Illinois Government Consultants Incorporated

The Federal Reserve chairman, Ben S. Bernanke, warned on Wednesday of a “huge financial calamity” if President Obama and the Republicans cannot agree on a budget deal that allows the federal debt ceiling to be increased. Moody’s, the ratings agency, threatened a credit downgrade, citing a “rising possibility” that no deal would be reached before the government’s borrowing authority hits its limit on Aug. 2.

And the latest bipartisan negotiating session on Wednesday evening ended in heightened tension. Republicans said Mr. Obama had abruptly walked out in an agitated state; Democrats described the president as having summed up with an impassioned case for action before bringing the meeting to a close and leaving.

Across Washington, officials were weighed down with a sense that they were hurtling toward a crisis. Grim-faced lawmakers spent the day shuttling from meeting to meeting in search of a way out of the fix.

The stakes are high, for the economy, the financial markets and both parties. But the pressure was particularly intense on Republican leaders, who only weeks ago seemed to be on the offensive and in a strong position to extract major concessions from Mr. Obama and the Democrats.

For months, the Republican leaders have emphatically pledged that there will be no increase in the federal debt ceiling absent huge cuts in government spending and fundamental changes in popular social programs, all without the whiff of a tax increase.

Now, with negotiations stalled and a potential default by the United States government just over the horizon, they are being held to those promises by their own rank-and-file, leaving them in a bind that is defying easy resolution and putting them at risk of being blamed if things end badly.

Behind closed doors and by phone, they groped for a solution and struggled to assert some kind of control over the situation as rank-and-file Republican members, especially in the House, grew more confrontational.

Panic had not yet set in, but the worry and tension were evident as seasoned lawmakers of both parties whose experience told them that Congress always finds a white-knuckle way to avert disaster wondered if this was going to be the time when it did not.

“Our problem is, we made a big deal about this for three months,” said Senator Lindsey Graham, Republican of South Carolina.

“How many Republicans have been on TV saying, ‘I am not going to raise the debt limit,’ ” said Mr. Graham, including himself in the mix of those who did so. “We have no one to blame but ourselves.”

Potential last-minute options were being gamed out around Capitol Hill. Senate Republicans were pushing their counterparts in the House to deliver some legislation, which could take the form of a balanced budget plan due on the House floor next week. A bipartisan group that had been working on a major deficit-cutting plan in the Senate was trying again to produce a proposal.

And Senator Mitch McConnell of Kentucky, the Republican leader and procedural maestro, was pushing his plan that would allow a debt limit increase to clear Congress without Republican fingerprints — and without the guaranteed cuts many in his party are demanding. He would establish an elaborate process where Congress would vote to disapprove instead of approve a debt limit request. That would allow the president to raise the debt ceiling via a successful veto of the disapproval if it came to that.

Despite resistance from conservatives and the initial unease many lawmakers expressed at such a slippery approach, the McConnell gambit was gaining credence as the best escape hatch. Senate Democrats went virtually silent on the idea for fear of jinxing it. While the White House said it was not the preferable option, it was viewed inside the West Wing as a real option nonetheless, even if it would transfer to Mr. Obama and his party all the political responsibility for a debt limit increase.

Some of Mr. McConnell’s colleagues were coming around to it as the reality of a possible default began to sink in.

“I strongly support Senator McConnell’s efforts to avoid a default on our nation’s debt, and the last-case emergency proposal he outlined yesterday to ensure that Republicans aren’t unduly blamed for failure to raise the debt ceiling,” said Senator John McCain, Republican of Arizona.

But with House Republicans showing little to no appetite for Mr. McConnell’s plan, top lawmakers in both parties were looking for ways to sweeten the deal, perhaps by adding required spending cuts or somehow forcing consideration of a deficit-reduction package. Mr. McConnell portrayed his proposal as a last-stand way to spare Republicans from being blamed for a default if no alternative plan could be approved.

Recounting how the 1995 government shutdown helped President Bill Clinton win re-election the following year, Mr. McConnell said any impasse that drove down the nation’s credit rating and led to government checks being delayed could have the same result for Mr. Obama.

“He will say Republicans are making the economy worse,” Mr. McConnell said in an interview with the conservative radio host Laura Ingraham. “It is an argument that he could have a good chance of winning, and all of the sudden we have co-ownership of the economy. That is a very bad position going into the election.”

After the meeting at the White House, Republicans and Democrats offered differing versions of what by all accounts was a tense session.

Representative Eric Cantor of Virginia, the House majority leader, said he raised the idea of taking what savings could be achieved now — roughly $1.4 trillion — and then having additional votes to raise the debt limit again before the elections in November 2012, with Republicans ultimately seeking a total of at least $2.4 trillion in cuts with no tax increases.

At this, Mr. Cantor said, the president “got very agitated, seemingly.” Mr. Cantor quoted the president as saying: “Eric, don’t call my bluff. I’m going to the American people with this.”

Then, Mr. Cantor said, “He shoved back and said, ‘I’ll see you tomorrow’ and walked out.”

“I was a little taken aback,” Mr. Cantor added.

Democrats said that Mr. Obama’s departure was not abrupt, but that he had forcefully made a case that Republicans had been unwilling to compromise. “Enough’s enough,” one Democrat familiar with the talks quoted Mr. Obama as saying.

Democrats said Mr. Obama had set a deadline of Friday for the two sides to determine whether they could reach a broad budget deal. If not, he said, they will turn to finding an accord over how to raise the debt limit without agreement on taxes and spending.

In Asia, Moody’s threat to downgrade the United States’ credit rating dragged down the U.S. dollar. The dollar was set for its steepest two-day loss against the euro in five weeks, Bloomberg reported, declining 0.3 percent in Tokyo by mid-afternoon Thursday, and hit a fresh four-month low against the yen.

Investors also rushed to buy assets seen as safer, like gold, which hit a record high on Thursday at over $1,589 an ounce.

——————

Source:  The New York Times

 President Obama tried on Sunday to revive the chances for a sweeping budget agreement to reduce the nation’s deficit and repair its perilous finances, but Congressional Republicans continued to balk, insisting on a more modest deal to avert a default on the national debt.

Mr. Obama, meeting with leaders from both parties at the White House, bluntly challenged Republicans a day after Speaker John A. Boehner pulled back from a far-reaching agreement aimed at saving as much as $4 trillion over 10 years, officials briefed on the negotiations said. The meeting ended after an hour and 15 minutes with little progress, but the two sides agreed to resume talking Monday, and every day after that, until a deal is done.

White House officials said Mr. Obama was still determined to pursue the boldest package possible — one that would require new tax revenue as well as cuts in Medicare and other entitlement programs — but he faces steadfast opposition from Republicans and growing qualms among Democrats.

“Congress has to act,” Treasury Secretary Timothy F. Geithner said on the CBS News program “Face the Nation.” “If they don’t act, then we face catastrophic damage to the American economy, and the leadership, to their credit, and I mean Republicans and Democrats, fully understand that.”

Mr. Geithner, noting that the Treasury issues 80 million checks a month, including Social Security payments to 55 million Americans, warned that failure to reach an agreement within the next two weeks could be calamitous. Delivering a version of the lecture he gave to the lawmakers at the White House last week, Mr. Geithner said a default would unhinge financial markets, drive up interest rates, and derail the economic recovery.

Mr. Obama, who arrived from Camp David shortly before the Sunday evening session, appeared to have made headway in at least one regard: lawmakers from both parties pledged not to let the United States default on its debt. That is what the Treasury said would happen after Aug. 2, when the government would lose its authority to borrow.

“Nobody is talking about not raising the debt ceiling; I haven’t heard that discussed by anybody,” the Senate minority leader, Mitch McConnell of Kentucky, said on “Fox News Sunday,” adding that he had an unspecified “contingency plan” to raise the ceiling if the talks fell apart.

Just as Mr. Obama was sitting down with Mr. McConnell and other leaders shortly after 6 p.m. on Sunday, with the men wearing open-collar shirts and blazers, he was asked whether he could get a deal done in 10 days, leaving enough time to draft and pass legislation before Aug. 2.

“We need to,” he replied.

The problem for Mr. Obama is that Republicans are not budging on their demand that any deal include no tax increases. The administration also needs Democratic lawmakers, but for many of them, it will be impossible to vote for a package composed entirely of spending cuts, especially to popular programs.

In a statement after the meeting, Mr. McConnell’s spokesman, Don Stewart, said, “It’s baffling that the president and his party continue to insist on massive tax hikes in the middle of a jobs crisis.”

The House minority leader, Nancy Pelosi, said she favored a large deal but that it “must do no harm to the middle class or to economic growth. It must also protect Medicare and Social Security beneficiaries.”

It was not clear that the president would be able to reconcile these positions, especially after Mr. Boehner set a lower bar for a deal that both parties might find more palatable. In a statement issued after the meeting, Mr. Boehner said the leaders should aim for a midrange deal that would build on spending cuts identified in talks led by Vice President Joseph R. Biden Jr. Such a deal might produce savings of $2 trillion to $3 trillion over a decade.

Mr. Boehner appeared subdued at the meeting, officials said, letting the House majority leader, Eric Cantor of Virginia, do most of the talking. Mr. Cantor reiterated his opposition to a bigger deal.

Privately, some in Congress expressed regret at Mr. Boehner’s decision on Saturday to walk away from an agreement that they said would have been a rare opportunity for Republicans and Democrats to radically restructure the government’s finances, rewrite the tax code and fix longstanding problems with Medicare and Medicaid.

In the end, officials briefed on the talks said, ideological differences over a tax overhaul bogged down the bigger agreement. Mr. Boehner, they said, was open to letting Bush-era tax cuts for wealthy people expire, while maintaining the cuts for middle-income wage-earners. But Democrats briefed on the talks said he made that contingent on rewriting the tax code by the end of this year, so that the loss of the cuts would be offset by lower overall tax rates.

The White House, officials said, was willing to put a deadline on a tax overhaul. But it rejected Mr. Boehner’s formula, arguing that it would place too much of a burden on the middle class while protecting the rich.

A Republican official familiar with the negotiations said Mr. Boehner “would only discuss new revenues if they came from economic growth and tax reform instead of tax increases.” And he insisted on a “trigger” that would set off deep spending cuts and other measures if the tax changes were not implemented before the end of 2011.

Mr. Boehner and the White House, Democratic officials said, also disagreed over the scope of cuts to entitlement programs, with the speaker demanding deeper cuts in Medicare and Medicaid than the administration was willing to accept.

Mr. Obama is pushing for a bigger deal on the argument that it will, paradoxically, be easier for Democrats and Republicans to sell to their rank and file, because they could present it as a historic effort to begin undoing years of deficit spending.

As Mr. Geithner said on “Face the Nation,” “It’s not clear that it’s easier trying to do less.”

Indeed, the hurdles to even a $2 trillion deal are numerous and significant, officials briefed on the negotiations said. During several rounds of talks led by Mr. Biden, the two sides identified spending cuts, and lower interest payments that would result from a reduction of the debt, which would have saved about $1.8 trillion over 10 years. But officials cautioned that there was never a deal.

Republicans, led by Mr. Cantor, rejected proposals to close loopholes or other tax breaks for owners of corporate jets, oil and gas companies and hedge funds. They said these measures, which would have raised about $130 billion, amounted to tax increases.

The administration has also proposed limiting deductions for high wage-earners, which the White House says would raise $290 billion. But there is little support for that in Congress. And if there are no tax measures in the deal, the leaders say, they will not be able to corral enough Democratic votes to pass it.

Mr. Geithner’s warnings about the high stakes were echoed by Christine Lagarde, the newly appointed managing director of the International Monetary Fund. Speaking on “This Week” on ABC, Ms. Lagarde said that a default by the United States would cause “interest hikes, stock markets taking a huge hit, and real nasty consequences, not just for the United States, but for the entire global economy.”

————————-

Source:  The New York Times

President Obama and congressional leaders from both parties opened a new round of deficit-reduction talks Thursday aimed at breaking a stalemate over raising the nation’s debt limit.

The White House meeting, which began shortly after 11 a.m., came as Obama pressed lawmakers to consider a far-reaching debt-reduction plan that would force Democrats to accept major changes to Social Security and Medicare in exchange for Republican support for fresh tax revenue.

Before sitting down for the negotiations with Obama, Vice President Biden, top aides and Democratic lawmakers, House Republican leaders emphasized Thursday morning that progress toward as much as $2 trillion in deficit savings has already been made. But they also renewed their pledge to oppose the inclusion of any tax increases in a final deal.

House Majority Leader Eric Cantor (R-Va.), one of the participants in the talks, said Republicans will insist that spending cuts in a deficit-reduction package “exceed the amount of the debt ceiling increase.”

Administration officials say the ceiling on the amount the federal government can borrow must be raised to avert a potentially disastrous default.

The deficit-reduction talks led by Biden over the past two months “were premised on how we can find common ground,” Cantor told a Capitol Hill news conference. But he added: “I’ll make it clear, as I did then, that we as Republicans are not going to support tax increases.”

Boehner, who has met privately with Obama twice since Republicans walked out of the bipartisan talks late last month, said that “the conversations have gone on for weeks, both in the Biden group and between the president and myself, but there is no agreement.”

The remarks ahead of Thursday’s meeting indicated that GOP opposition to tax increases in the debt-limit discussions has not softened — despite a statement by Cantor on Wednesday that Republicans would consider closing some tax loopholes if such a move were offset by tax cuts elsewhere, as well as a new willingness on the part of the White House to consider major changes to Social Security and Medicare as part of a far-reaching deficit deal. House Republicans on Thursday reiterated their support for reform of such entitlement programs.

House Speaker John A. Boehner (R-Ohio) told reporters before the meeting with Obama that “comprehensive tax reform, both on the corporate side and the personal side,” is under discussion as the negotiators look for ways to close loopholes while also lowering tax rates for businesses and individuals. But he reiterated Republican opposition to tax increases on those he said are the economy’s main job creators.

In addition to Boehner and Cantor, the GOP participants in the talks included Senate Minority Leader Mitch McConnell (Ky.) and Senate Minority Whip Jon Kyl (Ariz.). Democratic lawmakers taking part included Senate Majority Leader Harry M. Reid (Nev.), Senate Majority Whip Richard J. Durbin (Ill.), House Minority Leader Nancy Pelosi (Calif.) and House Minority Whip Steny H. Hoyer (Md.). Also at the table were administration officials Jacob J. Lew, director of the Office of Management and Budget; Treasury Secretary Timothy F. Geithner; White House Chief of Staff William M. Daley; and Gene B. Sperling, director of the National Economic Council.

 Obama planned to argue at the meeting that a rare consensus has emerged about the size and scope of the nation’s budget problems and that policymakers should seize the moment to take dramatic action, officials said.

As part of his pitch, Obama is proposing significant reductions in Medicare spending and for the first time is offering to tackle the rising cost of Social Security, according to people in both parties with knowledge of the proposal. The move marks a major shift for the White House and could present a direct challenge to Democratic lawmakers who have vowed to protect health and retirement benefits from the assault on government spending.

Several Senate Democrats reacted cautiously Thursday to news of the president’s overture, indicating they had few details. But some expressed hesitancy about including Social Security in the debate over deficit-reduction.

“I think when the president does a deal, he ought to talk to the Democrats,” said Sen. Barbara Mikulski (D-Md.) . “Before we start tinkering with Social Security, I want to know how we’re going to straighten out the tax code.”

Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee, said he has never believed that Social Security trims should be used to reduce the debt.

“Any savings from Social Security should be used to extend the solvency of Social Security,” Conrad said.

But new offers from the president and Boehner represent “significant developments,” Conrad added. “I’m very encouraged by what I hear,” he said.

“Obviously, there will be some Democrats who don’t believe we need to do entitlement reform. But there seems to be some hunger to do something of some significance,” said a Democratic official familiar with the administration’s thinking. “These moments come along at most once a decade. And it would be a real mistake if we let it pass us by.”

Rather than roughly $2 trillion in savings, the White House is now seeking a plan that would slash more than $4 trillion from annual budget deficits over the next decade, stabilize borrowing, and defuse the biggest budgetary time bombs that are set to explode as the cost of health care rises and the nation’s population ages.

That would represent a major legislative achievement, but it would also put Obama and GOP leaders at odds with major factions of their own parties. While Democrats would be asked to cut social-safety-net programs, Republicans would be asked to raise taxes, perhaps by letting tax breaks for the nation’s wealthiest households expire on schedule at the end of next year.

Privately, some congressional Democrats were alarmed by the president’s proposal, which could include adjusting the measure of inflation used to determine Social Security payouts. But others described it as primarily a bargaining strategy intended to demonstrate Obama’s willingness to compromise and highlight the Republican refusal to raise taxes.

Obama has already spoken to Boehner about the possibility of building support for a more ambitious debt-reduction plan, according to people with knowledge of those talks, who, like others quoted in this article, spoke on the condition of anonymity to shed light on private negotiations. The two discussed various options for overhauling the tax code and cutting entitlement spending, but they reached no agreement.

 The administration argues that lawmakers would also get an important victory to sell to voters in 2012. “The fiscal good has to outweigh the pain,” said a Democratic official familiar with the discussions.

It is not clear whether that argument can prevail on Capitol Hill. Thursday’s meeting at the White House — an attempt by Obama to break the impasse that halted debt-reduction talks two weeks ago — provides a critical opportunity for leaders in both parties to say how far they’re willing to go to restrain government borrowing as the clock ticks toward an Aug. 2 deadline for raising the debt limit.    

Asked to comment, Boehner spokesman Michael Steel would say only that “there are no tax increases on the table.”

Meanwhile, another senior Republican on Wednesday signaled a new openness to raising taxes— at least for selected special interests. Cantor told reporters that he is now willing to consider Democratic demands to end tax breaks for corporations, hedge-fund managers and owners of corporate jets, so long as the final deal does not raise tax rates or overall federal tax collections.

“If the president wants to talk loopholes, we’ll be glad to talk loopholes,” Cantor said at his weekly roundtable with reporters. “We’ve said all along that preferences in the code aren’t something that helps economic growth overall. But listen, we’re not for any proposal that increases taxes, and any type of discussion should be coupled with offsetting tax cuts somewhere else.”

Among the options for cutting taxes are a number of proposals that should appeal to Democrats, said Cantor spokesman Brad Dayspring. They include a White House proposal to temporarily reduce payroll taxes for employers, an idea aimed at propping up the sputtering economy. Democrats also routinely support an annual effort to restrain the alternative minimum tax, which would otherwise strike heavily at households in high-cost urban areas that tend to vote Democratic.

Even as Cantor cracked the door open, however, McConnell slammed it shut, reiterating the long-standing Republican position that policymakers should consider eliminating tax breaks only as part of a comprehensive effort to rewrite the code and lower income tax rates.

“To sort of cherry-pick items in the context of this current negotiation with the White House strikes me as pretty challenging,” McConnell told reporters, adding that raising taxes on any sector of the economy could trigger job losses at a time when the unemployment rate hovers around 9 percent. “We want to tackle deficit reduction in a way that doesn’t exacerbate unemployment.”

Democrats, in any case, dismissed Cantor’s offer, saying it makes no sense to cut taxes in a package whose primary goal is to reduce borrowing.

“It is like taking one step forward and then two steps back,” said Sen. Charles E. Schumer (N.Y.). “The point isn’t to get rid of these loopholes simply to pay for new tax breaks elsewhere. It’s to do it in a way that contributes to the reduction of the debt.”

With Obama offering major savings from entitlement programs, Republican intransigence on taxes looms as the biggest sticking point in the debt negotiations. Policymakers are rushing to craft a debt-reduction deal big enough to persuade reluctant lawmakers to approve an increase in the legal limit on government borrowing, which now stands at $14.3 trillion.

The national debt hit the limit in mid-May. Unless Congress acts before Aug. 2, Treasury Secretary Geithner has said, the government will begin to default on its obligations for the first time in history.

———————-

Source:  The Washington Post

Surrounded by fields that grow corn, soybeans, melons and potatoes, this tiny rural village is 65 miles from Chicago but light years away from the big city. Still, St. Anne and a lot of the farm country around it have now been dragged into the metropolis as part of an ambitious political strategy focused on the 2012 national elections.   

A new census-based political map drawn by the state’s Democratic-controlled Legislature, and signed into law by Democratic Gov. Pat Quinn, has taken swaths of suburban and rural Illinois and added them to the districts of veteran Chicago Democrats such as U.S. Rep. Jesse Jackson Jr., who could be St. Anne’s next representative. 

The move was one of the boldest by the national political parties this year as they sought to benefit by changing political boundaries.   

The new map should help Democrats and hurt Republicans in Illinois in 2012, and boost the Democrats’ hopes for retaking control of the U.S. House. But it’s creating an awkward situation for some of the people who live in these rural areas, who could soon find themselves represented by officials who live in a very different universe.  

“He’s a long way from home, isn’t he?” said Scott Rigsby, a former warehouse worker who lives in the village of some 1,300 people, referring to Jackson’s political base on Chicago’s industrial South Side. For a hamlet that goes by the motto of “preserving a rural life,” Rigsby said, “We’re way too far away for him to have his own personal finger on this town.” 

The political maneuvering began this year when legislatures and governors began redrawing political districts with the new census data as required by law. Because Republicans won major gains in the midterm elections last fall, they had the upper hand in most states, and have been aggressively massaging boundaries to their advantage. 

But in Illinois, where Democrats control all branches of state government, the party had its prime opportunity. If the new map survives an expected GOP court challenge, Democrats could knock off as many as five GOP House members who now find themselves in districts with many more Democratic voters or much tougher competition.  

Jackson and four other Democratic congressmen would have districts that stretch like tentacles from Chicago to take in — and politically neutralize — suburban and rural areas that recently have sent Republicans to Congress. 

The effort is an important part of the Democratic Party’s national strategy. “Illinois and particularly the suburbs of Chicago have always been a center of gravity in our path to retake the House majority, because those districts have been competitive and will remain competitive,” Rep. Steve Israel of New York, chairman of the Democratic Congressional Campaign Committee, told reporters in Washington at a breakfast hosted by The Christian Science Monitor. Republicans now hold a 48-seat advantage in the House.  

The new map places four freshman Republicans and one veteran GOP lawmaker in districts where they would have to run against other incumbents in 2012. Jackson’s expanded territory would take away parts of the current district of U.S. Rep. Adam Kinzinger, one of the GOP freshmen whose victories in 2010 bolstered the tea party coalition in Washington. The new Jackson district even includes Kinzinger’s hometown of Manteno in Kankakee County.  

Karl Kruse, a farmer and the GOP county chairman, is not optimistic about Kinzinger’s prospects. “Reality is that this district was drawn in a way that I don’t think Adam could win,” Kruse said. 

For his part, Kinzinger will say only that he “will definitely be running again.” He wouldn’t say whether he’ll move somewhere else to do it. 

Elsewhere, the map would force freshman GOP Rep. Robert Dold to face veteran Chicago Democrat Jan Schakowsky, who won her race in 2010 with 66 percent of the vote. The reworked districts of other Chicago-area Democrats, including Reps. Daniel Lipinski and Mike Quigley, would now cut into Republican territory. 

Democrats defend their new congressional map as fair, competitive and in line with the Voting Rights Act, which requires map drawers to protect the interests of minorities. They say the expanding Chicago districts are the inevitable result of the state losing one congressional seat, from 19 to 18, because of its slowing population growth. 

Kankakee is Republican territory — the home of former Republican Gov. George Ryan, Kinzinger and many other elected officials over the years. Jackson isn’t exactly unknown here. The son of the Rev. Jesse Jackson, he has served in Congress for 15 years. But he’s known for his role in Chicago-area issues, such as the push for a third airport there, and inner-city causes.  

Jackson’s chief of staff, Rick Bryant, said the congressman is ready to serve a new crop of farm constituents. “We may have more in common than people believe,” Bryant said.  

But Kruse, the county GOP chairman, said Kankakee County voters care a lot about agriculture, and that Jackson supported so-called “cap and trade” environmental legislation, which farmers didn’t like because it would have increased regulation and the cost of diesel fuel and fertilizer.  

“For a legislator who has not had an agricultural community in his or her district before, it would be a challenge,” said Kankakee County Farm Bureau manager Chad Miller said. “But somebody as seasoned as Congressman Jackson is, I’m sure he’s up for that challenge.”  

At a tiny gas station in the village of Hopkins Park — population 837— 83-year-old John Bender said he’ll be interested to see what Jackson could do for the area if he wins the district in the 2012 election. 

“Sometimes the further it (politician) is the better it is; sometimes the closer it is the worse it is,” said Bender, who says he switched to become a Republican eight years ago. “So, if he does his job, that’s as good as anybody else.” 

———————

Source:  The State Journal Register - The Oldest Newspaper in Illinois

WASHINGTON — Congressional Republicans on Thursday abandoned budget talks aimed at clearing the way for a federal debt limit increase, leaving the outcome in doubt as they vowed not to give in to a Democratic push for new tax revenues as part of any compromise.

The breakdown was set off by the surprise decision of Representative Eric Cantor of Virginia, the House majority leader and one of two Republicans participating in sessions led by Vice President Joseph R. Biden Jr., to quit the negotiations.

This week’s talks were considered to be crucial as the Aug. 2 deadline for an increase in federal borrowing authority nears.

Mr. Cantor had previously expressed optimism that the sessions could produce a deal. But he announced he would not be attending Thursday’s scheduled meeting because Democrats continued to press for part of the more than $2 trillion savings target to come from moves like phasing out tax breaks.

“As it stands, the Democrats continue to insist that any deal must include tax increases,” Mr. Cantor said in a statement. “There is not support in the House for a tax increase, and I don’t believe now is the time to raise taxes in light of our current economic situation. Regardless of the progress that has been made, the tax issue must be resolved before discussions can continue.”

Senator Jon Kyl of Arizona, the No. 2 Senate Republican and the party’s other representative in the talks, said later Thursday that he would also skip the next negotiating session as he and Senator Mitch McConnell of Kentucky, the Republican leader, turned up the pressure on President Obama to play a larger role in the push for a debt limit deal.

“President Obama needs to decide between his goal of higher taxes, or a bipartisan plan to address our deficit,” Mr. McConnell and Mr. Kyl said in a joint statement. “He can’t have both. But we need to hear from him.”

The Republican maneuvering threw the talks into disarray in a week when those taking part had hoped an accelerated schedule of meetings could produce a breakthrough that would persuade members of both parties to support a debt ceiling increase in the coming weeks.

As events unfolded Thursday, a White House spokesman, Jay Carney, said the negotiations led by the vice president were now “in abeyance,” and he tried to play down the development by suggesting that the White House had expected that at some point the president would take charge of the talks. Exactly when that would happen was not clear, and Mr. Carney did not elaborate.

Senator Harry Reid, the Nevada Democrat and Senate majority leader, also said he expected that the talks would resume at a higher level, though he provided no timetable.

“With what Kyl and Cantor’s done, I think it’s in the hands of the speaker and the president and, sadly, probably me,” he told reporters.

While it had been assumed that the Congressional leaders and Mr. Obama would ultimately have to strike the final deal, the Biden talks were expected to extend at least through the end of the month. The Republican withdrawal was an unexpected and sudden interruption.

Congressional Democrats expressed disappointment at Mr. Cantor’s decision and maintained that revenues must be part of any agreement.

“We cannot balance the budget solely on the backs of the middle class,” said Representative James E. Clyburn, Democrat of South Carolina, a member of the House leadership taking part in the talks. “We simply must forge a bipartisan agreement. Failure is not an option, and I hope a bipartisan resolution will be achieved.”

Democrats have repeatedly said that they could not support a budget deal that relies solely on spending cuts and other program changes to produce the more than $2 trillion in savings. Officials said Wednesday’s negotiating session was unusually tense as Democrats sought to get Republicans to commit to some revenue increases in exchange for Democratic concessions on spending cuts.

Republicans knowledgeable about the events said Mr. Cantor decided to withdraw from the discussions because of the continuing emphasis by Democrats on potential new revenues. They said that he, Speaker John A. Boehner, Mr. McConnell and Mr. Kyl had previously discussed their discontent with the Democratic push for revenues and that some action was necessary to change the dynamic of the talks and show that Republicans were serious about not accepting what amounted to a tax increase.

“I know the frustration that he feels when Democrat members continue to want to bring tax hikes into this conversation, and insist that we’ve got to raise taxes on the American people,” Mr. Boehner told reporters.

According to officials, Mr. Cantor, who disclosed his decision to The Wall Street Journal on Thursday morning, also informed his leadership colleagues about the same time. Mr. Boehner, who had a private visit with the president at the White House on Wednesday night, evidently was unaware of Mr. Cantor’s plans at that time.

Democrats suggested that Mr. Cantor’s decision also reflected an internal Republican Party political determination to avoid being tagged as an author of an agreement that broached the idea of added revenues.

Republicans indicated that talks could resume if Democrats agreed to take any tax increases off the bargaining table. And negotiating setbacks like the decision by Mr. Cantor and Mr. Kyl to walk away are not unusual in serious Congressional bargaining sessions, where talks often then get back on track. But time is running short, and the House and the Senate have only a few weeks left in the summer when both will be in session before running up against the debt limit in early August.

Though Mr. Cantor and others have suggested that the Biden group has already identified $2 trillion or more in savings, others say that the firm amounts are much lower and that significant work must be done to reach even that level.

At the same time, Senator Kent Conrad, the North Dakota Democrat who is chairman of the Budget Committee, said this week that he did not believe the $2 trillion deal that has so far eluded budget negotiators is sufficient, given the nation’s deficit and debt trajectory.

“This is not just about numbers on a page,” Mr. Conrad said Thursday. “This is about the future economic prospects of our nation.”

Source: The New York Times

Regulators overseeing financial reform are delaying many of the planned changes in the immense market for complex securities known as derivatives because they are running drastically behind schedule in writing their new rules.

The Securities and Exchange Commission said on Wednesday that market participants would not have to comply with many aspects of derivatives reform scheduled to take effect in mid-July. It declined to specify how long the delay would be in the equity derivatives it oversees.

The announcement follows a similar statement on Tuesday from the Commodity Futures Trading Commission, although that agency imposed a year-end deadline for many of the changes in the derivatives it oversees.

The idea of changing the deadline had been divisive at the commodities commission. The two Republicans on the five-commissioner board had wanted to create an extension without a deadline. The Democrats, however, wanted a specific date to keep some pressure on the group to complete the rule writing, according to three participants in the meeting.

The commissioners ultimately agreed unanimously on the extension, but the dispute illustrates the political divide that has been brewing in Washington for months as regulators work to roll out hundreds of rules required by the Dodd-Frank financial reform legislation of last summer.

Though the Dodd-Frank measure was passed with bipartisan support, it has come under fierce criticism from many Republicans as well as some Democrats with financial constituents, who have urged regulators to slow the rule writing. Republicans are also trying to shave financing from agencies like the Securities and Exchange Commission and the Commodity Futures Trading Commission, which now have a larger workload in writing and enforcing scores of new rules.

Gary Gensler, the Democratic chairman of the trading commission, testified in Congress on Wednesday about the agency’s limited resources. In an interview, he pointed out that the derivatives market is seven times the size of the futures market, which his agency has long overseen.

“This agency has been asked to take on a very expanded mission,” he said. The decision this week to push back the derivatives deadline, he added, “was not about delay. It was just giving the market the certainty while we’re completing the rules.”

Regulators have missed more than two dozen deadlines for new Dodd-Frank rules, which cover a swath of topics, be it consumer protections in mortgage lending, bank responsibilities for dealing with city governments, or future resolution powers for troubled financial institutions. The legislation was the government’s main response to the financial crisis, and it is supposed to rein in Wall Street and reduce the kind of risk that led to the market implosion three years ago.

Observers say that the two delays this week make sense: with regulators so behind schedule, putting some of the rules into effect could be problematic. Still, regulatory experts warned that delays could be dangerous.

“Sounds like common sense to me,” said James J. Angel, a professor at the McDonough School of Business at Georgetown. “The regulators have this tsunami of work dumped on them, and it’s important to get it right.”

Still, he said, it is unclear whether the banks calling for a slowdown have legitimate concerns.

“You don’t know whether they’re just whining because they’re trying to get a few more pennies or if this is really Armageddon to them,” he said.

At hearings, bank officials have urged regulators to move slowly, saying that the rules will be better if created with greater care and consideration. The industry also has warned against what its officials call the “big bang” approach, under which many rules would take effect at once.

One difficulty is that many rules are related, and some rules drive others. Nowhere is this more true than in the derivatives market, where financial insurance contracts are written to protect against many different risks.

For instance, the rules to impose position limits in some commodities derivatives, like oil contracts, may depend in part on how much money financial players hold in different investments. But the commodities commission has been unable to demand all the data on these holdings — and the banks have not been volunteering — until it has written certain other rules and passed the one-year mark on the law.

The law specified that some derivatives rules would go into effect next month, no matter the status of rule writing, and those are what both financial commissions voted to delay this week.

At the commodities commission, Democrats and Republicans agreed that the July deadline for many rules was untenable because its staffers had not even finished defining terms like “swaps dealer” — an entity that buys and sells a type of derivative.

Jill Sommers, one of the Republican commissioners at the commodities regulator, said in an interview that she absolutely wants the rules to go into effect. But the commission needs to take its time, she said. “We didn’t want a date,” Ms. Sommers said. “We’re trying to makes sure we don’t miss anything. I think we need to be very deliberate.”

One of her opponents in the meeting was Bart Chilton, a Democrat. He said in an e-mail on Wednesday that he worried that having no deadline would take away much needed urgency. “We should be putting the hammer down and making up for lost time,” he wrote. “That means doing what the agency has done: given us a time certain — the end of the year — in which to complete our work.”

The commission has three Democrats, but one, Michael Dunn, has his term expiring this summer. He can stay on beyond that date, but if he chooses to leave, a successor is sure to face fierce confirmation questions in the Senate, where lawmakers are heavily divided on the new rules.
—————
Source: The New York Times

A large majority of Americans say the U.S. economy would probably suffer serious harm if Congress fails to give the federal government more borrowing authority. But barely half support raising the government’s debt limit, even if lawmakers also sharply cut spending.

A Washington Post-ABC News poll shows that 55 percent of Democrats and half of Republicans and independents support a debt-limit deal that includes a steep reduction in the size of government. But 37 percent of Republicans, a third of independents and nearly a fifth of Democrats say they are against raising the debt limit, under any circumstances.

The survey highlights the political pressures facing lawmakers and the White House as they lurch toward Aug. 2, when the U.S. Treasury says it is likely to default on its obligations unless Congress agrees to raise the $14.3 trillion debt limit. Bipartisan talks aimed at reaching a compromise are set to resume Thursday on Capitol Hill, focusing on Democratic demands for fresh revenue as well as possible mechanisms for enforcing a multi-year agreement to cut spending.

While that effort is generating ambivalence among the general public, it is being closely watched on Wall Street and in global financial markets, with investors worried that the world’s largest economy could fail to pay its bills for the first time in U.S. history.

On Wednesday, Wall Street fired another shot across Washington’s bow, with major credit rating agency warning that even a brief default would damage the nation’s sterling AAA credit rating. Fitch Ratings said it would downgrade affected U.S. securities to junk bond status “in the extremely unlikely event” that U.S. officials failed to make scheduled payments to investors.

Treasury Secretary Timothy F. Geithner faces a key test on Aug. 15, the agency said, when the United States is due to make $25 billion in payments on more than $1 trillion worth of securities. If those payments are missed, the Treasury would find it difficult to regain its AAA status immediately, the agency said, potentially raising borrowing costs by billions of dollars.

Fitch is the third major credit rating agency to issue a warning. White House press secretary Jay Carney said the report underscores the need for action.

“There is no alternative here to raising the debt ceiling,” Carney told reporters. “This is not about additional spending. This is about honoring the obligations that the United States government has made. And the consequences of not raising the debt ceiling, as some of these rating agencies have suggested, would be severe.”

The poll suggests that people believe such warnings. But large blocs — particularly among Republicans and independents — still do not like the idea of permitting the national debt to continue its upward spiral. Nor do they particularly like their options for reducing the debt.

The political backdrop shows risks for both parties. When asked who they trust to address the nation’s biggest problems, a record 20 percent of Americans — and more than a third of political independents — said they have faith in “neither” party. That’s the highest percentage in polls going back nearly 30 years.

Overall, Democrats have a nine-point edge on the trust question, but Republicans have momentum on the deficit issue. More voters now side with congressional Republicans than with President Obama, with a slim majority saying the debt should be tackled primarily through spending cuts, not new taxes.

However, Republicans appear to have handed Obama an opening on Medicare in the budget blueprint they adopted this spring. Nearly half of voters say they trust the president to protect Medicare, compared with 35 percent who trust congressional Republicans. That’s a slightly smaller advantage than former president Bill Clinton had over the GOP Congress in 1995, just ahead of his successful reelection campaign.

Seniors are evenly divided on the trust question, but they are the staunchest opponents of the GOP plan to replace Medicare with government subsidies for private insurance starting in 2022. Although those over 55 would not be affected, people 65 and older reject the proposal nearly 2 to 1.

Fewer than half of Republicans polled support their party’s plan to overhaul Medicare. Overall, the proposal — perhaps the boldest debt-reduction idea on the table — garners significantly more opposition than support, with 49 percent opposed and a sizable number – 19 percent — undecided.

The telephone poll was conducted June 2 to 5 among a random national sample of 1,002 adults. Results from the full poll have a margin of error of 3.5 percentage points.
——————-
Source: The Washington Post

Picking up congressional seats in Illinois in 2012 is key to Democrats retaking the House, the chair of the Democratic House political operation said on Wednesday.

I asked Rep. Steve Israel (D-N.Y.), who chairs the Democratic Congressional Campaign Committee, to assess the chances for Illinois Democratic gains in the wake of Illinois state Democrats muscling through the Legislature this week a map drawn along highly partisan lines.

With the new map, Illinois — a Democratic-leaning state — is central to Democratic strategy to win back the 24 Republican seats they need to regain control of the House.

“Illinois and particularly the suburbs of Chicago have always been a center of gravity in our path to retake the House majority,” Israel said at a reporters breakfast hosted by the Christian Science Monitor.

Illinois has 11 Republicans and eight Democrats in Congress, with the GOP scoring the biggest gain in decades last November: the election of five GOP freshmen.

Because of population shifts, Illinois will lose a seat starting in the 2012 election. The Democratic mapmakers diluted GOP strongholds by drawing new heavily gerry­mandered district lines to add more Democratic territory to the mix. Of the five GOP freshmen, Adam Kinzinger, Bob Dold and Bobby Schilling were thrown into Democratic turf, and Joe Walsh and Randy Hultgren were pitted against each other.

Israel suggested four Illinois districts under the new map would be prime prospects for Democrats: 8, 10, 11, all in Chicago’s suburbs, and Downstate, 17.

Israel had no sympathy for Republicans who protested the new map, crafted to wipe out the 2010 gains, because in states where the GOP controls the map — think Texas — they have used redis­tricting to throw out Democrats.

“There are Republicans who were complaining about Illinois. This is like the arsonist hitting the fire alarm; it is just not credible,” he said.

Israel also is counting on President Barack Obama at the top of the ticket in 2012 helping elect more Democrats in his adopted home state.

“The landscape is also immeasurably improved by the fact that President Obama is running for re-election. You’re going to have a significant presidential surge in Illinois, which should help our candidates,” Israel said. Israel visited Chicago in January to recruit candidates and prospect potential donors.

Republicans want to challenge the map in federal court. If there are no changes, a Democratic analysis of the new districts found:

† Eight safe Democratic seats: 1. Bobby Rush; 2. Jesse Jackson Jr.; 3. Dan Lipinski; 4. Luis Gutierrez; 5. Mike Quigley; 7. Danny Davis; 9. Jan Schakowsky, and 12. Jerry Costello.

† Five competitive or swing seats: 8. Considered open, now held by Walsh; 10. Dold; 11. Open; 13. Tim Johnson; 17. Schilling.

† Five Republican lean to GOP safe: 6. Peter Roskam; 14. Hultgren; 15. John Shimkus; 16. Don Manzullo; 18. Aaron Schock.

Rep. Judy Biggert (R-Ill.) left homeless in the Democratic map, may run from the open 11th; Kinzinger is likely to head to the Manzullo district; Walsh may switch to the 14th.
—————–
Source: The Chicago Sun-Times

Gov. Pat Quinn will weigh in on the spring legislative session that saw the Democrat-controlled legislature pass major measures.

Quinn has a Wednesday news conference scheduled at his state Capitol office in Springfield.

The Democrat has been largely out of public view in recent days while lawmakers rushed to adjourn by Tuesday’s midnight deadline before new rules kicked in that would have given the minority Republicans a say in what was passed and what wasn’t.

Quinn did visit the House floor late Tuesday night after lawmakers passed an overhaul of the state’s expensive workers’ compensation system.

During the legislative session, lawmakers also passed a massive gambling expansion and they approved new congressional districts that could erase Republican gains in last year’s election.
—————-
Source: The State Journal Register - The Oldest Newspaper in Illinois

With an August deadline looming, the House overwhelmingly refused Tuesday to raise the legal limit on government borrowing, setting the stage for a long, sweaty summer of haggling over the shape of the largest debt-reduction package in at least two decades.

Not a single GOP lawmaker voted for the measure to raise the limit on the national debt from $14.3 trillion to $16.7 trillion — a sum sufficient to cover the government’s bills through the end of next year. Republican leaders said their troops would reject any increase without a plan to sharply curtail spending and, thus, future borrowing.

“Tonight’s vote illustrates that there is no support in the People’s House for a debt limit increase without real spending cuts and binding budget process reforms,” House Majority Leader Eric Cantor (R-Va.) said in a statement, adding: “The families and business owners throughout the country want Washington to begin to live within its means and stop maxing out the credit card.”

Polls show that a higher debt limit is extremely unpopular with a large majority of voters, which has left Democrats leery of calling for an increase. On Tuesday, as the House voted 318 to 97 against raising the limit, nearly half of the chamber’s Democrats sided with the Republicans. In doing so, they ignored a long-standing request from the Obama administration to boost the limit before plunging into a complex and politically difficult battle over the size of the federal budget.

“I don’t intend to advise our members to subject themselves to a 30-second political ad and attack,” House Minority Leader Steny H. Hoyer (D-Md.) said hours before the vote, noting that GOP leaders offered the bill with the intention of letting their party’s members vote against it. Seven Democrats voted “present” to protest the manner in which the Republican majority called up the bill.

Hoyer and other Democrats accused House Speaker John A. Boehner (R-Ohio) of toying with the issue and running the risk that the “no” vote could roil financial markets. Bond traders, however, appeared to pay little attention to a move that many observers on Wall Street and in Washington dismissed as political theater.

“I didn’t even know they had a vote tonight, to be honest with you,” said Ian Lyngen, a senior government bond strategist at CRT Capital Group in Stamford, Conn. “The only real event that the market is focused on is the point at which they run out of money and have to shut down the government” — a date that Treasury Secretary Timothy F. Geithner has fixed at Aug. 2.

On that date, without additional borrowing authority, Geithner has said, the Treasury would be forced to default on at least some of the government’s obligations, an outcome that could have far-reaching consequences for global financial markets and the U.S. economy.

White House press secretary Jay Carney said Tuesday that default would be “calamitous.” But he dismissed the evening vote, saying Obama believes that Congress ultimately will act both to raise the debt ceiling and to rein in future borrowing.

“We have said and continue to say that we believe both are important priorities and both can proceed concurrently,” Carney told reporters.

The vote came one day before the entire House GOP caucus is due to meet with Obama at the White House, the first such meeting since Republicans seized control of the House in the midterm elections last fall. Carney said Obama plans to listen to their concerns but will also underscore their duty to the nation by citing a letter that President Ronald Reagan sent to Capitol Hill demanding a debt limit increase in 1983.

“The risks, the costs, the disruptions and the incalculable damage lead me to but one conclusion: The Senate must pass this legislation before the Congress adjourns,” the letter says. Carney added: “We agree with Ronald Reagan and many others that we cannot default.”

Meanwhile, debt-reduction talks between the White House and congressional leaders are underway, led by Vice President Biden. Last week, Biden said the group is on track to produce an agreement that would trim at least $1 trillion from projected budget deficits over the next 10 to 12 years. That would be the biggest debt-reduction package since at least the start of the Clinton administration, when a Democratic Congress approved spending cuts and tax increases estimated to reduce deficits by $433 billion over five years.

This time around, negotiators have agreed to consider pulling about $200 billion in savings from various programs, including federal worker pensions and farm subsidies. They are also eyeing the nearly $800 billion that Obama has offered to cut from domestic agencies over the next 12 years.

Beyond that, their work gets much tougher. Biden said the White House will insist on new tax revenues, despite the adamant opposition of Republicans. And Republicans are demanding significant cuts to Medicare, the biggest driver of future borrowing, despite stiff resistance from Democrats.

Democratic leaders not only want to protect health benefits for seniors but also are eager to capi­tal­ize politically on an unpopular GOP proposal to replace Medicare with private insurance subsidized by the federal government.

The GOP’s Medicare plan was a key factor in a Democratic victory last week in a special election in a conservative House district outside Buffalo, and Democrats are worried that a White House deal to cut Medicare spending could spoil a ripe opportunity for them to gain ground on Republicans.

With Obama set to host House Democrats at the White House later this week, Hoyer fired a warning shot Tuesday, cautioning the president not to forge any agreements with Republicans without input from his caucus.

“We are expecting to be full participants in any of the decisions that are made with reference to what we will or will not support as Democrats,” Hoyer told reporters. “We want to see our Medicare system strengthened, not eliminated.”
——————
Source: The Washington Post