WASHINGTON – President Barack Obama and Congress need to strike a debt-reduction deal by mid-July to avoid panicking financial markets, officials familiar with the talks said Friday, as nervous senators gave up their Fourth of July recess next week to stay in Washington to work on an agreement.
The Obama administration thinks a deal must be reached by July 15-22 in order to get the legislation written and through Congress in time to avoid a default in early August, according to Democratic officials with personal knowledge of the talks. They spoke on the condition of anonymity because they set the rules of access.
“We have a shrinking window,” one of them said. “We are creeping up on that moment.”
The growing urgency came a day after the president told a nationally televised news conference that lawmakers should try to resolve the impasse over how to reduce federal deficits rather than take the recess.
Several weeks ago, 46 Republicans urged Senate Democrats to cut the Memorial Day recess short, and Sen. Jeff Sessions, the top Republican on the Senate Budget Committee, renewed the request this week to cut the Fourth of July recess short.
Senators left the Capitol on Thursday afternoon and had been scheduled to return July 11; instead, they’ll be back Tuesday. Members of the House of Representatives return Wednesday after an 11-day break.
Looming is an Aug. 2 deadline either to raise the nation’s debt limit, currently $14.3 trillion, or face government default, which could trigger chaos in financial markets and kick the economy back into recession. Lawmakers would attach a debt-reduction agreement to that legislation.
No new debt-reduction negotiations have been scheduled, though Reid has invited Obama and Vice President Joe Biden to meet with Senate Democrats next Wednesday.
The Democrats said that recent negotiations with top Republicans led by Biden behind closed doors had produced a broad, very sketchy agreement to cut spending and interest payments by $480 billion over 10 years. They stressed that none of the agreements is final until the package is finished.
• About $200 billion cut over 10 years from mandatory spending on Medicaid and Medicare.
• About $200 billion from other mandatory spending, including federal retirement benefits and farm subsidies.
Cutting that $400 billion would save about $80 billion in interest payments on the federal debt.
They have no agreement yet on discretionary spending, which includes defense as well as a host of domestic programs. Obama has proposed cutting about $900 billion from those programs and the Republicans have proposed about $1.7 trillion. A split-the-difference compromise would cut $1.3 trillion.
Interest savings on $1.3 trillion would total about $260 billion, the officials said.
Taken together, that would add up to about $2 trillion in reduced spending over 10 years. One Democratic official called it a $2 trillion-plus down payment on a $4 trillion problem.