Obama Seeks Grand Bargain on Deficit
Tuesday July 12 2011 | 06:33 AM

President Barack Obama pushed back against Republican efforts to focus on a scaled-down deficit deal, arguing for a broader package of spending cuts and tax increases to put the U.S. on a sounder long-term fiscal footing.

“Now is the time to deal with these issues,” Obama said at a White House news conference yesterday before resuming talks with congressional leaders on reducing deficits and raising the $14.3 trillion U.S. debt ceiling before the government exhausts its borrowing authority on Aug. 2. “If not now, when?”

In the negotiating session, Obama rejected a Republican presentation on spending cuts discussed in earlier talks led by Vice President Joe Biden, a Democratic official said. Obama said the total -- which a Democratic official put at $1.7 trillion -- fell short of his $4 trillion goal and the threshold Republicans set for a debt-limit increase large enough to carry the nation through the 2012 elections, another Democrat said.

House Speaker John Boehner, who Republican aides said engaged in a testy exchange with Obama at the talks, set the stage for the negotiations with his own news conference, declaring his party was firmly opposed to tax increases.

“The American people will not accept and the House cannot pass a bill that raises taxes on job creators,” Boehner, an Ohio Republican, told reporters on Capitol Hill before departing for the White House for the talks, which resumed shortly after 2 p.m. yesterday. Negotiators are scheduled to meet again at 3:45 p.m. today.

Taxes and Entitlements

The parties are divided over taxes and entitlement programs as they race to meet the deadline early next month. In addition to rebuffing Democratic calls for more tax revenue, the Republicans are pushing to cut programs such as Medicare and Social Security. The White House has indicated a willingness to consider savings including an increase in the Medicare- eligibility age as part of a larger deal.

Republicans have demanded at least a dollar in spending cuts over 10 years for every dollar they agree to raise the debt limit, which would have to go up more than $2 trillion to get through the elections. The Republicans last weekend lowered their objective for deficit reduction to the range of $2 trillion to $2.5 trillion.

Democratic congressional leaders also objected to the figure presented yesterday by Republicans, saying spending cuts that had been discussed in the Biden-led talks were contingent on tax-revenue increases, said a Democratic official.

Three Republican aides said that at one point in the 90- minute talks Obama and Boehner sparred over the price that Republican House members would pay to reach a deficit deal, with the speaker arguing that supporting entitlement cuts was just as risky for his party. When Obama reminded him that Republicans already voted to cut Medicare spending earlier this year, Boehner retorted that his party was the one showing leadership.

$4 Trillion Goal

Before the negotiating session began, Obama argued at his news conference that negotiators should pursue his $4 trillion goal in deficit reduction, which would require both entitlement cuts and revenue increases. He said he wouldn’t agree to a short-term extension of the debt limit.

“I will not sign a 30-day or a 60-day or a 90-day extension -- that is just not an acceptable approach,” Obama told reporters.

As the elections get closer, partisan differences will only grow harder to resolve, he said. “We might as well do it now -- pull off the Band-Aid, eat our peas.”

Obama called on Republican leaders to show flexibility, saying he has “bent over backwards” to accommodate them in deficit talks.

“I don’t see a path to a deal if they don’t budge. Period,” Obama said.

‘Moral Imperative’

He chided Republican leaders for focusing on a smaller package of cuts, saying that posture doesn’t square with their rhetoric that casts debt reduction as “a moral imperative.”

House Majority Leader Eric Cantor said Republicans “didn’t come here to raise taxes” after Obama challenged the party to compromise on a deficit plan. Any deal “has got to be revenue neutral,” Cantor said, meaning it would not result in higher income for the government.

“Barack Obama wants to raise taxes and Republicans don’t,” Cantor of Virginia told reporters in Washington. He said Obama sought $1 trillion in tax increases.

A Republican congressional aide said one purpose the party’s leaders had in the negotiating session was to gauge Democrats’ willingness to go through with spending cuts discussed during the Biden talks if tax revenue increases were removed from the table.

‘Do It Now’

In the White House press conference, Obama said he would be willing to include savings in Social Security as part of a grand bargain. Still, if changes to the retirement program are included in a bipartisan deal, Obama said they should only be aimed at strengthening the system rather than reducing the deficit.

“Social Security, if it is part of a package, would be an issue of, how do we make sure Social Security extends its life and is strengthened?” Obama said. The reason to address the retirement system during current bipartisan talks, Obama said, is that “if you’re going to take a bunch of tough votes, you might as well do it now.”

During the Biden talks, the White House had shown a willingness to consider changes in Medicare coverage, including a phased-in increase in the eligibility age, higher premiums and limits to coverage of out-of-pocket expenses by other insurance plans, said Democratic and Republican officials.

Tax Increase

The White House isn’t seeking any tax increase before 2013, Obama said. The increases he wants would target “millionaires and billionaires” and “corporate loopholes,” Obama said.

Democratic officials have said Obama is aiming at tax breaks for corporate jets, oil and gas subsidies, carried- interest income of hedge fund managers and “last-in, first- out” inventory accounting.

The S&P 500 retreated 1.8 percent to 1,319.49 at 4 p.m. in New York yesterday, its lowest level since June 29. The gauge fell 2.5 percent over two sessions, the most since March 16.

Ten-year U.S. Treasury note yields dropped 11 basis points, or 0.11 percentage point, to 2.92 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. They touched 2.91 percent, the lowest since June 28. They have dropped 21.9 basis points over the past two days.