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Deficit haggling is about to heat up

WASHINGTON – White House and congressional leaders plan to intensify their efforts this week to reach some agreement on a sweeping budget deficit-cutting proposal by July 1, a plan that most lawmakers insist be part of any agreement to raise the nation’s debt ceiling.

As many as four days of talks are expected this week among Vice President Joe Biden, Obama administration officials and six key members of Congress as they look at potentially sweeping cuts and changes in federal spending and revenue-raising.

Lawmakers are cautiously optimistic that they’ll succeed. What makes the prospects still uncertain, though, is that some of the details –  Medicare, other popular domestic programs and taxes – are rife with political peril.

“The really tough stuff that’s left are the big-ticket items and philosophical big-ticket items. Anything having to do with health care,” Biden said after a two-hour meeting Thursday, the group’s third session last week.

If the debt limit of $14.3 trillion isn’t raised by Aug. 2, the government is expected to run out of borrowing authority. Treasury Secretary Timothy Geithner has warned that a failure to raise the limit, last increased in February 2010, could trigger financial chaos.

Few expect that deadline to pass without some agreement.

“Reasonable people will prevail. They know we can’t take it to the brink,” said Rep. Nick Rahall of West Virginia, the top Democrat on the House of Representatives Transportation and Infrastructure Committee.

They know the stakes are too high. “This is the most important thing happening on Capitol Hill by far,” said Rep. Jeff Flake, R-Ariz., a leading conservative on the House Appropriations Committee.

There have been strong hints that the two parties are seriously seeking compromise.

“The debt ceiling talks are a game of chicken. The leadership on neither side wants a crash, but neither wants to show the first sign of compromising,” said Steven Smith, director of the Weidenbaum Center on the Economy, Government, and Public Policy in St. Louis.

The most prominent sign of a breakthrough last week involved Senate votes to cut ethanol tax breaks, including one backed by 34 Republicans and another that got 33 GOP votes.

Supporters contended the votes were aimed at closing a loophole and saving the government about $5 billion annually. Sen. Tom Coburn, R-Okla., a hard-liner against tax increases, pushed for the change, and dismissed the notion that his plan was a tax hike as “ludicrous.”

“Tax provisions should be examined on a case-by-case basis, not receive blanket amnesty,” he said.

Negotiators are aiming for at least a tentative agreement by July 1, the day before a long Fourth of July weekend, to give colleagues a month to consider the proposal.

The budget deficit in fiscal 2012 is expected to reach $1.5 trillion, and over the next 10 years, the government is expected to accumulate about $7 trillion in deficits.

Talks in the next few days are expected to center on three big pieces of a potential agreement: taxes, government health programs and spending caps.

The outlook:

Taxes. Most Republicans have refused to support general tax increases for years, and they’re adamant they won’t do so this time.

Democrats saw the ethanol votes as an opening, that as long as increases are defined as loophole-closing, they can survive GOP skepticism. “A lot of these (loopholes) are really tax expenditures,” explained Rep. Henry Waxman, D-Calif.

Also in the mix: The Obama administration’s suggestion that this year’s 2 percentage point cut in Social Security payroll taxes, due to expire at the end of the year, be extended. Should that cut be included, Republicans can argue that they won lower taxes.

House Speaker John Boehner, R-Ohio, wouldn’t discuss specifics, saying he was “not prepared to give you an answer.”

Spending cuts. Caps on most domestic discretionary spending, or spending that’s directly under lawmakers’ control, are a popular topic, but there’s no consensus on what to cap or how.

Democrats want to exempt things such as education, infrastructure and other programs that either serve as safety nets for lower-income people or create jobs. Republicans are more sympathetic to broader caps, and they want any increase in the debt limit to be the same figure as the spending cuts, meaning about $2 trillion over 10 years.

Health care. “Everybody in this town (knows) you can’t do anything about the single biggest problem we have without impacting Medicare,” said Senate Republican leader Mitch McConnell of Kentucky, speaking of the debt.

Republicans have argued that it’s time to restructure Medicare and Medicaid.


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