President Obama challenged Congress on Wednesday to start working with him on a deficit-reduction deal that could be tied to a vote to raise the debt ceiling, which must happen by Aug. 2, according to the Treasury Department. “They’re in one week, they’re out one week. And then they’re saying, ‘Obama has got to step in. You need to be here.’ I’ve been here,” Obama said. “You stay here. Let’s get it done.”
The Senate is scheduled to be out next week for the July 4 holiday. In a caucus meeting late Wednesday, Democratic leaders pushed to skip the recess, but that idea was met with resistance from Senators who are not involved in the deficit talks or have plans with their families, work in their districts or have official business abroad. The House is out of session this week and is scheduled to return to Washington next week.
With only five weeks to go until the borrowing-limit deadline is reached, negotiators really have only two, or at most three, weeks to strike an agreement. A bill of this magnitude will take several days to draft and at least a week to get through both chambers. But as the pressure is mounting, all sides seem to be digging in their heels. Here’s a look at what all five sides want:
Sure, there are a hard-core group of 25-plus members who will never vote to raise the debt ceiling, but don’t be fooled. Most Republicans are keenly aware of the damage a debt-ceiling lapse would do to the economy — and to their electoral chances. This will be a tough vote they won’t want to take more than once. And they aren’t going to vote for it without major concessions from Democrats in the form of trillions of dollars’ worth of spending cuts. House Speaker John Boehner has said he wants whatever they raise the ceiling by — it’ll take an estimated $2.5 trillion to make the hike last until after the 2012 elections — offset by cuts. Vice President Joe Biden and his working group agreed to more than $1 trillion in cuts, but that only gets them halfway there. Boehner wants the rest of the cuts to come out of entitlements, particularly Medicare. Democrats have been bashing Republicans for their votes on Paul Ryan’s budget, accusing them of wanting to turn Medicare into a voucher system. Enacting bipartisan cuts to Medicare helps inoculate the GOP against such criticisms ahead of the 2012 elections. And though they haven’t ruled out revenue raisers, House Republicans are suspicious of Democratic tax proposals, particularly ones that would cap tax deductions for such things as charitable giving and mortgage payments. The last time deductions were capped was under George H.W. Bush, a move that led to accusations that he broke his pledge of “no new taxes.” Boehner’s goal is to extract the highest amount of cuts, including Medicare cuts, for the least amount of revenue raisers.
With 23 Democratic Senators up for re-election in 2012, many of them in red states, Republican minority leader Mitch McConnell has a good chance to win control of the Senate. And few issues help McConnell’s cause as much as cutting spending. That’s why he’s in favor of repeatedly raising the debt ceiling in small increments, winning new spending cuts each time, between now and the election. McConnell’s position might put him at odds with his House colleagues, but there’s little upside for him in compromise because Senate Democrats can pass the debt ceiling without any GOP votes. (Without a GOP filibuster, only a simple majority of 50 votes would be needed to pass it, and Dems control the Senate 53-47). This is why McConnell has drawn the hardest line against any kind of revenue increases: his members have the greatest leeway to vote against the debt-ceiling hike.
After House Republicans, Senate Democrats are in the toughest spot. Few of the GOP demands can pass the Senate, like a balanced-budget amendment, which would require 67 votes (when the Senate voted on this bill earlier in the year, it got 57 votes). With so many of their members up for re-election, they have to be careful not to pass anything that would further weaken their electoral hand. Finding a compromise that can pass the Senate will be tricky. Certainly, revenues will have to be included. Democrats would like as much as $400 billion in revenue increases, including $40 billion in cuts to subsidies for oil and gas companies, an end to $2.5 billion in ethanol subsidies and $3 billion in corporate-jet tax breaks, a cap on tax deductions for those who make more than $500,000 a year at 10% — a move that saves hundreds of billions of dollars — and repealing the use of last-in-first-out accounting for businesses, which would save an estimated $72 billion over 10 years. Democrats are even making it personal, targeting a $162 million tax break for the horse-racing industry authored by McConnell, who hails from Kentucky. At the same time, Senate Dems want some form of short-term stimulus (like further payroll tax cuts), and would be willing to consider some cuts to Medicare. They wouldn’t be on board with the $600 billion in savings proposed by Tom Coburn and Senator Joe Lieberman, a Connecticut independent who caucuses with the Democrats, or the $480 billion proposed in the Obama budget that would empower the Independent Payment Advisory Board to make cuts (yes, these are the folks Sarah Palin accused of being death panels). Instead, all the cuts would come from the provider side, though that would certainly be met with resistance from hospitals and doctors. Already the $400 million in Medicare provider cuts used to help offset an expansion to the Trade Adjustment Authority this week drew the fire of the American Medical Association and hospital groups. Imagine their reaction to hundreds of billions of dollars’ worth of cuts. Unifying the diverse caucus — both Nebraska’s Ben Nelson, the most conservative Senate Democrat, and Bernie Sanders, a Vermont independent and self-described socialist, are up for re-election — will be difficult if not impossible. Senate majority leader Harry Reid can afford to lose three of his members, if Biden steps in and casts the tie-breaker vote, but after that he’ll need GOP help, and that doesn’t look promising.
House Democrats were cut out of the 2011 budget negotiations, as it was widely assumed that their votes wouldn’t be needed to pass the final product. In the end, their votes were needed, and House minority leader Nancy Pelosi is demanding a seat at the table this time, anticipating that Boehner will once again need her help to pass the final deal. Pelosi’s goal is to stop any cuts to Medicare, as the Ryan budget has been a political boon for her members and she doesn’t want that issue taken off the table in 2012. If Republicans cave on revenue increases, it will be hard not to allow some cuts to Medicare, which is, after all, the single largest program in the federal government. Plus, Republicans argue, a large austerity package should draw support from the remaining Blue Dogs, who are no fans of Pelosi. House Dems would also favor some form of short-term stimulus.
As Coburn, an Oklahoma Republican, likes to say, if Obama can get a grand bargain through Congress, it ensures his re-election. Cutting trillions of dollars of spending would knee-cap Tea Party criticism and give him the ultimate retort to GOP criticism that he’s a Big Government socialist. Unlike for his congressional Democratic counterparts, cutting Medicare might have some advantages for Obama. And House and Senate Dems worry that Obama will sell them short, since a big package would only help him in his newfound quest to reclaim independent and moderate voters. In his Wednesday press conference, Obama made it plain that he’s open to more payroll tax cuts but wants revenue increases in the package, citing one in particular — the corporate-jet tax break — six times. But while it makes for a great sound bite, it costs only $3 billion, less than 1% of the $4 trillion in cuts over 12 years that Obama has proposed.
Ultimately, Democrats are digging in on Medicare, and Republicans are drawing the line at revenue increases. Compromises on both sides are possible but not imminent. And in conversations with congressional staffers on Wednesday, it was striking that both a Senate Democrat and a House Republican aide mentioned the possibility of simply passing the $1 trillion in cuts on the table with minimal revenue increases and no cuts to Medicare. That would force Obama to come back to Congress next year in the middle of the primaries to raise the debt ceiling again, and Republicans feel it could underline their positions on spending and taxes. Conversely, the Senate Democratic aide argued that Democrats would win under such a scenario because they would emerge as the champions of Medicare while still showing their willingness to tackle deficits — $1 trillion is nothing to sneeze at. But that spin war isn’t happening just yet; both sides are still pushing for a longer-term solution.