WASHINGTON – Debt-reduction talks between congressional leaders and the White House entered a critical phase Monday, with no clear framework for resolving the deadlock over taxes and spending and a deadline for a potential federal default fast approaching.
President Barack Obama convened top Senate leaders at the White House to restart talks as both sides have grown more intransigent in their demands.
If Congress fails to increase the government’s borrowing limit by Aug. 2, experts have warned that the nation risks potentially catastrophic financial consequences.
That theoretically leaves five weeks for a decision and a congressional vote. But Treasury Department officials and financial experts have exhorted political leaders not to wait until the last minute, saying apprehension in the markets could begin to appear before that date.
Negotiations unraveled last week, as GOP leaders pulled out over taxes. Republicans are seeking steep spending reductions to lower the federal deficit in exchange for their votes to increase the borrowing limit, demanding a dollar-for-dollar exchange of cuts for new debt — about $2.4 trillion through 2012.
At the same time, Republicans are adamant that no new sources of revenue be part of the deal to cut deficits.
But the White House on Monday intensified a push for new revenue by proposing reductions in tax breaks for corporations and upper-income individuals. Democrats want to end subsidies for the oil and gas industry and owners of private jets. They also want to pare back deductions that can be claimed by households earning beyond $500,000 a year.
However, before attending the White House meeting, Sen. Mitch McConnell of Kentucky, the Republican leader, held fast, saying it would be “politically impossible” to pass new taxes in Congress.
Still, the political calculations are complex. In the House, dozens of rank-and-file Republicans are insisting on such drastic budget revisions that they are unlikely to vote on any eventual deal.
As a result, GOP leaders who control the House likely will need Democratic votes to pass an agreement, and must do something to woo those lawmakers. Earlier this year, GOP leaders were in a similar position, averting a government shutdown through a deal backed by Democratic lawmakers.
Obama held separate meetings with McConnell and Sen. Harry Reid, D-Nev., the majority leader.