Video: Will leaders come up with a debt deal?

  1. Closed captioning of: Will leaders come up with a debt deal?

    >>> as we come on air this sunday meeti ievening a critical meting is under way with president obama at the white house . standing in the way, republican republicaninrepublicans trying to hold the line against tax increases and democrats unhappy over changes to medicare and medicaid . hanging in the balance , an august 2nd deadline to give the government authority to borrow the money it needs to pay its bills. nbc's mike viqueira is at the white house to bring us the latest.

    >> reporter: you're absolutely right. the president is at this moment in the cabinet room , the west wing . house and senate leaders, republican and democrat. at the top of the meeting reporters asked the president whether he needs to come to an a agreeme agreement. there's an impasse now over the next ten days in order for congress to have the time to pass a bill before the august 2nd deadline. the president replied, we need to. these are major hopes for a grand bargain. a major deal on deficit and debt reduction has taken a major hit in the last 24 hours . the president returned home from camp david this afternoon with hopes for an ambitious deal on cutting the debt now fading. but even after republicans pulled the plug late last night over the issue of taxes, top obama officials are still pushing for a larger deal.

    >> we're going to try to get the biggest deal possible. the deal that's best for the economy.

    >> reporter: but republicans refuse to budge on raising taxes .

    >> to get a big package would require big tax increases in the middle of an economic situation that's extraordinarily difficult with 9.2% unemployment. it's a terrible idea. it's a job killer.

    >> reporter: with the government virtually broke, congress has just three weeks to vote on raising the country's debt limit. that would allow more borrowing and divert the first treasury default in american history .

    >> if that happens you're going to see catastrophic damage across the american economy and across the global economy . failure is not an option .

    >> reporter: republicans will not allow a vet on raising the debt limit unless there's first a deal on cutting the deficit. a deal they say cannot include a tax hike.

    >> i've never found one tax increase that created a job.

    >> reporter: until last night both sides were considering a proposal that called for more than $4 trillion in deficit reduction. with roughly a quarter coming from taxes. the rest with cuts to spending including social security and medicare . that's unpopular with democrats, but proof the white house says, of the president's willingness to compromise and suffer political pain.

    >> we've got medicare and social security . medicare has got to be strengthened. it will run out of money in five years if we don't do something.

    >> reporter: with republicans refusing any tax increases, the question now is can the deal with salvaged? the white house insists that it can. heading into the meeting tonight, the two sides seemed as far apart as ever.

    >> what is really appalling is to see our republican colleagues essentially providing a form of extortion. if you don't agree to deficit reduction the way we want it, we're going to put all these jobs at risk because we're going to allow the united states to default on its debt.

    >> reporter: lester, republicans say they want to essentially restart talks that vice president biden had under way last month. trouble is, they had walked away from those talks over the issue of taxes. lester?

    >> mike viqueira, thanks. let's bring

msnbc.com news services
updated 7/10/2011 10:52:36 PM ET 2011-07-11T02:52:36

President Barack Obama told top lawmakers on Sunday to be prepared to meet every day this week to hash out a deal to cut the federal budget and raise the debt limit, a Democratic source with knowledge of the talks said.

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The Democratic official said that Obama pressed Republicans at a White House meeting Sunday evening to aim for a broad, $4 trillion deficit-reduction package rather than a more modest one.

"If not now, when?" the president asked them when some said it was not the right time to try to craft a far-reaching deal, the official said.

Both sides remained divided over the size and the components of a plan to reduce long term deficits. Saying "we need to" work out an agreement over the next 10 days, the president and lawmakers agreed to meet again Monday.

Obama also sought to use the power of his office to sway public opinion, scheduling a news conference for 11 a.m. ET Monday, his second one in less than two weeks devoted primarily to the debt talks.

But there appeared to be little appetite for such an ambitious plan and the political price it would require to pass in Congress. Instead, House Speaker John Boehner told the group that a smaller package of about $2 trillion to $2.4 trillion was more realistic.

A Democratic official familiar with the session said House Majority Leader Eric Cantor, R-Va., was especially adamant that any deficit reduction package could not contain tax increases and that any new tax revenue would have to be used to pay for other tax benefits.

Obama and the congressional leaders met in the Cabinet Room of the White House for the rare Sunday session. Most appeared in casual Sunday clothes, with open-collared shirts underneath blazers.

Time running out
When a reporter asked, "Can you work it out in 10 days, sir?" Obama replied, "We need to."

Time is becoming increasing precious in the negotiations. The deficit reduction talks are linked to the government's need to increase its borrowing limit, now capped at $14.3 trillion. The Obama administration says if the debt ceiling is not raised by Aug. 2, the nation would default on its obligations, with potentially calamitous financial consequences worldwide.

Officials familiar with the meeting spoke on the condition of anonymity because of the delicate nature of the negotiations. Officials said Obama time and again pressed for a larger package. He also pointed out that the smaller deal of up to $2.4 trillion still would require tax revenues and that not all of the details had yet been worked out.

Earlier, White House Chief of Staff Bill Daley said in a television interview that Obama would not "walk away from a tough fight."

"Everyone agrees that a number around $4 trillion is the number that will ... make a serious dent in our deficit," he said.

But embedded among the tough words was rhetoric that acknowledged the prospects for the "big deal" had become uncertain at best.

Treasury Secretary Tim Geithner said Sunday on NBC’s "Meet the Press" that Republicans "should not walk away now from trying to do something good for the country."

"We’re going to try to get the biggest deal possible," Geithner said.

It was an abrupt change from 24 hours earlier. Republicans late Saturday rejected the $4 trillion proposal, the largest of three under consideration, because its tax increases would doom it in the GOP-led House, Speaker John Boehner said.

The Ohio Republican informed Obama that a package of about $2 trillion, which bipartisan negotiators had identified but not agreed to, was more realistic.

Senate GOP leader Mitch McConnell of Kentucky left little doubt that the $4 trillion deal was dead.

"I think it is," McConnell said. Raising taxes amid 9.2 percent unemployment, he added, "is a terrible idea. It's a job killer."

The International Monetary Fund's new chief, Christine Lagarde, said that if the U.S. fails to raise its debt limit, she foresees "interest hikes, stock markets taking a huge hit and real nasty consequences" for the American and global economies.

"I would hope that there is enough bipartisan intelligence and understanding of the challenge that is ahead of the United States, but also the rest of the world," she said.

Obama willing to do 'difficult things'
Geithner said Obama “is willing to do very, very difficult political things” including changes in the Medicaid and Medicare programs to reduce future outlays.

He did not specify any changes Obama would consider in those two programs, or in Social Security. Those three programs will account for half of federal outlays by 2021.

Video: Will there be cuts to Medicare, Medicaid? (on this page)

The protected debt negotiations took another twist Saturday when Boehner issued a statement saying, that "despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes."

Given that impasse, Boehner said, "I believe the best approach may be to focus on producing a smaller measure."

Why GOP leaders need Democratic votes
“Republicans have told us from the beginning they can’t pass a debt limit increase, they can’t pass a budget deal just with Republican votes. They need Democratic votes,” added Geithner.

Wooing enough Democratic members of Congress to vote for a budget deal, Geithner implied, required Republican leaders to accept that some net tax increases would need to be part of any agreement.

“You have to have balance,” he said, indicating an accord which had nearly equal measures of cuts in future spending and increases in revenues.

But at the same time, he said, “we have to find a way to avoid shifting more of the burden of the tax system to the middle class” — which seemed to indicate that any net tax increases would fall only on higher-income people.

He said an extension of the Social Security payroll tax cut, which Congress enacted last December and which is set to expire at the end of this year, would be part of any accord.

That payroll tax cut was intended to stimulate economic growth and spur job creation. But Geithner gave a somber assessment of the economy, saying that "it's going to take a long time still" before many Americans feel that a recovery is under way. "This is still a very tough economy. For a lot of people, it's going to feel very hard — harder than anything they've experienced in a lifetime now — for some time to come."

What happens after Aug. 2
Geithner warned again that if no deficit cutting agreement is reached and if Congress still refuses to increase the government’s borrowing limit, the government will face default on its obligations on Aug. 2 which “would be catastrophic for the American economy.”

Story: Presidential candidates warn about compromise in debt deal

He added, “The longer we go into July, the more risk there will be in financial markets” with increasing fear among investors that America’s political leaders cannot manage the government’s finances. “You’ll see that reflected in higher interest rates and more concern and loss of confidence,” he said.

Video: Geithner explains what really happens on Aug. 2 (on this page)

He said with no ability to borrow more money from credit markets, it would impossible for the government to finance the $100 billion a week in maturing Treasury obligations — while at the same time paying government contractors and sending benefits to those on Social Security, Medicare and Medicaid.

He seemed to reject the idea that Obama would resort to the Fourteenth Amendment to the Constitution to justify Obama borrowing despite having reached the legal limit — a suggestion some Democrats floated in recent weeks. “There’s no constitutional option,” he said.

Obama's goal: a one-third cut in cumulative deficits
Obama’s goal last week of deficit cuts of $4 trillion over the next decade would have been about a one-third cut in the cumulative deficits, according to the Congressional Budget Office’s most plausible forecast.

Video: Geithner on deal: Obama’s ‘going to keep at it’ (on this page)

Obama was said to be open to changes in Social Security, Medicaid and Medicare. One idea reportedly under discussion in the budget talks was a change in the formula used to make the cost-of-living adjustment (COLA) for retirees collecting Social Security benefits so as to reduce payouts to retirees in future decades.

Story: Who is blocking a grand debt deal? Democrats, too, have limits

The stakes are high for Obama. His 2012 re-election hopes hinge not only on reducing America's 9.2 percent unemployment but on his appeal to independent voters who want tougher action to get the country's fiscal house in order.

But Boehner and other mainstream Republicans do not want to be blamed for the economic turmoil that could be unleashed by any government default on its debt.

For his part, Obama is risking a mutiny on the left flank of his party for even agreeing to discuss entitlement programs traditionally protected by Democrats and which many feared would have been curbed under a $4 trillion plan.

Story: House boosts military budget in time of austerity

Aides to Obama and Boehner were also discussing revenue increases that would have been achieved in part by a streamlining of the tax code, something that appeals to both Democrats and Republicans.

But Democrats' demands for $1 trillion in additional revenue also include eliminating tax breaks and other measures that many Republicans were reluctant to support.

Reuters and The Associated Press contributed to this report.

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