deficit reduction package. Meeting at the behest of President Obama, the bicameral group has made steady progress in sorting out issues – if not agreeing to anything specifically – and has overcome initial pessimism on the part of Republican leaders that anything productive would come of the meetings.
The bicameral group has been at loggerheads for months, but there are areas of agreement. Both the GOP and the Obama administration have proposed $4 trillion in deficit reduction over the coming 10 to 12 years, although the two sides would achieve those reductions in very different ways. Republicans are demanding deep spending cuts in domestic discretionary programs and in Medicare and Medicaid. Democrats have attacked a Republican crafted plan by House Budget Committee Chairman Paul Ryan, R-Wis., for transforming Medicare from an entitlement to a subsidized voucher program, and in attempting to slash a wide range of social and domestic programs without entertaining the idea of tax increases.
An administration official, speaking on background, said Monday that “major deficit reduction is done in steps,” and that while neither side will prevail with its biggest demands, there are many areas of potential agreement – including additional savings in Medicare spending and raising additional revenues without increasing tax rates. “On fiscal things we have to act now, for the benefit of the markets,” the official said. “And it’s better to do it now [more than two months before the debt ceiling deadline] when you don’t have a gun to your head.”
The Biden group includes House Majority Leader Eric Cantor, R-Va., Rep. Chris Van Hollen., D-Md., Rep. James Clyburn, D-S.C., and Sens. Jon Kyl., R-Ariz., Daniel Inouye, D-Hawaii, and Max Baucus, D-Mont. Also in attendance at the meetings are Lew, the director of the Office of Management and Budget, Geithner and Director of the National Economic Council Gene Sperling.
Meanwhile, House Republicans plan to unveil a new growth agenda on Thursday aimed at tackling the deficit and reducing unemployment, Cantor told reporters Monday afternoon on Capitol Hill. Cantor, the No. 2 House Republican, said that the agenda is consistent with the Republicans’ earlier ‘Pledge to America to promote economic activity.
“This is a plan for America’s job creators,” Cantor said. “This is a plan to make it easier for small businesses and families in America to see a better future for growth.” Cantor said this growth agenda would complete the so-called “other piece of the painting” as part of the Republican strategy to get the federal government to live within its means and create jobs. The unemployment rate in April edged up to 9 percent from 8.8 percent in March, the first jump in five months.
The Majority Leader would not provide specific details but said a piece of the agenda will include tax reform, but not new taxes. “We are not opposed to revenues, we are just opposed to tax increases,” he said. Tax reform as a way to reduce the $1.5 trillion annual federal deficit has become a hot issue in Congress and within the Administration, but prospects of reforming both the corporate and individual system before the 2012 elections appears dim.
The federal government reached its legal borrowing limit last week, but the Treasury has implemented a series of financial and bookkeeping maneuvers to buy more time before facing the prospects of default. Treasury says a $2 trillion debt limit increase is needed to cover government spending through the 2012 elections.
In recent weeks, Cantor has insisted that easing Washington’s regulatory role in business would help spur small business growth.
In January, President Obama ordered federal agencies to review rules and regulations to ensure they do not hinder economic growth. Some business groups are not satisfied. The National Federation of Independent Business (NFIB) says, “Small businesses need more than rhetoric to help them deal with the cost of complying with ill-conceived, duplicative or needless regulation.”
Earlier Monday, House Minority Whip Steny Hoyer (D-Md.) blamed Republicans for much of the deficit problem and for threatening to trigger economic “disaster” by refusing to vote to raise the debt ceiling. In a speech before the Bipartisan Policy Center in Washington, Hoyer blasted former President George W. Bush for driving up deficits and criticized Boehner and others for making unrealistic ideological demands.
“Republicans’ threat to default on the full faith and credit of the United States ignores their own fiscal policies helped get us where we are today,” Hoyer said. “Let’s recall that Republicans raised the debt ceiling seven separate times under President Bush – and, more to the point, just passed a budget that itself would require a $9 trillion increase in the debt limit over the coming decades.”
He later added, “Neither party is without responsibility for the deficits and debt that confront us.” However, former Senate Budget Chairman Pete Domenici (R-N.M.), a BCP fellow and longtime former colleague of Hoyer's, complained that Hoyer’s speech sounded like typical partisan finger pointing.
Domenici also complained that Geithner’s repeated extension of the deadline for action on the debt ceiling – largely based on improved tax revenues – has led many people to believe that the debt isn’t as bad as it is.”
“He [Geithner] has to draw a line and say, ‘This is it,’” Domenici said.