Obama Tries Again For ‘Grand Bargain’ With Taxes
Policy + Politics

Obama Tries Again For ‘Grand Bargain’ With Taxes

AP Photo/Charles Dharapak

President Obama and congressional Republican leaders on Friday continued to talk past each other in seeking to solve the debt ceiling crisis, with Obama pressing again for a $4 trillion “grand bargain” of spending cuts, entitlement reforms and tax increases, while Republicans say a tax increase is out of the question.

With the government soon facing its first-ever default on borrowing, Obama tried to resuscitate talks over a major plan for reducing the long-term debt and stabilizing the finances of Social Security and Medicare after House Speaker John Boehner, R-Ohio, was forced by his conservative members to pull out of those talks last weekend. Instead, Boehner and other Republicans are demanding a big package of spending cuts and budget enforcement mechanisms.

Both sides insisted today their approaches have public support. But a new poll shows that voters trust Obama more than the Republicans when it comes to dealing with the debt crisis, and that many believe a balanced approach, including spending cuts and tax increases, should be pursued. A Quinnipiac University national poll shows that, by 45 percent to 38 percent, Americans trust the President more than congressional Republicans to handle the economy. Voters would blame Republicans over Obama, 48 percent to 34 percent, if the debt limit is not raised.

Willing to Take the Political Heat
The President said publicly today at a press conference that he would support substantial changes in Social Security and Medicare programs for seniors as part of a major deal, including, for example, raising the retirement age and charging wealthier seniors more for health care coverage. Such changes could save hundreds of billions of dollars in spending over the coming decade, but would draw strong opposition from liberal Democrats and senior groups who fight reductions in benefits.

Obama said he was willing to take the political heat for this, provided Republicans expend political capital as well by supporting increased taxes on wealthy Americans and corporations and write offs of corporate jets and other perks. “We have a unique opportunity to do something big,” Obama said during his nationally televised news conference. “We have a chance to stabilize U.S. finances for a decade or more if we are willing to seize the opportunity” and make shared sacrifices.

But Boehner and other Republican leaders repeated their hard-line stance against tax hikes and call for “real spending cuts” that will exceed the amount of increase in the debt ceiling. “Listen, we’re in the 4th quarter here,” Boehner said. “Time and time again, Republicans have offered serious proposals to cut spending and address these issues, and I think it’s time for the Democrats to get serious as well. We asked the President to lead. We asked him to put forward a plan – not a speech, a real plan – and he hasn’t. We will.”

Boehner said that next week the House will vote on a three-part plan to cut the deficit, cap federal spending as a percentage of gross domestic product, and balance the budget with an amendment to the Constitution. “The cut, cap and balance plan … is a solid plan for moving forward,” he said. “Let’s get through that vote and we will make decisions about what will come after it.” The Senate has a similar   plan that Republicans also hope to vote on next week. It’s unlikely to pass the Senate, as Democrats oppose it and the President said an amendment isn’t needed “to figure out how to balance the budget.”

“Only Solution That Can Pass Congress”
Republican Study Committee Chairman Rep. Jim Jordan of Ohio said the “cut, cap and balance” plan “is the only solution that can pass Congress” and he “rejects the other plans being discussed.”

Republicans took aim at the White House and Democrats for their roles in the deficit reduction negotiations. House Majority Leader Eric Cantor, R-Va., said House Republicans have identified $6.2 trillion in savings over the next 10 years (based on Rep. Paul Ryan’s budget proposal), while the White House has “perhaps found $1.5 trillion at best.”

House Republicans say the White House should be willing to go along with as much as $2.4 trillion in program cuts that were identified in recent months by a small bipartisan group of lawmakers headed by Vice President Joseph Biden. Cantor pulled out of those discussions last month after Biden insisted tax increases should also be considered.

Obama said today that making cuts of that magnitude without also raising taxes on the rich is unfair and would “gut” important social programs for middle and lower income families. He also dismissed the GOP plan for voting on a Balanced Budget Amendment as little more than a political stunt, saying Congress and the White House don’t need to amend the Constitution to agree on major deficit reductions. “We don’t need a constitutional amendment to do our jobs,” he said.

The House Democratic caucus met behind closed doors this morning to discuss its version of a deficit reduction plan. Democrats called for a “clean” vote to raise the debt ceiling, which would not include any spending cuts or a balanced budget amendment. In May, the House voted on a “clean” hike to the debt ceiling and it failed. Steny Hoyer, D-Md., the House Democratic Whip, said at a news conference that almost every Democrat, “if not every member of our party,” would support this. House Minority Leader Nancy Pelosi, D-Calif., expressed optimism that a “grand bargain” was still possible.

A Weekend Plan – and Some Wrinkles
Obama has instructed congressional leaders to submit to him over the weekend their best offers. Despite sharp differences over how best to proceed, House and Senate leaders are nearly unanimous in saying that a default on the debt would be calamitous and must be avoided. Yesterday, Standard & Poor’s for the first time said there was a 50-50 chance it would downgrade its rating of long-term U.S. debt because the chances of default were increasing and the debate about deficit reduction and the debt ceiling had “become more entangled.” On Wednesday, Moody's Investor Services also announced that it’s put the U.S. government’s credit rating on review for a possible downgrade, pending the outcome of the talks.

If all else fails, Senate Republican and Democratic leaders are giving serious consideration to a backup approach that would give Obama authority to raise the debt ceiling at total of $2.5 trillion in three large increments between now and 2013, without Congress having to approve the increase.

Senate Minority Leader McConnell, R-Ky., and Majority Leader Harry Reid, D-Nev., are developing the so-called Plan B alternative that would give Obama incremental authority to raise the debt ceiling. Each time he requested an increase in borrowing authority – $700 billion immediately and $900 billion in each of the second and third installments – the President would also have to provide a list of spending cuts equivalent to those installments.

Congress would not be required to approve Obama’s requests to raise the debt ceiling, but could approve resolutions of disapproval to prevent the Treasury from increasing its borrowing authority. The President could then veto the resolutions of disapproval, and it would take a mere one-third-plus-one vote of either the House or the Senate to sustain the President’s vetoes.

As a further wrinkle – suggested by Reid – the legislation would create a committee to identify further deficit-reduction measures and force a congressional vote on the package. The committee would be similar to the commission established by Congress to make the politically difficult choices to close military bases. Under the base-closing commission approach, Congress could not alter the military facilities targeted for elimination; those base closings would automatically take effect unless Congress voted to block the entire package.

The idea, however, faces enormous hurdles, especially in the House where many conservatives are opposed to raising the debt ceiling in any case and in the Senate, where leaders are finding it difficult to forge a consensus. Obama called the Senate fallback position “the least attractive” alternative because “we raise the debt ceiling but [don’t] do anything about the debt.”