Tuesday, July 12, 2011

Hopes Dwindling for Compromise in Budget Talks

July 12, 2011

Hopes Dwindling for Compromise in Budget Talks

WASHINGTON — From the White House and Congress to financial centers, pessimism spread on Tuesday about the prospects of a debt-limit deal between President Obama and Republicans, prompting the Senate Republican leader to propose a “last-choice option” that piqued the administration’s interest but angered conservatives in his own party.
The leader, Senator Mitch McConnell of Kentucky, said a bipartisan budget-cutting deal is probably out of reach, making it unlikely that Republicans would approve an increase in the government’s debt limit by Aug. 2. To prevent default, he proposed that Congress in effect empower Mr. Obama to raise the government’s borrowing limit without its prior approval of offsetting cuts in spending.
Administration officials welcomed the McConnell initiative for at least signaling that both parties’ leaders were committed to averting a potential economy-shaking government default; many Democrats in Congress saw it as a way to avoid the sort of deep cuts in Medicare, Medicaid and Social Security that Republicans have sought as the price of their votes for a debt-limit increase.
But many conservatives immediately assailed Mr. McConnell’s proposal as a panicky sell-out, much as they in recent days had attacked the House Republican leader, Speaker John A. Boehner, for privately discussing with Mr. Obama a debt-reduction deal that could raise revenues as well as cut spending — ultimately forcing Mr. Boehner to retreat.
Mr. Boehner, though, suggested he could be open to the McConnell proposal, highlighting concern among the Republican leadership about how the showdown with the administration would end, the blame the party could suffer if a debt-limit crisis hurt the economy and the challenge of leading their rank and file into a compromise.
Mr. Boehner, in an interview on Fox News, said, “I think everybody believes there needs to be a backup plan if we are unable to come to an agreement, and frankly I think Mitch has done good work.”
Yet Mr. Boehner also acknowledged the limits of his own leadership given the passions of conservatives on the issue. “I don’t think such a proposal could pass the House in any way, shape or form,” he said. “You have a number of members who will never vote to raise the debt ceiling and a large block of members who believe this really is the moment to put our fiscal house in order.”
Mr. McConnell made his proposal after days in which Mr. Obama has been on the offensive in the fight over the budget, calling for more deficit reduction than Republicans are and urging both parties to put ideology aside in favor of compromise.
While Mr. McConnell’s plan would face an array of political and perhaps constitutional issues, it signaled that Republican leaders did not intend to let conservative demands for deep spending cuts provoke a possible financial crisis and saddle the party with a reputation for irresponsible intransigence. And with prospects for a broad budget deal having dimmed, Mr. McConnell’s plan would shift both substantive and political responsibility onto Mr. Obama, forcing him to take almost sole ownership of a debt-limit increase and any consequences from not doing more to address the budget deficit.
The longtime conservative activist Brent Bozell encouraged followers online to call Mr. McConnell’s office, saying he had “betrayed the trust of the American people.” And Newt Gingrich, a Republican presidential candidate, wrote on Twitter, “McConnell’s plan is an irresponsible surrender to big government, big deficits and continued overspending.” Yet Mr. Gingrich is no stranger to the risks in a showdown with a president of the other party; in the mid-1990s, as House speaker, he forced a government shutdown in a budget fight with President Bill Clinton that backfired against Congressional Republicans.
The conservatives’ reaction against Mr. McConnell, coming after their earlier attack on Mr. Boehner, raised the prospect that the White House has long feared — that Republican leaders cannot lead a rank-and-file membership that is defiantly opposed to compromise with Mr. Obama.
Among administration officials, that fear offset their relief that the McConnell proposal suggested at least a fallback in the event that the talks break down.
“Senator McConnell’s proposal today reaffirmed what leaders of both parties have stated clearly, that defaulting on America’s past-due bills is not an option,” the White House press secretary, Jay Carney, said in a statement. “The president continues to believe that our focus must remain on seizing this unique opportunity to come to agreement on significant, balanced deficit reduction.”
The latest White House meeting of nearly two hours on Tuesday afternoon ended with both sides agreeing to return Wednesday and further seek up to $2 trillion in debt reductions. But the two parties remain far apart on Mr. Obama’s demand that a quarter of the package come from higher taxes on the wealthy and businesses.
With the deadline for raising the government’s $14.3 trillion debt limit just three weeks away, Tuesday seemed a new low in the weeks of maneuvering and negotiations between the White House and Republicans.
Mr. McConnell, who after Republicans’ gains in the November elections said their goal would be to make Mr. Obama a one-term president, said in a morning speech in the Senate, “After years of discussions and months of negotiations, I have little question that as long as this president is in the Oval Office, a real solution is probably unattainable.”
Mr. Obama stoked Republicans’ political concerns when, in answering a question in an interview with CBS News, he said he “cannot guarantee” that the government can pay benefits next month to Social Security recipients, veterans and the disabled if Congress does not increase the debt limit by August.
In outlining his proposal hours after his speech excoriating Mr. Obama, Mr. McConnell told reporters: “If we’re unable to come together, we think it’s extremely important that the country reassure the markets that default is not an option, and reassure Social Security recipients and families of military veterans that default is not an option.”
Mr. McConnell’s proposal would give Mr. Obama sweeping power to increase the government’s borrowing authority, in three increments, by up to $2.4 trillion — enough, it is estimated, to cover federal obligations through next year — only if Mr. Obama specifies spending cuts of equal amounts. Congress would vote on whether or not to approve Mr. Obama’s debt-limit increases, but the president could veto any disapproval and presumably sustain his veto in the House and Senate. And Congress would not have to approve the proposed spending cuts prior to the debt-limit increase.
Representatives of major business groups, including the U.S. Chamber of Commerce and the Financial Services Forum, issued statements urging a bipartisan accord on raising the debt limit. Mayor Michael R. Bloomberg of New York opened an unrelated event on Tuesday morning by saying, “If America, for the first time in its history, defaults on its obligations, it would have a catastrophic effect on our financial system and on our credibility around the world.”

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