By Mike Dorning and Kate Andersen Brower - Jul 23, 2011 9:14 AM PT
House Speaker John Boehner (R-OH), right, speaks while flanked by House Majority Leader Eric Cantor (R-VA) during a news conference about the ongoing debt ceiling negotiations, July 22, 2011, in Washington, DC. Photographer: Mark Wilson/Getty Images
President Barack Obama met today with Republican and Democratic congressional leaders on how to avert a U.S. default after House Speaker John Boehner broke off negotiations on a broader deal to cut the federal deficit.
With the Aug. 2 deadline to raise the debt ceiling approaching, Obama said at the White House last night that “at minimum” Congress must act to avoid a U.S. default that would roil financial markets and damage the economy. He said he was consulting with Treasury Department officials about a default’s potential consequences.
“It’s very important that the leadership understands that Wall Street will be opening on Monday, and we’d better have some answers during the course of the next several days,” Obama said.
Obama made his remarks shortly after hearing from Boehner yesterday that the Ohio Republican was withdrawing from the efforts the two have pursued to revamp the government’s finances over the next decade.
The president and Vice President Joe Biden met for just under an hour today with Boehner, House Minority Leader Nancy Pelosi, a California Democrat, Senate Majority Leader Harry Reid, a Nevada Democrat, and Senate Minority Leader Mitch McConnell, a Republican from Kentucky.
Treasuries fell for the first time in three weeks as the Obama-Boehner talks collapsed. Yields on two-year Treasury notes touched the highest in almost two weeks on July 21 as Standard & Poor’s reiterated it saw a 50 percent chance of cutting the U.S. credit rating within three months.
Boehner spokesman Michael Steel said in an e-mail today that Obama is insisting on raising the debt limit to a level that would last through the 2012 election.
“It would be terribly unfortunate if the president was willing to veto a debt-limit increase simply because its timing would not be ideal for his re-election campaign,” Steel said. Boehner planned to reiterate today that spending cuts must exceed an increase in the debt limit, his spokesman said.
The president didn’t hide his frustration with the turn of events yesterday, saying Boehner didn’t return his phone calls during the day, observing it wasn’t the first time during the debt-limit talks he had been “left at the altar,” and declaring the Republicans had walked away from “an extraordinarily fair deal.”
‘Can They Say Yes’
“Can they say yes to anything?” Obama said to reporters. “It’s the Republican Party that has said that the single most important thing facing our country is deficits and debts. We’ve now put forward a package that would significantly cut deficits and debt.”
Boehner disputed Obama’s version of the impasse at a press conference shortly after the president’s, saying he exited the talks because the White House “moved the goal posts” on the tax revenue that would be included in a deal. He said the Obama administration wanted “more money at the last minute.”
“It’s not in the best interest of our country to raise taxes during this difficult economy,” Boehner said.
He also expressed his own frustration with the bargaining, saying that dealing with the White House was like negotiating with a “bowl of Jell-O.”
Obama said in the bid for a deficit reduction agreement that Republicans have made a prerequisite for raising the debt limit, he was willing to cut $1 trillion from discretionary spending and another $650 billion in entitlement programs, such as Medicare. The president said tax increases of $1.2 trillion he sought were less than what a bipartisan group of senators had proposed this week.
‘Hard to Understand’
“It is hard to understand why Speaker Boehner would walk away from this kind of deal,” Obama said.
The president made his remarks moments after Boehner released a letter announcing his withdrawal from talks on a comprehensive package. The speaker called Obama to inform him of his decision.
“A deal was never reached, and was never really close,” Boehner said in the letter. “In the end, we couldn’t connect.”
Boehner said he will focus instead on reaching an accord with Senate leaders on a way to raise the federal debt ceiling to avoid a default on U.S. obligations.
In a statement released by his office, he said his focus now will be on getting “an agreement that will allow the country to avoid default and meets the principles that we’ve outlined: spending cuts that must be greater than the increase in the debt limit and no tax increases.”
Dispute Over Taxes
House Republican leadership aides said the key stumbling block to a deficit-reduction agreement was the dispute over taxes, with the president pressing for more revenue to be raised through a tax code rewrite than Republicans were willing to accept.
The aides said a breaking point in the talks came after a bipartisan group of senators known as the Gang of Six unveiled its plan on July 19 to slash $3.7 trillion from the debt through spending cuts and a tax overhaul that would produce $1 trillion more in tax revenue. The bipartisan group used a different baseline to compare revenue than congressional leaders used in the White House negotiations.
The Republican aides said the revenue increase in the bipartisan plan was larger than one Boehner and Obama had tentatively agreed to. An administration official said the plan changed the political dynamics in the push for a deal.
Smaller Revenue Increase
The official said release of the bipartisan plan would have made it harder to attract Democratic support for a proposal with a smaller revenue increase. The White House proposed several options, including a lower revenue figure with smaller cuts to entitlement programs, said the official, who provided the details on the condition of anonymity.
Rather than offering any counterproposals, Boehner’s team broke off communication, the official said.
Boehner didn’t return a call from Obama two nights ago, said another administration official. The speaker’s office notified Obama at 3:30 p.m. Washington time yesterday that Boehner would call him in two hours, and when Obama tried to reach him earlier, Boehner declined, the official said.
Boehner called the president about 5:30 p.m. yesterday to say he was withdrawing from the negotiations, said Republican and Democratic officials.
Withdrawal From Talks
The collapse in the talks was the second time Boehner has broken off the negotiations. The speaker withdrew on July 9 from earlier rounds of private discussions after word leaked to the media about the potential deal and fiscally conservative members of his party balked.
Obama and Boehner frequently have confronted strife within their ranks as time has dwindled to avert a default and they pressed for a plan to boost the nation’s $14.3 trillion debt limit.
The entrenched partisan positions were on display after yesterday’s dueling news conferences.
Reid chastised Republicans, saying they had “once again proven unable to overcome their ideological opposition to ending taxpayer-funded giveaways for millionaires, corporate jet owners and oil companies.”
Former Republican vice presidential nominee Sarah Palin applauded Boehner for standing firm. “Thank you, GOP House leaders. Please don’t get wobbly on us now,” she said in a posting on her Facebook page.
Blame for Impasse
Obama at his news conference sought to put the blame for the latest impasse squarely on House Republicans, who took control of the chamber in last November’s elections and whose ranks include scores of Tea Party-backed freshman. Obama said Democrats were willing to make “tough compromises,” while among the Republicans, “there doesn’t seem to be a capacity for them to say yes.”
Entitlement cuts Obama tentatively accepted included a change in the way the cost-of-living adjustment is computed for Social Security recipients that would lower annual benefit increases, administration officials said.
David Beers, Standard & Poor’s global head of sovereign and international public finance, said it’s possible the leaders may still be able to agree to a broad deficit deal.
“I’m reluctant to conclude that this is the end of the story,” Beers said in a telephone interview from Washington after Boehner announced his withdrawal. “There was always the possibility that it might not be possible for the parties to find some common ground, but let’s wait and see what the weekend brings.”
Obama stressed that at today’s session he would push the congressional leaders for ideas on how to keep the government from failing to meet its financial obligations. “I want them here at 11 a.m.,” he said. “Tomorrow, they are going to have to explain to me how it is that we are going to avoid a default.”
In his weekly radio and Internet address, Obama again called on lawmakers in both parties to agree to a “balanced approach” that would include ending tax breaks for “oil companies and corporate jet owners.” Obama said, “Before we ask seniors to pay more for Medicare, we should ask the wealthiest taxpayers to give up tax breaks we simply cannot afford.”
Representative Jeb Hensarling of Texas, in the Republicans’ weekly address, urged approval of his party’s proposal to raise the debt ceiling tied to a balanced-budget amendment to the Constitution. The legislation, which passed the House and failed in the Senate, would help the nation “cut up the credit cards once and for all,” Hensarling said.
Standard & Poor’s
Standard & Poor’s warned there is a 50 percent chance it will lower the U.S. government’s AAA credit rating by one or more levels within three months. S&P said yesterday that, even if Congress raises the debt limit in time to avert a default, it might lower the U.S. sovereign rating to AA+ with a negative outlook if it isn’t accompanied by a “credible solution” on the debt level.
Such a ratings change, which could come as soon as early August, would “modestly raise” the federal government’s borrowing costs, S&P said. If the U.S. defaults on some obligations after Aug. 2, even if it pays bondholders, S&P forecasts short-term interest rates would rise by 0.50 percentage points and long-term interest rates by 1 percentage point.
Greater-than-expected tax receipts might give the U.S. Treasury an extra week -- until Aug. 10 -- before exhausting its borrowing authority, analysts with New York-based Barclays Capital said yesterday. The government has collected about $14 billion more in tax revenue since July 14 “than we were expecting,” the analysts wrote.
Yields on benchmark 10-year Treasury notes rose six basis points, or 0.06 percentage point, to 2.96 percent yesterday in New York, from 2.91 percent on July 15, according to Bloomberg Bond Trader prices.
In U.S. markets that closed before the Obama-Boehner talks collapsed, the S&P 500 rose 0.1 percent to 1,345.02 at 4 p.m. in New York and gained 2.2 percent this week. The Dow Jones Industrial Average dropped 43.25 points, or 0.3 percent, to 12,681.16. Gains in technology stocks pushed the Nasdaq-100 Index up 1.1 percent to the highest level since February 2001.
To contact the reporter on this story: Kate Andersen Brower in Washington at firstname.lastname@example.org