July 20 (Bloomberg) -- The Obama administration signaled it may accept a short-term increase in the U.S. debt limit if it is combined with a major agreement to cut the deficit.
“The president has been clear that he will not support a short-term extension of the debt ceiling” without an agreement to cut the deficit, White House spokesman Jay Carney told reporters today. President Barack Obama plans to meet with top congressional Democrats today as the Aug. 2 deadline for raising the $14.3 trillion debt limit nears.
While the deadline is “real and fast,” the press secretary said, “there is still time to do something significant if all parties are willing to compromise.”
The president will meet at 2:50 p.m. Washington time with Senate Majority Leader Harry Reid, second-ranking Senate Democrat Dick Durbin, House Minority Leader Nancy Pelosi and second-ranking House Democrat Steny Hoyer, Carney said. Obama also spoke by telephone with House Speaker John Boehner and Senate Republican leader Mitch McConnell, Carney said.
Senator Tom Coburn, an Oklahoma Republican who helped negotiate a bipartisan proposal for a $3.7 trillion deficit- cutting plan, said today he wants Congress to “go all-out” to solve the problem of cutting spending and raising the $14.3 trillion debt limit.
“My preference would be that we go all-out to try to accomplish this, to solve the problem,” Coburn said in an interview on Bloomberg Television. He acknowledged the resistance that the plan from the so-called Gang of Six senators faces within his own party: “We have made changes that some people cannot accept,” Coburn said.
‘Face Up’
Senator Kent Conrad, a North Dakota Democrat who is chairman of the Senate Budget Committee, said lawmakers have drafted legislation for the $3.7-trillion proposal that could advance more quickly than some observers believe. The plan includes spending cuts and reductions in top personal and corporate income tax rates, as well as new taxes, which House Republicans have said they oppose. The nation must “face up” to the situation, Conrad said in a Bloomberg TV interview.
House Budget Committee Chairman Paul Ryan called the Gang of Six proposal a “useful addition to the budget debate.” The Wisconsin Republican was critical of the plan for containing tax revenue and said it falls short in spending cuts. ‘Nevertheless, this effort serves as a sign that we can work together on a bipartisan basis to make a serious down payment now to avert the debt-fueled economic crisis,” Ryan said.
Security Cuts
House Armed Services Committee Chairman Howard “Buck” McKeon said in a memo to Republicans on the panel that he doesn’t support the proposal “in its current form” because it would mandate $886 billion in security spending cuts over a decade. He also said he objected to the plan’s proposal to change military retirement benefits.
The proposal, as outlined in a five-page document obtained by Bloomberg News, would require Senate committees to produce legislation that would reduce spending and raise revenues.
The Senate Finance Committee would be instructed to lower tax rates, eliminate the alternative minimum tax, and “reform” tax breaks for health care, charitable giving and homeownership.
The outline calls for three individual income tax brackets with a top rate between 23 percent and 29 percent, down from 35 percent today. The corporate rate would drop to a single rate of between 23 percent and 29 percent, down from a top rate of 35 percent today. The tax system would need to retain its current progressivity and retain benefits for low-income workers such as the earned income tax credit.
Bipartisanship Praised
Some lawmakers hold hope of a compromise in the plan offered by three Senate Republicans and three Democrats after months of opposition to new revenue among House Republicans.
“The fact that Republicans are coming out for revenues is certainly something of a breakthrough, they haven’t done that before,” Senator Charles Schumer, a New York Democrat, said today. “We hope it shows they’re willing to compromise. But of course we are running out of time. We need to assure the world we will not default on our debt.”
Obama, in remarks at the White House yesterday, said he will urge congressional leaders “to start talking turkey” and get “down to the hard business of crafting a plan that can move this forward.”
House Republicans last night passed their debt-reduction plan 234-190 -- legislation that stands little chance of passing the Senate and that Obama has said he would veto if it did. The measure would cut and cap government spending and allow the debt ceiling to be raised by $2.4 trillion only if Congress approves a balanced-budget amendment to the Constitution.
More Taxes
The Senate plan that emerged yesterday from the Gang of Six combines spending cuts with a smaller amount of tax increases. While House Republican leaders indicated a willingness to consider the proposal, they and other members of their fiscally conservative caucus continue to stress opposition to a debt compromise that includes more taxes.
“Tax increases aren’t going to fly in the House,” said Representative Kevin Brady, a Texas Republican and a member of the tax-writing Ways and Means Committee.
That suggests a backup plan along the lines of one still being worked out by McConnell and Reid, may offer the best chance for a compromise before the Aug. 2 deadline, when the Treasury Department says the government will hit the debt limit. The plan would give Obama $2.4 trillion in new borrowing authority in installments.
‘Just a Skeleton’
Representative Tom Price of Georgia, chairman of the Republican Policy Committee, said on Bloomberg Television today that the Gang of Six proposal “appears to be just a skeleton, looks like an outline. There’s some good things in there, some bad things, too.”
He said many House Republicans aren’t yet prepared to support an increase in the debt ceiling. “I don’t think so, without fundamental change,” Price said. “We can’t continue to do business as usual here.”
An NBC News/Wall Street Journal poll released yesterday showed that most Americans favor Obama’s approach to a compromise deal rather than the Republican position. According to the survey, conducted July 14-17, 58 percent backed Obama’s push for reducing the deficit by $4 trillion over the next decade through a combination of budget cuts and a tax increase, while 36 percent supported the Republican proposal to shave the deficit by $2.5 trillion solely by reining in spending. The poll’s error margin is plus-or-minus 3.1 percentage points.
Spending Cuts
The plan Obama lauded that was released yesterday by the Senate’s Gang of Six, led by Republican Saxby Chambliss of Georgia and Democrat Mark Warner of Virginia, proposes $500 billion in immediate spending cuts.
It then lays out targets and enforcement mechanisms for compelling future reductions, including between $85 billion and $202 billion in Medicare and other health spending, $80 billion from defense, $70 billion from education and labor programs and $11 billion from agriculture programs, according to a summary.
It calls for a broad tax overhaul that would raise $1 trillion by limiting breaks for health, charitable giving, homeownership and retirement, while lowering individual and corporate tax rates. It would scrap the Alternative Minimum Tax, a system designed to prevent higher-earners from avoiding taxes.
About 50 senators, roughly evenly divided between the two parties, attended a closed-door briefing on the plan, a sign of potentially widespread support for the type of “grand bargain” to reduce the debt that Obama is urging.
‘Only’ Bipartisan Plan
Colorado Democratic Senator Michael Bennet said today that the proposal is the “best bipartisan plan that we’ve seen -- the only one.” Members of both parties in the Senate are pushing for an agreement that avoids a government default, Bennet said on Bloomberg Television.
“‘No’ is not an answer for the American people,” he said.
One member of the Republican leadership, third-ranking Senator Lamar Alexander of Tennessee, endorsed the proposal.
Even as the Gang of Six’s plan was greeted positively, Senate leaders cast doubt on whether it would provide the quick solution needed in time to raise the debt limit.
Reid said Senate rules wouldn’t allow such a plan to be passed quickly. He also said he asked Warner to report back to him today about which elements might be included in the proposal Reid is working on with McConnell.
McConnell was noncommittal on the Gang of Six plan. “I don’t have an opinion yet,” he told reporters.
Boehner, an Ohio Republican, also tempered his reaction. The “plan shares many similarities with the framework” Boehner has discussed with Obama “but also appears to fall short in some important areas,” Boehner’s spokesman, Michael Steel, said in an e-mail.
Treasuries, Stocks
Treasuries fell and U.S. stocks were little changed following the resistance from House Republicans.
The drop in Treasuries sent the 10-year yield up four basis points to 2.92 percent, erasing most of yesterday’s decrease, while the Standard & Poor’s 500 Index slipped 0.1 percent to 1,325.9 as 12:52 p.m. in New York.
McConnell and Reid continued working on a backstop plan to give Obama $2.4 trillion in new borrowing authority in installments. They were discussing empowering a bipartisan group of lawmakers to propose spending cuts to accompany the increases while setting out tough consequences if reductions weren’t achieved.
More than 70 Republican lawmakers have signed a letter being circulated by Illinois Representative Joe Walsh urging Boehner not to allow a House vote on McConnell’s proposal, said spokeswoman Elizabeth Lauten.
The letter said McConnell’s “plan enables Congress to avoid making the hard decisions.”
--With assistance from Julie Hirschfeld Davis, Tony Capaccio, Laura Litvan, Kathleen Hunter, Jim Rowley, Roger Runningen, Julianna Goldman, Peter Cook, Daniel Kruger, Mike Dorning, Brian Faler and Richard Rubin in Washington. Editors: Don Frederick, Laurie Asseo.
To contact the reporters on this story: Kate Andersen Brower in Washington at [email protected]; Catherine Dodge in Washington at [email protected]
To contact the editor responsible for this story: Mark Silva at [email protected]
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