WASHINGTON — President Barack Obama and Congress need to strike a debt-reduction deal by mid-July to avoid panicking financial markets, officials familiar with the talks said Friday, as nervous senators gave up their Fourth of July recess next week to stay in Washington to work on an agreement.
The Obama administration thinks a deal must be reached by July 15-22 in order to get the legislation written and through Congress in time to avoid a default in early August, according to Democratic officials with personal knowledge of the talks. They spoke on the condition of anonymity because they set the rules of access.
"We have a shrinking window," one of them said. "We are creeping up on that moment."
The growing urgency came a day after the president told a nationally televised news conference that lawmakers should try to resolve the impasse over how to reduce federal deficits rather than take the recess.
Several weeks ago, 46 Republicans urged Senate Democrats to cut the Memorial Day recess short, and Sen. Jeff Sessions, the top Republican on the Senate Budget Committee, renewed the request this week to cut the Fourth of July recess short.
Senators left the Capitol on Thursday afternoon and had been scheduled to return July 11; instead, they'll be back Tuesday. Members of the House of Representatives return Wednesday after a 11-day break.
"It is often said that with liberty comes responsibility. We should take that responsibility seriously. I know I do," said Senate Majority Leader Harry Reid, D-Nev.
Looming is an Aug. 2 deadline either to raise the nation's debt limit, currently $14.3 trillion, or face government default, which could trigger chaos in financial markets and kick the economy back into recession. Lawmakers would attach a debt-reduction agreement to that legislation.
No new debt-reduction negotiations have been scheduled, though Reid has invited Obama and Vice President Joe Biden to meet with Senate Democrats next Wednesday.
Early Thursday, Senate Republican leader Mitch McConnell of Kentucky asked the president to visit the Capitol and meet, and perhaps have lunch, with the Senate's 47 Republicans later in the day.
"That way he can hear directly from the Senate Republicans why what he's proposing won't pass," McConnell said, "and we can start talking about what's actually possible."
But White House spokesman Jay Carney said Obama didn't need to hear from GOP lawmakers Thursday because "We know what that position is ... that's not a conversation worth having."
The Democrats said that recent negotiations with top Republicans led by Biden behind closed doors had produced a broad, very sketchy agreement to cut spending and interest payments by $480 billion over 10 years. They stressed that none of the agreements is final until the package is finished.
- About $200 billion cut over 10 years from mandatory spending on Medicaid and Medicare.
- About $200 billion from other mandatory spending, including federal retirement benefits and farm subsidies.
- Cutting that $400 billion would save about $80 billion in interest payments on the federal debt.
They have no agreement yet on discretionary spending, which includes defense as well as a host of domestic programs. Obama has proposed cutting about $900 billion from those programs and the Republicans have proposed about $1.7 trillion. One Democrat said that probably would yield agreement on at least $1 trillion in cuts to that sector. A split-the-difference compromise would cut $1.3 trillion.
Interest savings on $1.3 trillion would total about $260 billion, the officials said.
Taken together, that would add up to about $2 trillion in reduced spending over 10 years. One Democratic official called it a $2 trillion-plus down payment on a $4 trillion problem.
The president also proposes an agreement to trigger further spending cuts if the deficit isn't reduced enough. "The savings would get you the rest of the way to $4 trillion," one Democrat said.
"That's a substantial down payment," the official said.
He said that alone could be enough to show bond-rating firms that the government was getting serious about the deficit, and should maintain the government's high ratings on its bonds.
"They didn't think the political system could make any changes," he said.
The flash point is over how much revenue will be in the mix. Obama has proposed about $418 billion in tax increases over 10 years, the Democrats said.
- $290 billion by limiting income tax deductions for individuals who make more than $200,000 a year and households that earn more than $250,000.
- $60 billion in business taxes by taking away the accounting tax break called LIFO - Last in, First Out.
- $45 billion in taxes on the oil and gas industry.
- $20 billion in taxes on hedge fund managers by treating their income as ordinary income, not capital gains, which are taxed at a lower rate.
- $3 billion in taxes on corporate jets.
Republicans remained skeptical that the president will be an honest broker in any negotiations, and adamant that they won't accept higher taxes.
Obama has a tendency to lecture rather than listen, said Sen. Pat Roberts, R-Kan.
"Maybe if he'd just take a Valium and calm down and come on down and talk to us it might be helpful," he said.
But if he wants to talk taxes, others said, it will be a short meeting.
"All of us know that Congress isn't going to approve hundreds of billions of dollars in tax hikes. It's not going to happen," McConnell said. "We've known that for six months, and we've been saying it all along."
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