Analysis: Debt deal not that far out of reach

WASHINGTON Tue Jul 5, 2011 2:40pm EDT

Speaker of the House John Boehner after a meeting with President Obama on the deficit and debt at the White House, June 1, 2011. Boehner is joined by (L-R) House Majority Whip. Rep. Kevin McCarthy (R-CA), House Majority leader Eric Cantor (R-VA), Republican Conference Chairman Rep. Jeb Hensarling (R-TX), Boehner, and Rep. Cathy McMorris Rodgers (R-WA). REUTERS/Jim Young

Speaker of the House John Boehner after a meeting with President Obama on the deficit and debt at the White House, June 1, 2011. Boehner is joined by (L-R) House Majority Whip. Rep. Kevin McCarthy (R-CA), House Majority leader Eric Cantor (R-VA), Republican Conference Chairman Rep. Jeb Hensarling (R-TX), Boehner, and Rep. Cathy McMorris Rodgers (R-WA).

Credit: Reuters/Jim Young

WASHINGTON (Reuters) - You would never know it from all the hot air rising out of Washington, but President Barack Obama and congressional Republicans could easily reach a deal to raise the debt limit and avoid an early August default.

Before talks hit a brick wall last weekend, negotiators were tantalizingly close to a $2 trillion-plus budget deal that would enable Congress to sign off on further borrowing, according to Democratic and Republican sources.

Since then, things have not looked good. Obama compared Republicans to lazy schoolchildren and Democrats accused them of deliberately sabotaging the economy. Republicans have not shied away from salty language, either.

"Washington is addicted to spending, and the addict-in- chief is the president," Republican Senator Jim DeMint said on the Senate floor on Thursday.

Analysts worry lawmakers may be painting themselves into a corner. "In order to get out of this mess they're going to have to eat some of their words," said Joe Minarik, a former budget official in the Clinton administration.

The Treasury Department has warned the country will face default if Congress does not lift the $14.3 trillion debt ceiling by August 2. That could push the country back into recession and upend financial markets across the globe.

Whether Republicans and Democrats can bridge their differences over the coming weeks remains to be seen.

From a dollar standpoint, the two sides are closer to a deal than it might appear.

In talks led by Vice President Joe Biden, negotiators had tentatively agreed to reduce discretionary spending, which covers everything from space exploration to pollution control, by between $900 billion and $1.3 trillion over 10 years, according to aides from both parties.

Republicans resisted cuts to military and other security spending sought by Democrats, but Senator Charles Schumer, a Democrat known as a hard-nosed partisan, said on Thursday he thought a compromise was possible in this area.

The two sides had also identified cuts to a wide range of benefit programs, such as farm subsidies, student aid and federal employee retirement plans. Democrats say these total about $200 billion, while a Republican aide put the total at $275 billion to $325 billion.

STRUCTURAL CHANGES TO MEDICARE?

Democrats have hammered their conservative opponents over a Republican proposal to scale back the Medicare program for future retirees, but the budget talks have yielded some consensus in this area as well.

Democrats say the deal could save roughly $200 billion through structural changes to health programs like Medicare and Medicaid, the healthcare program for the poor and handicapped, that don't scale back benefits, while Republicans say the total could be as high as $400 billion.

Both sides have also taken a look at changing the inflation index, which could slow the growth of benefit payments and tax exemptions. That could yield $300 billion.

The lowered spending levels would reduce the amount the government spends on interest payments. That could yield a further $325 billion to $350 billion in savings, according to a Republican aide.

The potential cuts total between $1.9 trillion and $2.7 billion -- roughly enough to ensure that Congress would not have to revisit the politically toxic issue before the November 2012 elections.

The main sticking point is tax increases. Republicans leaders have said they're off the table, and Democrats no longer expect to get the increase in income-tax rates for wealthy households that they had initially sought.

Instead, they aim to close a range of tax breaks that could generate $400 billion in new revenue. Republicans are not likely to agree to the largest of these, which would generate $300 billion from wealthy taxpayers by limiting the amount of deductions they can claim.

But other breaks for corporate jets, yachts and racehorses have a minimal impact on the budget and provide Democrats with vivid fodder for campaign attack ads. Throwing a few of these into the deal could avert a few headaches for Republicans and allow Democrats to claim a moral victory.

"It's going to be a difficult lift, but I still think that calmer minds will prevail in the end and they'll recognize that we don't have any alternative but to move forward," said Bill Hoagland, a former Republican congressional aide who has worked on budget issues for decades.

(Additional reporting by Alister Bull and Deborah Charles; editing by Todd Eastham and Cynthia Osterman)

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Comments (18)
justuhvoter wrote:
The facts are the facts: By 69-24 percent, voters oppose raising the legal ceiling for debt. That includes DEMOCRATS, who oppose it by 53-36 percent, independents, who oppose it by 74-22 percent, and Republicans, who oppose it by 79-16 percent. Only 44 percent of voters approve of Obama’s job performance. 61 percent DISAPPROVE of the way he’s handling the budget deficit, projected to total about $1.6 trillion this year. 63 percent think the country is headed in the wrong direction.

Every member of Obamas original economic team has resigned, and Geither is half way out the door. Foot-in-mouth Biden who couldnt manage a lemonade stand is “negotiating” the future of our country. Default now, or by 2020 when the debt will have doubled, either way its a no-win situation unless the size of government (across the board) is cut by at least 25%. We can start with politicians and bureaucracy compensation.

Jul 05, 2011 2:36am EDT  --  Report as abuse
The debt ceiling is phony. Every time the debt gets near the limit they raise it.
Just get rid of the ceiling and let the debt go up without the political wrangling that ultimately does nothing but allow it to go up anyway, especially since a trillion today is worth little more than a billion a decade or so ago, thanks to political inflation.

Jul 05, 2011 2:38am EDT  --  Report as abuse
texoman wrote:
Hey President Obama don’t cave-in to these sleeze-bags. Call their bluff and let them bring this country down. “Republican” would be a dirty word again like it was after the Great Depression before WWII. Then we could bring back all the regulations and laws we had before Reagan was President and things would straighten out again! Those that disagree can either learn to live in our Democratic System that represents all the people and not just the Rich or they can take their possessions and don’t let the door hit their sorry asses when leave our country. This is the fastest way to “Take Back Our Country”!

Jul 05, 2011 10:42am EDT  --  Report as abuse
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