Deficit hopes scaled back as Boehner pulls support

Hopes for a historic deficit-cutting bargain appeared to have collapsed after House Speaker John A. Boehner pulled out of the effort, yielding to conservative pressure not to strike any compromise with President Obama that would include new tax revenue.

Boehner announced his decision late Saturday after speaking with Obama and said that he would now try to strike a smaller-scale deal that would still allow Congress to approve an increase in the nation’s debt ceiling before an Aug. 2 deadline.

Obama plans to host another meeting with congressional leaders Sunday evening at the White House to discuss the politically difficult deficit-reduction efforts.

In a statement, White House officials suggested the president had not abandoned the idea of a grand bargain that would reduce deficits by $4 trillion or more over the next 10 years, but congressional leaders held out scant hopes for that and were already trying to assess blame.

If the $4-trillion deal cannot be revived, the failure would have both immediate and long-term consequences.

In the short term, negotiators must still try to reach a smaller deal that would allow Republicans to vote to raise the debt ceiling. Without an increase in the ceiling, Treasury Department officials say, the federal government will quickly run out of money to pay its bills and could face the prospect of default.

In the sometimes counterintuitive world of Washington, the smaller deal may be harder for some members of Congress to support. It would involve considerable political pain without the offsetting gain of being a major improvement in the government’s long-term deficit picture. Talks last month led by Vice President Joe Biden failed to produce an agreement on a $2-trillion deal.

In the long run, budget experts in both parties have argued that even a $4-trillion deal would not fully resolve the long-term gap between the spending promises the government has made and the taxes it is collecting, although it would be enough to stabilize the government’s finances. If the immediate need to raise the debt ceiling is not enough of a spur to reach a deal, they said, the prospects for truly solving the debt problem are bleak.

“This is a real disappointment,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “If policymakers can only agree on a deal that falls far short of the $4 trillion needed to stabilize the debt — they’ll just have to come back to the table and work on a new deal all over again.”

Boehner and Obama had been the two chief advocates of trying to reach a large-scale deal. Other congressional leaders had expressed varying degrees of skepticism or opposition.

To accomplish the goal, Obama had been willing to consider about $3 trillion in spending cuts, including changes in the Social Security and Medicare programs that had alarmed many liberal Democrats.

Boehner had been willing to discuss an overall tax-reform package that would have lowered some tax rates in exchange for closing loopholes. Democratic officials have said the new revenue in the proposal would have totaled about $1 trillion over 10 years.

But since outlines of the plan went public Thursday, Boehner has come under enormous pressure from conservatives in the House not to agree to any deal that involved higher tax revenues. Several of the GOP presidential hopefuls, including Minnesotans Rep. Michele Bachmann and former Gov. Tim Pawlenty, also had denounced the idea, increasing the political difficulty.

On Friday, according to Democrats with knowledge of the talks, Boehner presented the White House with a set of negotiating positions that barred any new revenue. The officials discussed the negotiations on condition of anonymity.

Under the outline Boehner proposed, some of the George W. Bush-era tax cuts for upper-income Americans would be allowed to expire as scheduled at the end of 2012 if the overall tax code were changed to lower rates.

White House officials have argued that new revenue is needed in any deficit-cutting deal because, otherwise, the only way to get to a $4-trillion total would be deep cuts in Social Security, Medicare and Medicaid that Obama and other Democrats reject. White House officials also insisted that any tax reform not shift the tax burden away from upper-income taxpayers.

When White House officials did not accept Boehner’s new position, but indicated a desire to continue talking, the speaker called Obama to pull the plug, according to Democrats familiar with the talks, who said they thought Boehner had lost his nerve under pressure from the right.

In a statement announcing his position, Boehner said the time had come to scale back.

“Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt-reduction agreement without tax hikes,” he said. “I believe the best approach may be to focus on producing a smaller measure,” he said, based on spending cuts identified in the talks last month led by Biden.

The White House responded by urging continued talks.

“Both parties have made real progress thus far, and to back off now will not only fail to solve our fiscal challenge, it will confirm the cynicism people have about politics in Washington,” White House communications director Dan Pfeiffer said in a statement. On Sunday, Obama “will make the case to congressional leaders that we must reject the politics of least resistance and take on this critical challenge,” he said.

Boehner’s decision was a political victory for the No. 2 Republican in the House, Majority Leader Eric Cantor (R-Va.), who had walked away from the Biden talks late last month to emphasize the GOP’s unwillingness to raise taxes.

“As Eric has said for weeks, tax increases that the Democrats are insisting upon cannot pass the House and are the last thing Congress should be doing with so many people out of work,” said Cantor spokesman Brad Dayspring. “Eric has always believed the Biden group identified between $2 [trillion] and $2.5 trillion in spending cuts that could represent the framework for an agreement.”

Democrats dispute that, saying the Biden talks identified about $1.5 trillion to $1.8 trillion in cuts. The number is important because Republicans have said they will not vote for the $2.4-trillion increase in the debt ceiling unless the total deficit reduction at least equals that amount, though their spending plan also requires raising the debt limit.

Although Obama plans to try again to push for the larger deal, officials on both sides were quickly moving into position to score points over who was to blame for its collapse. Sen. Charles E. Schumer (D-N.Y.) said that Boehner, in the end, could not “overcome the far right’s obsession with defending tax breaks for millionaires and other special-interest tax loopholes.”

Republicans say Democrats’ unwillingness to make cuts to Medicare and Social Security left Boehner unable to continue negotiations. Senate Republican leader Mitch McConnell of Kentucky “remains concerned with the Democrats’ unwillingness to take steps to protect entitlement programs from bankruptcy,” said his spokesman Don Stewart.

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