Default deadline looms on Aug. 2
WASHINGTON – Republicans on Thursday pulled out of bipartisan talks aimed at finding a way to raise the federal debt ceiling and cut trillions of dollars from future federal budget deficits, triggering fresh fears of deadlock that could roil financial markets and kick the economy back into recession.
House Majority Leader Eric Cantor, R-Va., and Senate Minority Whip Jon Kyl, R-Ariz., said they wouldn’t participate further because Democrats were pushing for higher taxes in any agreement.
The Republicans’ withdrawal from the seven-week-old negotiations, chaired by Vice President Joe Biden, staggered but didn’t doom prospects for a deal.
“I believe that we have identified trillions in spending cuts, and to date we have established a blueprint that could institute the fiscal reforms needed to start getting our fiscal house in order,” Cantor said. “Regardless of the progress that has been made, the tax issue must be resolved before discussions can continue.”
Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke have warned that failing to increase the nation’s debt ceiling by Aug. 2 risks a U.S. default on debts owed, which could convulse financial markets and lead to renewed recession.
It’s likely that President Barack Obama and House Speaker John Boehner, R-Ohio, will become more personally involved in crafting a plan to raise the nation’s $14.3 trillion debt limit by Aug. 2, the day that government borrowing authority is expected to run out, while dramatically cutting deficits.
“The goal of these talks was to report our findings back to our respective leaders. The next phase is in the hands of those leaders, who need to determine the scope of an agreement that can tackle the problem and attract bipartisan support,” Biden said Thursday in a statement. “For now the talks are in abeyance as we await that guidance. We stand ready to meet again as necessary.”
“I think it’s in the hands of the speaker and the president and, sadly, probably, me,” said Senate Majority Leader Harry Reid, D-Nev.
First they’ll have to overcome, or at least finesse, Republican rejection of any tax increases. Whether the GOP walkout is a short-term negotiating tactic or an unyielding commitment against compromise is difficult to say at this stage; but with Democrats in charge of the White House and Senate, and Republicans at the helm of the House of Representatives, refusal to compromise dictates deadlock – and probably default.
Experts are concerned that there may not be enough time to get a detailed plan enacted that would satisfy nervous financial markets before the Aug. 2 deadline.
“They really are playing with fire here. I don’t know where it ends,” said Robert Bixby, the executive director of the Concord Coalition, a nonpartisan budget watchdog group. “It makes it much harder to reach an agreement by Aug. 2, and it makes default much more likely in some form or another.”
The projected fiscal 2012 deficit is $1.5 trillion; over the next decade, the government is projected to amass nearly $7 trillion in deficits under current law.
The Biden group, which has been meeting regularly since May 5, was trying to iron out a detailed agreement that would cut deficits by at least $4 trillion over 10 years. It hoped to have some kind of blueprint by a week from Friday, giving lawmakers time to review the plan, offer changes, write up the deal and push it through Congress.
There were some glimmers of hope. Senate Finance Committee Chairman Max Baucus, D-Mont., a member of the bipartisan group, said “there’s a lot of time” to reach an agreement.
Boehner put an important smidgeon of distance between himself and Cantor, a doctrinaire conservative. Boehner, who’s more conciliatory, was vague Thursday about just what would constitute a tax increase. Asked whether he was talking about increases in tax rates only or whether he also opposed closing loopholes, Boehner said, “We have been opposed to increasing tax rates.”
He was asked whether he supported Cantor’s decision.
“I understand his frustration,” Boehner said. “I understand why he did what he did.”
Boehner and Obama have been talking. White House spokesman Jay Carney said Boehner and the president discussed a wide range of issues Wednesday.
Boehner said Thursday of Obama, “I expect to hear from him.”
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