In secretive endgame negotiations, President Barack Obama and House Republican leaders reached anew on Thursday for an elusive "grand bargain" deal to cut deficits by $4 trillion or more and prevent a threatened Aug. 2 government default, officials said.
Democratic congressional leaders conferred at the White House with Obama amid growing indications that the president is close to an accord with House Speaker John Boehner on a deal allowing the government's borrowing limit to be raised in return for spending cuts.
Earlier Thursday White House spokesman Jay Carney denied a New York Times report that Obama and Boehner were close to a deal. But a senior Democratic congressional aide told Reuters that a possible Obama-Boehner accord would include $3 trillion in spending cuts over 10 years and a promise of tax reform next year, but no guarantee of more revenue.
Apparently concerned that some observers think Obama might agree to a package that would include only spending cuts, White House Communications Director Dan Pfeiffer said on Twitter, "Anyone reporting a $3 trillion deal without revenues is incorrect. POTUS believes we need a balanced approach that includes revenues."
Anxiety on the leftNonetheless there was anxiety on the left side of the party that Obama might be on the verge of conceding too much in order to get an agreement with Republican leaders.
The progressive Democratic group MoveOn.org issued a statement Thursday afternoon warning of a potential "betrayal of everything Democrats stand for.”
“Reports that the White House is negotiating a secret debt deal directly with House Republicans that could include deep cuts to Medicare, Medicaid and Social Security with limited or no immediate revenue increases are deeply troubling," the group's executive director Justin Rubin said. “The Democratic base did not work night and day to elect Democrats so that they could cave to Tea Party extremists...."
The president and congressional leaders are struggling to agree on deficit reductions and avert a default before Aug. 2, the date on which the Treasury says the government will hit the current $14.3 trillion debt limit and be unable to borrow more money. The government now pays for about 40 percent of all its expenditures by issuing Treasury bonds.
Obama gave congressional leaders a bit of breathing room Wednesday when he indicated he would back a short-term deal to prevent a government default on Aug. 2 but only if a larger deficit-cutting agreement was essentially agreed to.
In an opinion piece in USA Today posted Thursday evening, Obama restated his call for achieving deficit reduction through "historic" amounts of spending cuts but also through "fundamental tax reform."
Danger of a slowing economy
With federal spending now accounting for nearly 24 percent of gross domestic product (GDP) — nearly its highest level since World War II — congressional Republicans are demanding substantial long-term spending cuts while resisting tax increases which, they argue, would stifle any chance for faster economic growth.
The economy has slowed to less than 2 percent GDP growth, a level which economists such as former Obama advisor Lawrence Summers warn is “stall speed.”
In an interview with NBC’s Andrea Mitchell Thursday, House Budget Committee chairman Rep. Paul Ryan, R- Wisc., voiced optimism that “cooler heads will prevail” in the debt limit impasse, and that Congress will manage to avert a default.
“We will find a way to deal with this issue,” Ryan said. “There are constructive conversations that are occurring on both sides of the (Capitol) rotunda and both sides of Pennsylvania Avenue. And I do believe at the end of the day, cooler heads are going to prevail.”
For a time Wednesday, some observers saw a potential breakthrough in a proposal which the bipartisan “Gang of Six” senators offered Tuesday.
Their plan would instruct Senate committees to cut spending and to design a tax plan that would eliminate or shrink some tax breaks in return for lower income tax rates. It would also whittle down future Social Security cost-of-living increases.
Seeking more specifics from Gang of Six
Obama embraced the Gang of Six proposal Wednesday, calling it “a very significant step” because a bipartisan group of senators had agreed, among other things, that “we've got to be serious about tackling health care spending and entitlements in a serious way.”
But Ryan said Thursday that House Republicans needed assurance that specific spending cuts will be made.
He said the five-page summary issued by the “Gang of Six” didn’t have enough detail in it.
“The spending cuts in the so-called Gang of Six plan are extremely vague. They’re sort of a promise that Senate Democrats will pass spending cuts later, (but) there are no details or specificity. I’ve seen that game played around here before,” he said.
Ryan said “When we keep raising taxes in Washington (in return) for ephemeral promises of spending cuts later that never materialize, we’re actually not fixing the problem.”
Ryan said he favored a “more efficient, pro-growth tax system that raises revenues at say 18, 19 or 20 percent of GDP,” but “the key is you bring the government (spending) down to 18, 19, or 20 percent of GDP.”
In fiscal year 2010, revenues were 14.9 percent of GDP, while spending amounted to 23.8 percent of GDP.
Sen. Kent Conrad, D-N.D., a member of the Gang of Six, said Thursday that some 40 senators of both parties back his group’s proposal. It generally takes 60 votes to pass legislation in the 100-member Senate because the rules permit unlimited debate unless a supermajority votes to limit it.
But Conrad also said he feels there's too little time between now and Aug. 2 to complete a comprehensive package of spending cuts, benefit program changes and an overhaul of the tax code.
Just in case: a fallback plan
Absent a breakthrough between Obama and Republicans, there is a hotly contested backup plan by Senate Republican leader Sen. Mitch McConnell, R- Ky., that would give Obama broad new powers to obtain increases in the government's borrowing unless blocked by veto-proof two-thirds margins in both the House and Senate.
Ryan would not discuss any fallback plan that House Republicans might agree to if no accord is reached with Obama and the Democrats on spending cuts.
“I assume that there will be a fallback plan in place. What’s that’s going to be, or what we want to agree to, it’s not in our interest to say that right now,” Ryan said.
Meanwhile, the Standard & Poor's bond rating firm said Thursday that the credit ratings of all 50 states could be endangered and many would likely be downgraded if the federal government defaults on its debt.
Under the rating agency’s worst-case scenario, the debt ceiling would not be raised by Aug. 2 leading to a sharp reduction in federal spending, a default, higher interest rates and another economic downturn.
"Liquidity and market access would be a primary focus of our credit analysis, along with each (state) government's ability to withstand the disruption in the credit markets and substantial losses in federal funding," S&P said, regarding state credits.