U.S. debt panel meets for first time, vow compromise (Reuters)

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Boehner: House will compromise on debt limit (AP)

WASHINGTON – House Speaker John Boehner predicted Thursday that a majority of House Republicans will end up supporting some kind of compromise as the Senate began debating a House-passed effort to tie an increase in the debt ceiling to conservative demands for a balanced budget amendment to the Constitution.

Majority Leader Harry Reid, D-Nev., called up the measure to placate Republicans demanding a vote. But he said it "doesn't have one chance in a million of passing the Senate."

At a news conference, Boehner told reporters, "Frankly, I think it would be irresponsible on behalf of the Congress and the president not to be looking at back-up strategies for how to solve this problem."

"At the end of the day, we have a responsibility to act," the Ohio Republican said.

Asked whether GOP lawmakers supporting the House's "cut, cap and balance" debt limit measure would be unwilling to ultimately compromise, Boehner said, "I'm sure we've got some members who believe that, but I do not believe that would be anywhere close to the majority."

Meanwhile, White House spokesman Jay Carney reported little progress from private meetings President Barack Obama held Wednesday with Boehner and House Majority Leader Eric Cantor, and separately with congressional Democratic leaders.

"There is no deal, we are not close to a deal," Carney said.

"There is no progress to report but we continue to work on getting the most significant deficit reduction package possible because we think it's the right thing for the economy," he said.

Boehner's talk of possible accommodation in the protracted political stalemate over federal budget policy came as the Senate took up the tea party-backed House legislation Thursday. It ties an increase in the government's borrowing authority to a series of conservative demands, including immediate spending cuts and a constitutional balanced budget amendment.

Democrats argue that the so-called "cut, cap and balance" measure would impose untenable spending restraints and set spending levels, as a percentage of the overall economy, on par with the mid-1960s — before the advent of Medicare and automatic Social Security cost-of-living adjustments.

The development Thursday reflected the reality that there's more talk than progress as official Washington wrangles daily over finding a way out of a debt dilemma that has the government sliding inexorably toward a first-ever default on its financial obligations.

Senate Minority Leader Mitch McConnell, R-Ky., said Thursday the legislation now before his chamber would be an opportunity for lawmakers to "go on record in support of balancing our books or against it." He urged Democrats to join GOP senators in backing it.

Democrats are expected to kill the measure — which they say would demand debilitating cuts to Medicare — in a vote on Saturday if not before.

Meanwhile, momentum on a separate bipartisan budget plan by the Senate's "Gang of Six" seemed to ebb as critics warned the measure contains larger tax increases than advertised and it became plain that the measure comes too late and is too controversial to advance quickly — particularly as a part of a debt limit package that already would be teetering on a knife's edge.

Sen. Kent Conrad, D-N.D., a member of the Gang of Six, said Thursday that some 40 senators of both parties back the plan his group has brought forward. It generally takes 60 votes to pass legislation in the 100-member Senate because the rules permit unlimited debate unless a supermajority votes to limit it.

But Conrad also said he feels there's too little time between now and Aug. 2 to complete a comprehensive package of spending cuts, benefit program changes and an overhaul of the tax code.

Conrad said doing nothing is not an option, saying that "we're all going to have to do things we'd prefer in a perfect world not to have to do."

Absent a breakthrough between Obama and Republicans, there is a hotly contested backup plan by McConnell that would give Obama broad new powers to obtain increases in the government's borrowing unless blocked by veto-proof two-thirds margins in both the House and Senate.

Many conservative Republicans are in an uproar over the McConnell plan, and more than 70 House members signed a letter circulated by members of the conservative Republican Study Committee calling on Boehner to come out in public opposition to the McConnell-Reid plan..

In a shift, said Wednesday that Obama would back a short-term deal to prevent a disastrous financial default on Aug. 2 but only if a larger and still elusive deficit-cutting agreement was essentially in place.

Officially, the president continued to push for a big compromise that would cut the nation's budget deficit and extend the government's tapped-out borrowing power above the current $14.3 trillion cap. Obama had threatened to veto any stopgap expansion of the nation's debt limit, at one point last week even challenging House Majority Leader Eric Cantor, R-Va., not to call his bluff about it.

Carney said if a divided Congress and the White House can agree on a significant deal, Obama would accept a "very short-term extension" of the debt limit to let bigger legislation work its way through Congress.

Obama also is open to the McConnell plan, but it seems barely aloft due to fervent tea party opposition in the House. The hope appears to be that such an option will look a lot better to the House in a week or so, given the lack of other ideas.

The Gang of Six plan has come under assault from critics like House Budget Committee Chairman Paul Ryan, R-Wis., who say the plan would increase taxes by $2 trillion over the next 10 years instead of the $1 trillion-plus claimed by proponents like Conrad — a development likely to stunt momentum among Republicans.

The revenue increase is larger than advertised because the $1.2 trillion in new taxes comes on top of an underlying assumption used by Obama's deficit commission — and incorporated by the Senate group in its plan — that the Bush-era income tax brackets for family income exceeding $250,000 would revert to the higher, Clinton administration levels. The deficit panel's assumption was made before Obama buckled in December and signed a full extension of the Bush tax cuts.

The Gang of Six plan also earned poor reviews from liberals like Rep. Jerrold Nadler, D-N.Y., who said it would "balance the budget on the backs of the vulnerable."

And Rep. Howard "Buck" McKeon, R-Calif., who is chairman of the House Armed Services Committee, blasted the plan in a missive to his panel members, saying it would cut the Pentagon much too deeply and would unfairly curb military health and retirement benefits.

The Gang of Six plan promises almost $4 trillion in deficit cuts, including an immediate 10-year, $500 billion down payment that would come as Congress sets caps on the agency budgets it passes each year. It also requires an additional $500 billion in cost curbs on federal health care programs, cuts to federal employee pensions, curbs in the growth of military health care and retirement costs, and modest cuts to farm subsidies.

Conrad made his remarks in an interview Thursday on MSNBC.

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Latest House debt plan may lead to compromise (Reuters)

WASHINGTON (Reuters) – The latest Republican plan to avert a looming U.S. default is a fierce statement of conservative principles that pushes the party's negotiating position farther to the right.

That's why it may be the first step on the road to compromise.

By giving Tea Party conservatives in the House of Representatives a chance to take their favored legislation as far as it will go, House Speaker John Boehner may buy himself some needed goodwill from a vocal segment of his party that has sometimes viewed his deal-making efforts with suspicion.

That could make it easier for Boehner to eventually pass legislation that could be acceptable to President Barack Obama and the Democratic-controlled Senate, clearing the way for an increase in the debt ceiling before August 2 when the federal government faces a default on its financial obligations.

Even as Boehner touted his party's latest plan at a news conference on Friday, he left open the possibility that the House may take up a compromise being shaped in the Senate that so far has failed to catch on with junior lawmakers.

"The cut, cap and balance plan that the House will vote on next week is a solid plan for moving forward. Let's get through that vote, and then we'll make decisions about what will come after," he said at a news conference.

The cut, cap and balance bill conditions a debt-limit increase on passage of a constitutional amendment that would require the federal government to balance its books each year.

Constitutional amendments require a two-thirds vote. That's not likely in the Democratic-controlled Senate, and may even be a stretch in the House.

Even if it were to pass Congress, the amendment would not take effect until at least 38 of the 50 state legislatures ratify it.

Economists say a balanced-budget requirement would tie the federal government's hands during a recession, when tax revenues plummet and welfare costs rise, by forcing it to slash spending or raise taxes.

"That would make a recession worse," said Dan Seiver, a professor of finance at San Diego State. "It's exactly the opposite of what intelligent fiscal policy should do."

SMART POLITICS

But it's smart politics. Polls show that the public, and especially Republican voters, favor a balanced-budget requirement by wide margins.

"This is a vote where ... the House Republican majority gets to align itself with the American public at large," said Kevin Madden, a Republican strategist and former Boehner spokesman.

Some Democrats have lined up behind a balanced-budget amendment, but few are expected to back the Republican version, which also limits spending to 18 percent of gross domestic product and requires a two-thirds vote for tax increases.

The House is expected to vote on the cut, cap and balance plan on Tuesday, but has not yet set a vote for the balanced-budget amendment.

The Senate could vote on several balanced-budget amendments next week, a Democratic aide said. All are expected to fail.

That would clear the way for a so-called "Plan B" introduced last week by Senate Republican Leader Mitch McConnell, which would essentially pin the onus for a debt-ceiling increase on Obama and his Democrats.

Senate Democratic Leader Harry Reid is currently working with McConnell to make the plan more palatable to his party.

Democrats want to include about $1.5 trillion in spending cuts, including military cuts, along with a payroll tax-cut extension to boost the economy and an agreement on funding levels for the coming two fiscal years to avoid further budget showdowns, aides said.

The plan would also include a special deficit-reduction committee, made up of equal numbers of Republicans and Democrats, that would examine more sensitive budget topics like taxes and benefits. The panel would be guaranteed a vote on its findings, due by the end of the year.

House Republicans and outside conservative groups have been cool or hostile to the plan so far. While McConnell hopes to win control of the Senate in the 2012 elections by embarrassing Democrats, House Republicans are focused on delivering the deep spending cuts they promised voters last fall.

They might warm to McConnell's plan if they are allowed input on the spending cuts, as a Democratic aide suggests.

The failure of cut, cap and balance, coupled with an increasingly frantic lobbying campaign by business allies, could soften their opposition as August 2 approaches.

A sharp drop in the markets could change minds as well.

"What may look like something less than optimal today, if we're unable to get to an agreement might look pretty good a couple of weeks from now," Boehner said at a news conference on Thursday. "I think it's an option that may be worthy at some point."

(Editing by Eric Beech)

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Obama urges compromise, 'shared sacrifice' on debt (AFP)

WASHINGTON (AFP) – Insisting he is "willing to compromise," President Barack Obama called on US lawmakers Saturday to quickly forge a deal that would avert an early August debt default by the world's richest nation.

Obama has warned of economic "Armageddon" should Congress fail to raise the debt limit to allow more US borrowing, with his administration highlighting disastrous ripple effects that would churn through the global financial system.

But after five straight days of crisis talks ended Thursday without a clear solution, by the weekend Obama was imploring his fellow Democrats and opposition Republicans to engage in "shared sacrifice" to help break a stalemate that has led ratings agencies and top US lender China to sound the alarm over US credit worthiness.

"I'm willing to compromise. I'm willing to do what it takes to solve this problem, even if it's not politically popular," Obama said in his weekly radio address.

"And I expect leaders in Congress to show that same willingness to compromise," he added.

"Simply put, it will take a balanced approach, shared sacrifice, and a willingness to make unpopular choices on all our parts."

On Friday he said he had given top lawmakers 24 to 36 hours to talk to their rank and file and return to him with a viable plan. That time window essentially ends mid-day Saturday.

The US government reached its debt limit of $14.29 trillion in May, and since then the Treasury Department has used special measures to allow the government to keep paying its bills.

But unless the limit is raised by August 2, the Treasury says, growing spending and debt service commitments will force a default.

On Friday, Obama renewed his call for a "grand bargain" which would cut domestic entitlement programs dear to Democrats.

"And it means taking on the tax code, and cutting out certain tax breaks and deductions for the wealthiest Americans," said Obama, although Republicans have flatly rejected his call for higher taxes on the rich.

The president, sure to be judged in the 2012 elections based on his handling of the jobs-poor US economy, also signaled he would not reject a last-minute compromise key lawmakers were drafting behind closed doors.

"Let's at least avert Armageddon," he told a White House press conference.

Economists and finance and business leaders have warned that failure to raise the US debt ceiling by August 2 could send shock waves through a world economy still reeling from the 2008 collapse.

Ratings agencies Moody's and Standard & Poor's have warned they may downgrade Washington's sterling Triple-A debt rating, and leading US creditor China, Wall Street titan JPMorgan Chase and the Federal Reserve have also sounded the alarm.

With the United States "running out of time," as Obama put it, his top Republican foes in Congress called for votes next week on their plan for severe spending cuts on the way to amending the US Constitution to require cash-strapped Washington to balance its budget.

"Our jobs crisis and national debt require real action. So now the debate will move from a room in the White House to the House and Senate floors," said Republican Senate Minority Leader Mitch McConnell.

"It's time for the Democrats to get serious as well. We asked the president to lead. We asked him to put forward a plan -- not a speech, a real plan -- and he hasn't. We will," said Republican House Speaker John Boehner.

The long-shot Republican plan, all but certain to fail in the Democratic-led Senate, pleased conservative lawmakers close to the "Tea Party" movement that fiercely opposes raising the debt limit and seeks deep spending cuts.

In his Friday remarks, the president left open the door to a "fall-back position" being crafted by McConnell and Democratic Senate Majority Leader Harry Reid that would pair spending cuts with a debt limit increase, but called it the "least attractive option" apart from default.

That measure, described by aides who warned it was still in flux, would include some $1.5 trillion in spending cuts but would essentially let Obama raise the debt ceiling with only Democratic support in Congress.

Obama assailed the Republican refusal to support his call for raising taxes on the rich and wealthy corporations, warning a default would amount to "a tax increase on everybody" in the form of skyrocketing interest rates.

Republicans have argued that tax hikes would smother investment that feeds job growth at a time when the US economy faces stubbornly high unemployment of 9.2 percent.

US Senator Orrin Hatch of Utah, who delivered the weekly Republican address Saturday, restated the party's opposition to tax hikes and stressed a balanced budget amendment to the US Constitution was "the only long-term solution."

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Obama, lawmakers search for debt compromise (Reuters)

WASHINGTON (Reuters) – President Barack Obama and congressional leaders emerged from talks on Thursday still far apart on ending a deadlock over spending and taxes and said negotiators will work through the weekend in search of a compromise that would avoid a debt default.

Obama and congressional leaders aimed for a broad deal in negotiations that could involve changes to popular entitlement programs like Social Security. This follows weeks of acrimony and political finger-pointing.

Obama, briefing reporters after 90 minutes of talks with congressional leaders, said both sides were still far apart and that negotiators will work through the weekend to find each side's bottom line.

He said he will hold another round of talks with House of Representatives Speaker John Boehner, Washington's top Republican, and other lawmakers on Sunday for what he hopes will be "the hard bargaining that's necessary to get a deal done."

"Everybody acknowledged that there's going to be pain involved politically on all sides but our biggest obligation is to make sure that we are doing the right thing," he said.

An August 2 deadline is looming to raise the $14.3 trillion debt ceiling. Failure to do so would risk tossing the government into default, a move that could push the country back into recession and send shock waves through financial markets around the globe. Obama wants a deal by July 22 to avoid rattling markets.

"We're in the end game here," said White House spokesman Jay Carney.

Normally a routine vote, the debt ceiling has been embroiled in partisan politics, with Republicans seeking to impose deep spending cuts to reduce the $1.4 trillion budget deficit and satisfy their conservative Tea Party supporters.

Obama, seeking to avoid angering his liberal base ahead of his 2012 re-election bid, wants tax increases on the wealthy to lessen the pain of spending cuts.

"I want to emphasize that nothing is agreed to until everything is agreed to and the parties are still far apart on a wide range of issues," Obama said.

Boehner repeated ahead of the talks that Republicans are "not interested in raising taxes."

He said, however, that comprehensive tax reform is on the table and that changes are needed in benefit programs for the poor and elderly to ensure their long-term viability.

"We believe that comprehensive tax reform, both on the corporate side and the personal side, will make America more competitive, help create jobs in our country, and is something that is under discussion," Boehner told a Capitol Hill news conference.

With Republicans showing new flexibility on taxes, Democrats say Obama will push negotiators to double their target to $4 trillion in budget savings over 10 years.

That would be an ambitious goal, but there have been a few hints of progress since talks hit a brick wall two weeks ago.

Obama and Boehner have recently discussed broadening the deal to tackle politically sensitive overhauls of the tax code and benefits like Social Security, Medicare and Medicaid, a Republican aide said.

(Additional reporting by Laura MacInnis, Matt Spetalnick, Richard Cowan, Rachelle Younglai, Tim Reid and Caren Bohan; Editing by Vicki Allen)

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