Boehner ends his bid for a 'big deal'

House Speaker John A. Boehner (R., Ohio) says of an agreement: "This is a Rubik's Cube that we haven't quite worked out yet."
House Speaker John A. Boehner (R., Ohio) says of an agreement: "This is a Rubik's Cube that we haven't quite worked out yet." (MARK WILSON / Getty Images)

He instead backed Biden's midsize package to cut debt. The speaker had sought huge cuts, a new tax code.

Posted: July 10, 2011

WASHINGTON - House Speaker John A. Boehner abandoned efforts Saturday night to reach a comprehensive debt-reduction deal worth more than $4 trillion in savings, telling President Obama that a midsize package was the only politically possible alternative to avoid a first-ever default on the nation's mounting national debt.

Boehner (R., Ohio) told Obama - who is hosting a key meeting Sunday evening on the debt issue - that their efforts to "go big," as the speaker says, were stymied by the toughest issues: taxes and entitlements. Democrats continued to insist on tax revisions that would not pass muster in the conservative-dominated House of Representatives, and Republicans wanted cuts to programs such as Medicare and Social Security that Obama and Senate Democrats would oppose.

"Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt-reduction agreement without tax hikes. I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase," Boehner said in a statement less than 24 hours before the Obama meeting was to take place.

Without a lifting of the debt ceiling, Treasury Secretary Timothy Geithner has said that by Aug. 2, the nation will begin to default on the more than $14.3 trillion in outstanding debts the nation has collected after decades of deficit spending.

The impasse on the massive plan leaves Obama and congressional negotiators back at the smaller package, which includes cuts to federal agency budgets and more modest revisions to entitlement programs. That package, which had been negotiated by Vice President Biden and key GOP leaders, including House Majority Leader Eric Cantor of Virginia, would come to $2 trillion to $2.4 trillion in savings, allowing Congress to approve an extension of the federal debt ceiling into spring 2013.

Obama had been cajoled by Boehner into pushing for what the speaker called "the big deal," as opposed to the mid-range package that Biden and Cantor were assembling. The larger package would have been the most significant compromise in taxes and spending of the last three decades, including cuts to Social Security and Medicare, reductions in Pentagon spending, and a rewrite of the federal tax code.

In a statement Saturday night, White House communications director Dan Pfeiffer said: "The president believes that solving our fiscal problems is an economic imperative. But in order to do that, we cannot ask the middle class and seniors to bear all the burden of higher costs and budget cuts. We need a balanced approach that asks the very wealthiest and special interests to pay their fair share as well, and we believe the American people agree."

The emerging deal collapsed of its own ideological weight. Liberals were outraged at the proposals for entitlements, particularly a reduction in the annual increase of Social Security benefits, and conservatives were opposed to the idea of raising federal revenue through the tax proposal, which they would have labeled one of the largest tax hikes in history.

Democrats blasted Boehner's actions. "I really do think this is unfortunate. It's very disappointing that the Republican fixation with protecting tax breaks for corporate special interests and the very wealthy has prevented them from agreeing to a broad and balanced deficit-reduction plan that would be good for the country," said Rep. Chris Van Hollen (D., Md.), a member of the Biden negotiating team.

The Saturday announcement capped a whirlwind three weeks in which the president and speaker, beginning with a casual round of golf at Andrews Air Force Base on June 18, engaged in a series of meetings that culminated early last week with their decision to push for the biggest possible debt deal.

Boehner's decision makes the Sunday summit all the more critical, as Obama, Biden, and the eight congressional leaders expected to attend must decide the next steps to avoid the default process. Though widely hailed as extremely productive, the Biden group's talks broke up a little more than two weeks ago, when Cantor declared an impasse over the issue of taxes. After seven weeks of discussions, Cantor said it was time for the tough decisions to be kicked upstairs to Boehner and Obama.

Over the last week, the two men tried to resolve the differences, with Boehner laying out a path to compromise that involved a thorough rewrite of the tax code by the end of this year. But the White House rejected Boehner's terms for tax revisions as well as some long-term structural changes in the budget, GOP aides said, leading to Saturday night's decision.

A rewrite of the tax code was a critical piece of "the big deal," which aimed to slice $4 trillion from projected borrowing over the next decade. In addition to a tax overhaul that produced additional revenue, Democrats wanted Republicans to immediately extend the Bush tax cuts for middle-class households, leaving the cuts that benefit the nation's wealthiest taxpayers on track to expire next year. That would have been a huge win for Democrats, whose liberal base views ending tax cuts for the rich as a top priority - and one that Obama has so far failed to deliver.

In return, Obama was offering deep cuts to domestic agencies as well as changes to Social Security, Medicare, and Medicaid - the big federal entitlement programs that are projected to be the major driver of future borrowing. For example, the White House had proposed to change the measure of inflation used to calculate Social Security payouts, a shift that could save more than $100 billion over the next decade, according to congressional budget analysts.

According to budget experts, a $4 trillion deal would stabilize borrowing and, though the national debt would continue to rise in nominal terms, it would begin to fall as a share of the economy within the next 10 years. The fallback is the roughly $2.4 trillion deal being hammered out between Biden and six lawmakers, including Cantor and Senate Minority Whip Jon Kyl (R., Ariz.). That package so far involves more than $1 trillion in cuts to government agencies, about $200 billion in reductions to Medicare and Medicare, and another $200 billion from other direct-payment programs, such as farm subsidies and federal employee pensions. It would not touch Social Security.

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