The ghost of last year’s near-disastrous debt ceiling talks suddenly is haunting this year’s fiscal cliff negotiations. At a press conference today, House Speaker John Boehner restated that any increase in the government’s borrowing authority – which will run out sometime next February and risk a first-ever U.S. default on its bonds -- be matched – dollar for dollar – by spending cuts.
Raising the debt ceiling – a task neither party relishes – has long been a bargaining chip in dealings between the White House and Congress. Boehner has decided to use it once again to try to extract as much in deficit reduction as he can as part of the fiscal cliff negotiations. If the 2011 debt ceiling deal is any indication, that will mean reducing expenditures by $2.1 trillion over the next decade in return for raising the borrowing limit.
After speaking with President Obama on Wednesday evening by phone and meeting on Capitol Hill with Treasury Secretary Timothy Geithner Thursday morning, Boehner sharply criticized Democrats for not outlining possible expenditure cuts. Republican leaders stipulated these reductions as part of a “Grand Bargain,” including additional tax revenues to shrink the deficit over the long term.
Boehner undercut his previously optimistic assessments of the negotiations, saying that there has been “no substantive progress” in attempts to reach a deal and that “the White House has to get serious” on entitlement spending.
The Ohio congressman then repeated a demand he first made more than a year ago: Republicans will only raise the national debt ceiling by a sum equal to long-term spending cuts. “I continue to believe that any increase in the debt limit has to be accompanied by spending reductions that meet or exceed it,” Boehner said.
“I’m going to do everything I can to avoid putting the American economy and the American people through the fiasco of going over the fiscal cliff,” Boehner added. “[But] as I told the president a couple of weeks ago, there are a lot of things I’ve wanted in my life, but almost all of them had a price tag attached to them. If we’re going to talk about the debt limit in this [round of negotiations], there’s going to be some price tag associated with it.”
If Boehner sticks to his guns on the debt ceiling, the already difficult talks between the White House and congressional leaders on avoiding the year-end economic calamity of skyrocketing tax increases and deep spending cuts becomes several magnitudes harder. It possibly forces Democrats to cut spending more than the reported $1.2 trillion they’re prepared to do – including no less than $400 billion of entitlement programs.
Last summer, the Treasury came close to defaulting for the first time in U.S. history. At the last minute Obama and Boehner managed to agree on a plan to raise the government’s borrowing authority by roughly $2.1 trillion to the current level of $16.4 trillion. But in order to reach that deal, the White House and Democrats had to agree to roughly a similar amount of spending cuts – including $900 billion in savings from discretionary spending caps and another $1.2 trillion over the coming decade.
Because a special committee of Congress couldn’t agree on how to achieve the $1.2 trillion target, deep automatic across-the-board cuts are scheduled to automatically kick in next Jan.2. Obama and lawmakers are looking for ways to block those arbitrary cuts as part of a year-end deal to avert the fiscal cliff.
With the Treasury likely to begin running out of cash early next year, Obama wants Congress to raise the debt ceiling again as part of the fiscal cliff negotiations. The administration’s preference is that the debt ceiling be raised enough so that the president doesn’t have to return in another year or so to bargain for a higher limit.
But even if Congress ends up approving something similar to the August 2011 debt ceiling deal, that would mean the White House would have to agree to an additional $2.1 trillion of cuts – if not more – almost exclusively from domestic programs and entitlements because Republicans are opposed to deeper cuts in defense.
Shortly after Boehner spoke, Senate Democrats held their own news conference, where they accused House Republicans of thwarting the talks by failing to offer a detailed plan for raising taxes, The Washington Post reported. “It’s been weeks since we me at the White House, and we’re still waiting for a serious offer,” said Senate Majority Leader Harry Reid, D-Nev., who urged Republicans to “stop this happy talk about revenues” and put forward a specific proposal to raise tax rates for the wealthy and eliminate deductions.
Talks began 12 days ago with a meeting between Obama, Boehner and other congressional Republican and Democratic leaders at the White House. That meeting ended with optimistic predictions that a deal could be reached during the lame-duck session of Congress, but since then negotiations have hit a snag.
A major dispute is how to raise taxes on the wealthy. Boehner previously brought up the possibility of $800 billion in new tax revenue, achieved through an overhaul of the tax code that eliminates or limits many deductions that largely benefit the wealthy, but without raising marginal tax rates.
However, Obama favors $1.6 trillion in new tax revenue and insists that it be accomplished by allowing tax rates on the wealthiest two percent of Americans to go up next year, while existing tax cuts are extended for the rest of the country.
Obama and his advisers acknowledge that any long-term deficit reduction plan must include adjustments to Medicare and Medicaid, the nation’s health programs for the elderly and the poor, and other savings – but the president has yet to specify by how much or how that could be achieved. At the current rate of spending, Medicare will be bankrupt in 12 years, according to Medicare’s trustees.
“Revenue is on the table, but revenue was only on the table if there were serious spending cuts as part of this agreement,” Boehner said. “It has to be part of the agreement. We have a debt crisis. We’re spending too much.”
But when asked how much the Republicans are demanding in additional spending cuts, Boehner replied: “Well, I don’t think it’s productive for either side to lay out hard lines in terms of what the size the spending cuts ought to be. There clearly are a lot of options on how you can get there.”
“There’s a framework that we presented to the White House to weeks ago,” Boehner said. “The framework has been agreed to in terms of a down payment at the end of this year that would include spending cuts, and it would include revenues – setting up a process for entitlement reform next year and tax reform next year. But this is way out of balance, and not a recognition on the part of the White House about the serious spending problem that we have.”
The Fiscal Times’ Josh Boak contributed to this report.