GOP, White House Talk Deal on Debts –

GOP leaders and the White House are discussing a deal that would enact strict deficit targets and some spending cuts to win Republican votes for lifting the ceiling on how much the federal government can borrow.

The deal would defer contentious decisions about Medicare, Medicaid and taxes until after the 2012 elections. If such an agreement were reached, it would allow both sides to assure financial markets and the public of their commitment to reducing the deficit and then use next year’s campaign to lay out their competing visions for the future of major government programs.

“We’re not going to get a grand slam agreement. We’re not going to get a big, comprehensive agreement, because of the political parameters,” Rep. Paul Ryan, the Wisconsin Republican who chairs the House Budget Committee told reporters Wednesday. “My hope at this moment is to get a single or a double.”


Mr. Ryan’s outline is strikingly similar to those administration officials have been using privately, an indication that any compromise is likely to include the elements he described:

• Cuts or mandated limits on government spending programs that must be approved each year, such as for defense programs and regulatory agencies. This type of expense accounts for 39% of current federal spending.

• Cuts or limits on so-called mandatory spending, such expenses for farm subsidies, food stamps, federal employee retirement, student loans and housing subsidies that don’t require yearly appropriations. Mr. Ryan suggested a deal could exclude, for now, the biggest of these expenses: Medicare and Medicaid health insurance programs and Social Security.

• Targets that would aim to bring the deficit below 3% of gross domestic product by 2015, a goal that would require more spending cuts or tax increases than the legislated cuts would achieve.

• To enforce the targets, automatic and credible spending cuts would be required if the Congressional Budget Office says policies in place won’t meet those goals; the administration wants both automatic spending cuts and tax increases.

Republicans would then be free to tell voters they can reach those goals in the coming years almost exclusively by cutting spending on benefit programs. Democratic candidates could argue that some tax increases, particularly on upper-income Americans, also are needed to close the budget gap.

“I’m hoping the debt limit is the opportunity to get a down payment on some spending cuts, to get a down payment on some spending reform to put the crisis off,” Mr. Ryan said, speaking at a breakfast hosted by Bloomberg News.

Mr. Ryan’s formula echoes one that Treasury Secretary Timothy Geithner has been describing.

“It’s the right time, and it’s the necessary time, to build a bipartisan consensus on fiscal reforms that will…get our debt on a path where it’s falling as a share of the economy,” Mr. Geithner said Wednesday in remarks to the Investment Company Institute. “The challenge we face is to try to lock those reforms in with a set of clear, explicit targets…complemented by an agreement on spending savings where we can identify that.”

Mr. Geithner said this approach was necessary because “we’re not going to solve in two months” thornier issues, such as taxes, Medicare and Medicaid.

The Treasury estimated this week that if the debt ceiling, now at $14.294 trillion, is not raised, a range of payments would be stopped, limited or delayed on Aug. 2, including Social Security and Medicare checks, tax refunds, interest on the debt and unemployment insurance.

The Treasury says its borrowing is growing by $125 billion a month. At that rate, it would need a $1.5 trillion debt-ceiling increase to get through one year.

Striking a deal by early August is “a reasonable time frame,” Mr. Ryan said. But aides to other senior Republicans cautioned that an agreement on the framework that Mr. Ryan and Mr. Geithner have described would require substantial negotiation over key details. Republicans, for instance, want legislated caps or targets for government spending as a percent of GDP, not deficits. Democrats and the White House, in contrast, want limits on debt or deficit limits, which leaves open the possibility of raising taxes.

Both sides face political challenges. Republican leaders have to satisfy spending foes among their rank and file. President Barack Obama, meanwhile, faces resistance from liberals who fear he is too willing to cut social spending to get a deal.

Administration officials are urging Congress to raise the debt ceiling before financial markets get nervous. “We’re not seeing a reaction in the market to date from these [debt ceiling] issues but we are very vigilant,” Mary Miller, assistant Treasury secretary for financial markets, said Wednesday. ” We want to make sure that the market is as confident as we are that Congress will act.”

Republican congressional leaders, though not all their rank-and-file members, say they will raise the debt ceiling in time. The issue is what to attach to it.

“If it’s just tinkering around the edges, I don’t think that’s going to fly,” Rep. Jim Jordan (R., Ohio), chairman of the conservative Republican Study Committee, said earlier this week. “It’s got to be real, substantive, game-changing changes in the law in order for conservatives and Republicans to support increasing the borrowing authority.”

Earlier this year, Mr. Ryan defined the contours of the fiscal debate with a deficit-reduction plan that relied entirely on spending cuts and a reshaping of Medicare and Medicaid. After that, Mr. Obama scrapped his February budget and offered an alternative plan with fewer spending cuts and significant tax increases. At Mr. Obama’s instigation, Vice President Joe Biden, accompanied by top Obama administration economic officials, will meet Thursday with six lawmakers aimed at fashioning a deficit-reduction compromise.

In a letter to Mr. Biden Wednesday, Republicans asked the White House to specify how much of a debt-limit increase it wants along with a more detailed deficit-reduction plan. “We believe a detailed proposal from the President will be key to the success of the working group,” they wrote.

Conversations between administration officials and key Republicans have been taking place outside that forum. A separate bipartisan group of senators, dubbed the Gang of Six, has been working on a compromise deficit-reduction plan, but has yet to produce it.

A deal that would only force later action would be a blow to antideficit hardliners, who don’t want to put off tough choices until after the election. The administration sees a specific target, sometimes known as a “fiscal rule,” as a significant signal to financial markets that politicians are capable of managing government finances responsibly.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, an antideficit group, said talk of budget-process legislation is reminiscent of the December 2010 deal in which White House and congressional Republicans agreed to accept either other’s tax cuts: “Let’s both agree to do something that doesn’t hurt.’

Be careful…