Deficit Negotiators Hit Reset

President Barack Obama and Republican leaders in Congress clashed
Sunday over the scope of an effort to cut the federal deficit, one that
could be shorn of its most ambitious elements, including revamping the
tax code and significantly reducing growth in benefit programs.

Mr. Obama urged the top eight
congressional leaders from both parties during a meeting that lasted
about 75 minutes at the White House to strive for the largest possible
package, some $4 trillion over 10 years. Republicans, however, made a
pitch for a scaled-down plan of roughly $2 trillion over 10 years that
doesn’t include about $1 trillion in tax increases the White House is
seeking.

Republicans have tied a vote on raising the government’s $14.29
trillion borrowing limit to a deficit-reduction deal, and the tone of
the Sunday meeting was tense and confrontational at times.

Republican and Democratic leaders have
said they won’t let the U.S. default, but the Treasury Department says
the government could begin defaulting on its financial obligations,
including debt payments, after Aug. 2 if the debt ceiling isn’t
increased.

Officials from both parties said the
leaders didn’t make any major progress toward reaching a deal that could
win support from conservatives opposed to tax increases and liberals
opposed to Medicare cuts.

Mr. Obama plans to host the same
leaders again Monday and hold a news conference. The president asked
Republicans to lay out at the Monday meeting the type of deficit
reduction deal they would like to see, a Democratic official familiar
with the discussion said.

An effort last week to negotiate an
ambitious deficit-reduction deal reached an impasse Saturday because of
forces still likely to bedevil negotiations over a smaller deal: tax
increases and cuts to entitlement programs.

Mr. Obama and House Speaker John
Boehner (R., Ohio) privately discussed and then announced their support
last week for a framework for reaching a deal to reduce future deficits
by $4 trillion over the next 10 years.

But Mr. Boehner backed away Saturday
night as progress on a range of issues slowed. Emerging details of what
it would take to reach the $4 trillion figure also made rank-and-file
members of both parties balk.

He said negotiators should focus
instead on a deal roughly half its size. Negotiators on each side also
suggested the other side was being over-cautious.

In the meeting Sunday, Mr. Obama tried
to break the logjam over taxes by saying he is willing to reform the
tax code in a way so Republican members of Congress wouldn’t have to
vote for a tax increase, a Democrat familiar with the discussion said.

Republicans restated their position
that a $4 trillion plan, which would presumably include tax increases,
couldn’t pass the House, and they emphasized the lack of time to pull
the deal together and push it through, according to people briefed on
the session.

When Mr. Boehner made the point about timing, these people said, Mr.
Obama responded that until then, the speaker had cited no concerns about
the time.

Mr. Boehner told the group that he
believes a package based on the work of the negotiating group led by
Vice President Joe Biden is the most viable option at this point,
according to a Boehner aide.

Such a deal would still be a heavy legislative lift. The Biden
negotiations fell apart last month when Democrats and Republicans
reached an impasse over taxes, suggesting a smaller deal may not be any
easier to achieve than the large deal.

Rep. Chris Van Hollen (D., Md.), a
participant in the Biden talks, said the group had only identified
roughly $1 trillion in cuts, and said on CNN’s “State of the Union”
program that those were contingent on Republicans agreeing to some new
taxes.

Mr. Boehner also restated his position
that a deal requires spending cuts that are greater than the amount of
the debt-ceiling increase and that no tax increases can be included.
“The president agreed with the speaker that their previous talks did not
produce any agreement,” the aide said.

Democratic officials briefed on
Sunday’s meeting said Mr. Obama didn’t back down from his commitment to a
big deal. “They definitely did not agree to scale back the size,” one
official said.

But Republicans expressed dismay that
Democrats weren’t pushing harder for a deal including major savings in
Medicare and Social Security.

“It’s disappointing that the president
is unable to bring his own party around to the entitlement reform that
he put on the table,” said Don Stewart, spokesman for Senate Republican
Leader Mitch McConnell, of Kentucky.

Senate Majority Leader Harry Reid
lashed out at Republicans, saying this is just the latest in a series of
bipartisan budget efforts they have derailed. “Every time we try to do
something big about the deficit, you guys walk away,” he said,
according to a Reid aide.

Democratic officials noted that in the meeting, Mr. Boehner kept a
lower profile and that his No. 2 in the House, Rep. Eric Cantor of
Virginia, did most of the talking for the Republicans.

Mr. Boehner came under fierce pressure
from Republicans Friday, including from Mr. Cantor, who rejected one
cornerstone of the big deal: $1 trillion in tax increases along with
corporate and individual tax reform.

At the same time, the White House was
slow to move on significant changes to spending programs such as
Medicare and Medicaid, a senior GOP aide said. “Rather than going to big
issues, we spent a lot of time nickel and diming,” the aide said.

A Friday jobs report showing the unemployment rate rose to 9.2% in June hardened the Republican argument against tax hikes.

“I’m for the biggest deal possible,
too,” Mr. McConnell said in an interview on Fox News Sunday. “But we’re
not going to raise taxes in the middle of this horrible economic
situation.”

People briefed on the Sunday meeting
said Mr. Obama told congressional leaders they should meet every day
until they reach a deal.

Treasury Secretary Timothy Geithner
said Sunday the parties should agree on the outlines of a deal this week
to meet the Aug. 2 deadline.

Mr. Geithner also said the financial
markets could soon begin to react with concern, which could drive up
interest rates and make borrowing more expensive.

The president told the lawmakers
Sunday night he would reject a series of short-term debt ceiling
increases because they would create too much uncertainty.

Messrs. Obama and Boehner began to
seriously negotiate a $4 trillion deficit-reduction deal the week of
June 27, when the speaker indicated he was open to raising revenues
through the tax code, a senior administration official said.

To generate the revenue Mr. Obama
needed to make a $4 trillion deal palatable for Democrats, Mr. Boehner
agreed to explore letting the Bush-era tax cuts for the wealthiest
Americans expire as scheduled in January 2013, while extending the cuts
for Americans making under $250,000 a year.

In exchange, Mr. Obama would agree to
significant savings in Medicare, Medicaid and Social Security and
comprehensive tax reform to simplify the tax code and lower rates by
early 2012.