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House Republicans and Senate Democrats gained substantial support on Wednesday within party ranks for their separate plans to resolve a looming debt crisis, but the momentum seemed to be pushing both sides further from a compromise.

It was a day in which Capitol Hill seemed to operate in alternate realities: Republicans in the House sharing near universal belief that the Senate will eventually cave and accept their plan, and Senate Democrats assured that they will have the last word over the weekend and ultimately force the hand of the House.

As the House headed for a vote on Thursday, Congressional officials suggested that Senate leaders from both parties were keeping an open line for a potential compromise they could both brook. So far no such agreement appeared likely, and the Senate moved toward its own series of votes that could run through the weekend and perhaps into Monday, just one day short of the Aug. 2 date that the White House has insisted is the deadline for extending the debt ceiling for paying the nation’s bills.

Earlier in the day, at a House hearing, a representative of one of the credit rating agencies said that while the United States was unlikely to default on its obligations, its credit rating could still be cut if Congress failed to come up with a plan to reduce spending sufficiently. In the markets, investors sought alternatives to Treasury bonds and pushed down American stock prices for the fourth straight day as reverberations from the legislative impasse appeared to take a toll. The Dow Jones industrial average closed down 198.75 points, or 1.59 percent, on Wednesday; the broader Standard & Poor’s 500 stock index lost more than 2 percent.

Speaker John A. Boehner began mustering support for his budget-cutting plan early in the day as he cracked a verbal whip in meetings with his members even as Senator Harry Reid, the majority leader, made it clear the House legislation was dead on arrival in his chamber.

Less than a day after an unfavorable evaluation from the Congressional Budget Office forced Mr. Boehner to delay a vote and rework his bill to gain support, the speaker and other Republican leaders met with their conference Wednesday morning and bluntly commanded that they line up behind the reworked plan to cut spending at least as much as the $1 trillion increase proposed for the debt ceiling.

With the hope of picking up more votes, Mr. Boehner revised his deficit-reduction plan to achieve additional savings of $65 billion over 10 years. The Congressional Budget Office said the revised proposal would save $915 billion over 10 years, up from an estimate of $850 billion in savings from the original plan.

The revisions involved technical changes in annual limits on spending in 2012 and 2013, but they produced substantial additional savings.

In a meeting with House Republicans on Wednesday morning, Mr. Boehner and the majority leader, Representative Eric Cantor, scolded members for allowing Democrats to unify in protest against them. “This is the bill,” Mr. Boehner said, according to those who attended the meeting, who said he advised them to “get your ass in line.”

On the other side of the Rotunda in the Senate, Mr. Reid sent Mr. Boehner a letter signed by all 51 Senate Democrats and two independents assuring that his legislation, which would raise the debt ceiling for roughly six months — far less than President Obama wants — faced certain failure in his chamber. “Your approach would force us once again to face the threat of default in five or six short months,” the letter said. A number of Senate Republicans also oppose the House bill, largely because they find the spending cuts insufficient.

Senator Mitch McConnell, the minority leader, reiterated his support for Mr. Boehner’s bill on the Senate floor on Wednesday. “The fact is, Republicans have offered the only proposal at this point that attempts to get at the root of the problem, and which actually has a chance of getting to the president’s desk,” he said.

Mr. McConnell’s aides vehemently denied that their boss was negotiating any side deal with Mr. Reid or that he intended to do so.

Mr. Reid’s package would cut roughly $2.2 trillion in spending over 10 years and raise the debt limit through 2012, according to an analysis from the budget office. “The bottom line is there’s only one bill in Congress that’s a true compromise,” he said Wednesday. “We’re running out of time, and it’s time to get serious about finding that compromise.”

Despite Mr. Reid’s warnings to the House, rank-and-file House Republicans — scores of whom initially seemed inclined to flee the House bill over what they felt were insufficient spending cuts — fell back in line behind Mr. Boehner, sensing that a compromise with Senate Democrats, which they would less favor, might otherwise be in the offing.

Mr. Boehner made it clear he needed members, even those who believed the bill did not go far enough in cutting spending, to help him avert either a default or Senate victory. “I can’t do this job unless you’re behind me,” people who attended the meeting recalled him saying.

The appeal was apparently effective.

“We’ve got this back and forth between have we cut enough, how much have we cut, how do we get a long-term solution on this,” said Representative James Lankford, Republican of Oklahoma. “I like tea sweet enough to stand the spoon up in it,” he said. “This is not super-sweet tea. But it is not unsweetened, either.”

Mr. Reid’s members threw their support behind him in equal measure. Senator Barbara A. Mikulski, Democrat of Maryland, a leading liberal voice in the Congress, endorsed the majority leader’s plan on the Senate floor, calling it “substantive; it’s real and it’s achievable.”

Mr. Reid’s plan would save $2.2 trillion over 10 years, less than the $2.7 trillion that the Democrats had claimed. Even discounting the savings achieved from winding down the wars in Afghanistan and Iraq (about $1.04 trillion) and related savings in interest on the public debt (about $250 billion), that would mean total savings of $900 billion compared with the Republicans’ $850 billion as tallied by the budget office.

Assuming the House is able to pass its bill on Thursday, the Senate has several options. The first is to simply vote to table the House measure, which would likely inflame Republican senators, deprived of the right to have a substantial debate on it.

Another option would be to have a quick vote on the House bill, and assuming it fails, immediately take up either Mr. Reid’s bill as a substitute for the House bill — a procedural move that allows it to be voted over the course of the weekend rather than Monday — or perhaps, some form of a compromise measure drafted with Republican senators, for a Saturday vote.

Alternatively, Mr. Reid could begin the procedural clock on his own bill on Thursday, requiring votes on Saturday and Monday, dragging the process out further.

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Source:  The New York Times

The contentious budget talks that have dominated Washington for months intensified Wednesday, prompting President Obama to say he would accept a short-term hike in the debt ceiling if it gave lawmakers time to finalize a comprehensive deal.

Obama had pledged to veto any short-term measure, but White House spokesman Jay Carney said Wednesday that the president could accept an extension of “a few days” if it allowed a long-term deficit-reduction and debt-ceiling deal to work its way through Congress.

The White House concession added to a whirlwind week in which negotiations appeared to be changing daily. At first, leaders were focused on a fallback plan that would raise the debt ceiling but do little to control future borrowing. Then they started considering an ambitious, but complicated, bipartisan strategy for raising taxes and cutting cherished health and retirement programs.

By Wednesday evening, as House Speaker John A. Boehner (R-Ohio) and Majority Leader Eric Cantor (R-Va.) huddled with Obama at the White House, aides in both parties said a grand bargain to slice $4 trillion out of the federal budget over the next decade was back on the table.

All of those options remain in the mix. “There are multiple trains heading towards the station, and we have to decide,” Carney said before Obama met with the two GOP leaders. “We need to be sure that that fail-safe option is there — even as we pursue, aggressively, the possibility of doing something bigger.”

Republican leaders went on record 10 days ago against the Obama proposal, saying that as long as the deal included higher tax revenue, it could not pass the House. And they maintained that stance after Wednesday’s meeting.

In a brief interview after the White House meeting, Cantor said he remained committed to “not raising taxes” but did not deny that discussions included a larger plan. “Again, there are a lot of things that may or may not be possible, but we’re just trying to drive toward a result right now,” he said.

The mood has changed in the past two days after the bipartisan “Gang of Six” senators unveiled a plan to shave at least $3.7 trillion off the deficit. Despite the fact that the plan included new tax revenue by closing loopholes, it received a relatively warm reception in some Republican quarters.

That has given Democrats hope that GOP resistance may be weaker than previously believed to a rewrite of the tax code that would raise significant new revenue — a key goal of negotiations between Obama and Boehner.

Still, the proposal came under fire Wednesday from some key Republicans, including House Budget Committee Chairman Paul Ryan (R-Wis.), who said it calls for a tax increase of at least $2 trillion over the next decade.

By Wednesday afternoon, Senate Budget Committee Chairman Kent Conrad (D-N.D.), a leader of the Gang of Six effort, said his primary push now is for “an option at some point for the Senate and the House to vote on the plan we’ve put together — which is the only bipartisan plan that’s come from anywhere.”

As the negotiations moved closer to the Aug. 2 deadline, the key obstacle to a deal remained the vehement opposition among many House Republicans to the proposals, especially ones that include higher tax revenue.

Some Democrats and administration officials question whether the GOP leadership can effectively sell a compromise to a fractious caucus determined to cut spending at all costs, particularly the bloc of 87 freshman Republicans. Democrats say they are not sure if there is any way to satisfy the needs of that faction. “We want to accommodate their needs,” Sen. Benjamin L. Cardin (D-Md.) said of the House leaders. “We just don’t understand what their needs are.”

In part, this is the same dilemma facing GOP leaders as they try to negotiate. They don’t know what will sell, and selling is the only option they have. Boehner is not an arm-twister — as he campaigned for the speaker’s chair last year he vowed that he would take a more gentle, consensus-driven approach. Rank-and-file lawmakers are surveyed, their opinions sought out, their temperature taken, and then decisions are made about how to maneuver.

“It’s not an issue of style as much as it is an issue of the American people just aren’t where we need them to be yet in order to move the Congress,” said Rep. Devin Nunes (R-Calif.).

“Part of this is just a slow education process of having people come to the realization of what it’s really going to take to balance the budget,” Nunes said. “I don’t think having a strong-arm style would have been any more helpful. It probably would have hurt early on.”

For the moment, Democrats are still waiting for an answer from House Republicans about the direction to take. “We have a plan to go forward over here, so I await word from the speaker,” Senate Majority Leader Harry M. Reid (D-Nev.) said Wednesday.

Later, after the meeting with Obama and Vice President Biden, Boehner huddled in the Capitol with a group of freshman lawmakers. GOP aides said it could be several more days before Boehner’s leadership team makes clear which path it intends to pursue.

Republicans are awaiting the outcome of the Senate’s debate on a bill that places caps on federal spending and then sends a constitutional amendment to the states mandating a balanced budget.

With Democrats in control of the Senate, that proposal’s defeat is likely to come by the weekend.

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Source:  The Washington Post

President Obama prepared Thursday to bring bipartisan talks over the debt to a close, as Senate leaders worked across party lines to craft an alternative strategy to raise the nation’s $14.3 trillion debt limit and avert a government default.

“It’s decision time,” Obama told congressional leaders after meeting at the White House for a fifth straight day. Obama gave Republicans until early Saturday to tell him whether any of three options for trimming the federal budget would win GOP support.

“We need concrete plans to move this forward,” he said.

A breakthrough in the White House talks looked unlikely, however, leaving the Senate framework as the chief option for raising the debt limit before Aug. 2, when the Treasury will be unable to pay its bills without additional borrowing authority.

That deadline loomed ever larger Thursday, as China, the U.S. government’s largest foreign creditor, called on U.S. policymakers to take action to protect the interests of investors. Federal Reserve Board Chairman Ben S. Bernanke warned that failure to raise the debt ceiling would amount to “a self-inflicted wound” that would cause “a very severe financial shock” to the global economy. And Treasury Secretary Timothy F. Geithner told lawmakers that they are running out of time.

“We’ve looked at all available options, and we have no way to give Congress more time to solve this problem,” Geithner told reporters after meeting behind closed doors with Senate Democrats. “The eyes of the country are on us, and the eyes of the world are on us, and we need to make sure that we stand together and send a definitive signal that we are going to take the steps necessary to avoid default.”

The ticking clock spawned a day of high political theater on Capitol Hill, as lawmakers grew increasingly nervous about the lack of movement in the House. Many conservative Republicans continued to deny claims of impending calamity, and Democrats unleashed an unusually harsh and personal attack against the man they view as the biggest impediment to compromise, House Majority Leader Eric Cantor (R-Va.).

Senate Majority Leader Harry M. Reid (D-Nev.) said Cantor “shouldn’t even be at the table” in the White House talks, where Cantor has eclipsed House Speaker John A. Boehner (R-Ohio) as the voice of the GOP in demanding unprecedented spending cuts while rejecting Democratic calls for fresh tax revenue.

Reid accused Cantor of fueling the “irresponsible voices in the Republican Party” who continue to view default as a legitimate option for restraining the size of government.

“More than anything else, he is holding up an agreement at this point,” Sen. Charles E. Schumer (D-N.Y.), the No. 3 Democratic leader, said of Cantor.

Democrats have been kinder to Boehner, who briefly seemed willing to work with Obama to craft a landmark debt-reduction package. But Boehner abandoned that effort last weekend, when it became clear that he would have to convince the House rank and file to consent to a rewrite of the tax code that would raise upwards of $1 trillion in fresh revenue over the next decade.

Cantor, by contrast, has drawn a hard line against taxes, casting himself as a champion of the tea party-influenced freshmen who gave Republicans control of the House last fall.

Boehner and Cantor went out of their way Thursday to present a unified front. Boehner slung his arm around Cantor’s shoulders during a televised news conference, telling reporters that “we have been in this fight together.”

“Listen, we’re in the foxhole,” Boehner said. “This is not easy. Because what we’re trying to do here is solve a problem that has eluded Washington for decades. I’m glad Eric’s there, and those who have other opinions, they can keep them to themselves.”

Still, clear differences were apparent between the two GOP leaders. While Cantor dismissed the strategy emerging in the Senate as unworkable, Boehner on Thursday opened the door wide to that approach, saying, “I think it’s worth keeping on the table.”

“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 told reporters. When asked whether the strategy could win a 218-vote majority in the House, the speaker said: “I have no idea.”

Details of the Senate approach were sketchy. Reid said he is working with the White House and Minority Leader Mitch McConnell (R-Ky.) on “a number of different alternatives” for pushing a debt-limit increase quickly through the Senate and the more hostile House.

“We’re not there yet . . . So I’m not in a position right now to tell you where we are going to go,” Reid told reporters at the Capitol.

Reid confirmed, however, that discussions are focused on what McConnell has called “Plan B”: an elaborate legal framework to raise the debt limit by $2.5 trillion that would place the entire political burden for the unpopular move on Obama.

Unveiled earlier this week, McConnell’s plan included no mechanism to force the sharp spending cuts that Republicans have demanded in exchange for voting to lift the debt limit. But in a sign of the unusual political times, Democrats said they were reluctant to go along with that proposal and are pressing to add roughly $1.5 trillion in cuts to government agencies to the measure.

Talks were also underway over a plan to appoint 12 lawmakers from both parties to draft a long-term framework to stabilize the national debt. The new debt committee would be given a deadline, and its recommendations would be fast-tracked to a vote in the House and Senate without amendment, similar to the process used to close military bases.

Late Thursday, McConnell told a radio interviewer that the new debt-reduction panel would “probably be part of the bill” and that it would likely be asked to issue its report by the end of the year.

Given the high stakes, Reid and McConnell were moving quietly. Too much information, Reid said, could “kill” the deal. “It’s best to try to move this down the field very slowly and make sure every step of the way is covered,” he said.

Separately, House leaders are pursuing an amendment to the Constitution that would require Congress to balance the budget. With a vote expected next week, House GOP aides said the vote could go a long way toward soothing conservative angst over the debt limit, even if it doesn’t pass. The Senate is scheduled to vote on a similar measure next week.

House GOP leaders, meanwhile, have summoned rank-and-file lawmakers to an unusual Friday morning meeting to discuss the path forward, a few hours before Obama has scheduled a White House news conference.

Before bringing talks to a close Thursday, Obama gave Republicans three options: The far-reaching $4 trillion deal that includes taxes and cuts to entitlement programs; a $2 trillion package that would require each side to give only a little; and a much smaller package that would include no tax increases and no cuts to entitlement programs — and do much less to solve the nation’s financial problems.

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Source:  The Washington Post

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.

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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.”

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Source:  The New York Times

Obama administration officials are offering to cut tens of billions of dollars from Medicare and Medicaid in negotiations to reduce the federal budget deficit, but the depth of the cuts depends on whether Republicans are willing to accept any increases in tax revenues.

Administration officials and Republican negotiators say the money can be taken from health care providers like hospitals and nursing homes without directly imposing new costs on needy beneficiaries or radically restructuring either program.

Before the talks led by Vice President Joseph R. Biden Jr. broke off 12 days ago, negotiators said, they had reached substantial agreement on many cuts in the growth of Medicare, which provides care to people 65 and older, and Medicaid, which covers lower-income people. Those proposals are still on the table when Congress reconvenes this week, aides said, and are serious options that Democrats could accept in exchange for Republican concessions that raise revenues.

“Congress smells blood,” said William L. Minnix Jr., the chief lobbyist for nonprofit nursing homes.

Mr. Minnix, the president of a trade group known as LeadingAge, is urging nursing homes to “bombard your senators with the message that Medicaid cannot be cut by $100 billion” over 10 years, as President Obama and many Republican lawmakers have suggested.

A coalition of hospital lobbyists, worried about the direction of the budget talks, has begun a national advertising campaign to block further cuts in the two health care programs, which account for about 55 percent of hospital revenues. The hospitals have made a commitment to spend up to $1 million a week through August on television, print and online advertising.

“This is white-knuckle time for a lot of people,” said Bryant Hall, a health care lobbyist whose clients include drug and biotechnology companies. “Stakeholders and beneficiaries are anxiously watching the budget negotiations.”

They may have reason to be anxious.

Senator Charles E. Schumer of New York, the No. 3 Senate Democrat, said: “We are very willing to entertain savings in Medicare. Medicare gives very good health care very inefficiently.”

In return, Mr. Schumer said, Republicans should be willing to consider some additional revenue.

Negotiators said they were seriously considering cuts in Medicare payments to hospitals for uncollectible patient debt and the training of doctors; steps to eliminate Medicare “overpayments” to nursing homes; a reduction in the federal share of some Medicaid spending; and new restrictions on states’ ability to finance Medicaid by imposing taxes on hospitals and other health care providers.

Medicare and Medicaid insure more than 100 million people, account for 23 percent of all federal spending and are likely to be an important part of any budget deal. Military spending, which accounts for about 20 percent of federal expenditures, is likely to be included as well.

Most Republicans have ruled out tax rate increases to reduce the deficit. Mr. Obama has rejected the idea of Medicare vouchers, Medicaid block grants or any rollback of the new health care law. But he and the Republicans say they still hope to find some common ground.

Mr. Obama has embraced the goal of reducing deficits by a total of $4 trillion over 12 years — an ambitious goal that suggests the size of any grand bargain.

In a speech in April, Mr. Obama offered to slow the growth of Medicare and Medicaid without cutting benefits. He said his ideas would save $340 billion over 10 years and a total of nearly $500 billion in the two programs by 2023. His numbers quickly became a starting point in the negotiations.

As for Medicaid, administration officials have indicated that they could accept savings of $100 billion or more over 10 years, much to the dismay of many House Democrats. The lawmakers say the cuts would impair access to care for the poor and shift costs to the states, which are facing a huge expansion in Medicaid eligibility and enrollment, scheduled to start in 2014 under the new health care law.

While insisting on new revenue at his news conference last week, Mr. Obama also said, “We’ll have to tackle entitlements,” adding that “health care cuts” need to be part of any deal.

Senator Joseph I. Lieberman, the Connecticut independent, described a fiscal and political imperative: “We can’t balance the budget without dealing with mandatory spending programs like Medicare. We can’t save Medicare as we know it. We can save Medicare only if we change it.”

The new health care law trimmed Medicare payments to most providers. Many states, in fiscal distress, are cutting Medicaid, which is financed jointly by the federal government and the states. If Congress and the president now make additional cuts, hospitals say, they will close some services and increase charges to patients with private insurance.

Hospital executives from around the country plan to visit Capitol Hill next week to deliver this message: “Cutting Medicare and Medicaid payments to hospitals will hurt the ones we love, especially the most vulnerable — children, seniors, the poor and disabled.”

Mr. Minnix, the lobbyist for nonprofit nursing homes, said: “The issue is not money. The issue is the effects on people, vulnerable people.”

The American Medical Association and AARP, the lobby for older Americans, have joined hospitals and nursing homes in fighting other proposals that would limit federal spending as a percentage of the gross domestic product. Members of Congress of both parties have introduced bills that would automatically cut spending across the board if such limits were about to be breached.

While details have yet to be decided, lawmakers and administration officials said they were seriously considering these proposals:

¶ Gradually eliminate Medicare payments to hospitals for bad debts that result when beneficiaries fail to pay deductibles and co-payments. Medicare reimburses hospitals for 70 percent of such debts after the hospitals make reasonable efforts to collect the unpaid amounts.

¶ Reduce Medicare payments to teaching hospitals for the costs of training doctors, caring for sicker patients and providing specialized services like trauma care and organ transplants. Medicare spends $9.5 billion a year for its share of those costs.

¶ Reduce the federal share of payments to health care providers treating low-income people under Medicaid and the Children’s Health Insurance Program. The administration wants to establish a single “blended rate” for each state. The federal government now reimburses states at different rates for different groups of people and different services in the two programs.

Representative Henry A. Waxman of California, the senior Democrat on the Energy and Commerce Committee and an architect of Medicaid, said he was “very concerned” that this proposal would reduce the federal contribution to Medicaid and shift costs to states.

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Source:  The New York Times

Chicago’s Big Brother network of over 10,000 public and private surveillance cameras is already the most extensive and integrated in the nation. But, it’s about to get even bigger.

Mayor Rahm Emanuel chaired his first Public Building Commission meeting on Tuesday and joined his fellow members in adding three potential terrorist targets to the city’s surveillance network: the Board of Trade, the Federal Reserve and the AT&T switching center.

All three are located in Chicago’s financial nerve center. But, they apparently constituted gaping holes in Chicago’s camera network.

“It’s necessary. They’re key buildings. They were not a part of the network. The fiber had already been laid. I don’t know if I’d use the word weird or strange. But, if you’ve laid the fiber and you have key pieces of critical national security … that don’t have the cameras,” they should be added, Emanuel said.

“Work’s been done. We should complete it because it’s identified as important in the Homeland Security reports. … The camera network is a part of security and safety for the city.”

During the meeting, Erin Lavin Cabonargi, executive director of the Public Building Commission, disclosed that the commission has already installed 3,300 surveillance cameras at key government buildings and other potential terrorist targets.

The new cameras will be paid for with a $650,000 federal Homeland Security grant.

Last year, the American Civil Liberties Union pushed for a moratorium on new surveillance cameras and new rules to safeguard citizens’ privacy.

The ACLU argued that cameras “invade the freedom to be anonymous in public places” and that the millions of dollars spent on cameras would have been better spent hiring more police officers to ease a severe manpower shortage.

The group also questioned the effectiveness of the cameras.

Six months later, U.S. Homeland Security Secretary Janet Napolitano toured Chicago’s 911 emergency center and ranked the city’s “very robust camera infrastructure” among the “top two or three” in the nation.

Asked to identify rivals, she named only New York City.

“It’s not just cameras. They are interconnected and then connected back here to tell first responders what they’re going to be confronting,” she said then.

Pressed on whether the ever-expanding network was a good thing, Napolitano said, “Absolutely. If you look at cities around the world — like London, for example, [and] Madrid has been employing more cameras — they are deterrents. But, they are also force multipliers. They enable us to make the best use of our first responders.”

Also at Tuesday’s Public Building Commission meeting, Emanuel pledged to double the number of city-owned buildings with the environmentally friendly LEED certification over the next four years. Chicago already leads the nation with 41 such government-owned buildings.

“Nothing gets done unless you have a goal,” the mayor said.

“We lead the country. … And I want to set a goal so we don’t rest on our laurels. … It creates jobs. It’s energy efficiency. And it … adds to the lure of the city. As people and businesses look around, they see a city that’s seizing the future and making the changes necessary to be more energy-efficient and create jobs at the same time.”

LEED stands for Leadership in Energy and Environmental Design. It’s an internationally-recognized certification system for sustainable buildings developed by the U.S. Green Building Council.

The group provides building owners with a framework for identifying and implementing green building design, construction, operations and maintenance.
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Source: The Chicago Sun-Times

After months of intensive lobbying by banks, the Senate is slated to vote Wednesday on a controversial bill that would delay changes to debit-card swipe fees that would cost the industry billions of dollars.

Sen. Jon Tester (D-Mont.) unveiled revised legislation Tuesday that requires four banking regulators to study the issue for six months. The Federal Reserve would then have an additional six months to rewrite the rules governing swipe fees. Tester’s original bill called for a two-year delay and would have required Congress to vote again to approve additional action.

“Working together across party lines, we’ve found common ground and agreed on a plan that actually fixes the problem with a balanced approach,” Tester said.

The debate centers on the fees that merchants must pay banks each time a debit card is swiped. They average is between 1 and 2 percent of each purchase and totaled $16.9 billion in 2009, according to the Fed. The proposed regulations would reduce the fees by roughly 70 percent to a maximum of 12 cents a swipe. Credit cards, which can carry significantly higher interchange rates, are not covered by the law.

Among Tester’s co-sponsors were Sens. Bob Corker (R-Tenn.) and Kay Hagan (D-N.C.), who had previously voted in favor of overhauling swipe fees. Tester needs 60 votes to prevent a filibuster, and one banking executive said Tuesday night that the industry had secured a number in the mid-50s, with 10 additional senators undecided.

But Senate Majority Whip Richard J. Durbin (D-Ill.) has vowed to fight the proposal. Durbin championed changes to debit-card swipe fees last summer as part of the broader overhaul of the nation’s financial system. The law is scheduled to take effect July 21 unless Tester’s bill passes.

Retail groups said they are positive they will have the votes to block it. “We’re confident in our vote count,” said Brian Dodge, spokesman for the Retail Industry Leaders Association (RILA). “We were confident a year ago, when we won.”

RILA polled voters in six key states — Montana, Nevada, New Hampshire, New York, North Carolina and West Virginia — and found that at least 70 percent supported changes to swipe fees. The largest support came from Tester’s home state, the group said.

Retailers say they have little power to negotiate swipe fees, which are set by card networks such as Visa and MasterCard but paid to the banks, resulting in higher consumer prices. Financial firms say the reduction in fees is forcing them to raise other charges and eliminate popular perks such as rewards programs.
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Source: The Washington Post

The latest economic numbers have not been good. Jobless claims rose last week, the Labor Department said on Thursday. Another report showed that economic growth at the start of the year was no faster than the Commerce Department initially reported — “a real surprise,” said Ian Shepherdson of High Frequency Economics.

Perhaps the most worrisome number was the one Macroeconomic Advisers released on Wednesday. That firm tries to estimate the growth rate of the current quarter in real time, and it now says annualized second-quarter growth is running at only 2.8 percent, up from 1.8 percent in the first quarter. Not so long ago, the firm’s economists thought second-quarter growth would be almost 4 percent.

An economy that is growing this slowly will not add jobs quickly. For the next couple of months, employment growth could slow from about 230,000 recently to something like 150,000 jobs a month, only slightly faster than normal population growth. That is certainly not fast enough to make a big dent in the still huge number of unemployed people.

Are any policy makers paying attention?

When the economy weakened in the first quarter, Ben S. Bernanke, the Federal Reserve chairman, and Obama administration officials said the slowdown was just a blip and growth would soon pick up. Today, many Wall Street economists are saying much the same thing: any day now, things will improve.

Maybe they will. But the history of financial crises shows that they produce weak, uneven recoveries, with unemployment remaining high for years. That history also shows that aggressive government action — the kind of action Washington took in 2008 and 2009, but not for most of 2010 — can make the situation much better than it otherwise would be.

The latest signs of weakness suggest that policy makers remain too sanguine. It is easy to see how the rest of 2011 could end up disappointing, much as 2010 did.

For one thing, there are specific forces holding back growth. Oil prices, though down in the last few weeks, are still 40 percent higher than a year ago and continue to siphon money away from the American economy to overseas economies. When I filled my gas tank last weekend, it cost $74, more than I think I have ever paid.

The housing market also remains in terrible shape. Europe is still struggling with its debt troubles. State and local governments continue to cut jobs.

These specific problems worsen the broader insecurity of both households and business executives — insecurity that is typical in the wake of a financial crisis. Long after the crisis itself is over, businesses are slow to hire and quick to fire. Thursday’s report on new jobless claims showed that they rose by 10,000, to 424,000, which is not a number associated with a solid recovery.

“Labor market gains may be faltering somewhat,” Joshua Shapiro, chief United States economist at MFR, a New York research firm, wrote to clients after the report’s release.

For households, already coping with miserly wage growth, that is another reason not to spend. The Commerce Department’s updated gross domestic product figures showed that consumer spending grew at an annual inflation-adjusted rate of only 2.2 percent in the first quarter, not the 2.7 percent rate the department initially reported.

The economy does still have some bright spots, and they could grow in coming months, just as policy makers and private forecasters are, once again, predicting. If North Africa and the Middle East do not become more chaotic, oil prices may continue falling. Vehicle production will probably pick up as the parts shortages caused by the Japanese earthquake end. The falling dollar will continue to help American exporters, as well as any domestic businesses that compete with foreign importers.

But there is no doubt that the economy has performed considerably worse in the last few months than most policy makers expected. The situation is now uncomfortably similar to last year’s, when the economy sped up in the first few months only to stall in the spring and summer.

The most sensible response for Washington would be to begin thinking more seriously about taking out an insurance policy on the recovery. The Fed could stop worrying so much about inflation, which remains historically low, and look at how else it might encourage spending. As Mr. Bernanke has said before, the Fed “retains considerable power” to lift growth.

The White House and Congress, meanwhile, could begin talking about extending last year’s temporary extension of business tax credits, household tax cuts and jobless benefits beyond Dec. 31. It would be easy enough to pair such an extension with longer-term deficit reduction.

Any temporary measures will eventually need to lapse, of course. But the current moment remains a textbook time to use them — when the economy is struggling to emerge from the aftermath of a terrible recession. The one thing not to do is to turn to deficit reduction too quickly after a crisis, as Europe is painfully learning.

Almost four years after the mortgage market first began to quiver and unemployment began to rise, Americans are understandably eager for good economic news. But wishing for it doesn’t make it so. You have to wonder whether the people in Washington have learned that lesson yet.
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Source: The New York Times

Americans earned and spent more in March, but much of the extra money went toward more expensive gasoline.

Personal incomes rose 0.5 percent last month and consumer spending increased 0.6 percent, the Commerce Department reported Friday. But after adjusting for inflation, spending rose a much more subdued 0.2 percent and after-tax incomes were essentially flat.

Consumer spending had been expected to post solid gains this year, helped by stronger employment growth and a 2 percentage-point cut in Social Security payroll taxes. But Americans are paying more for gas, prompting economists to scale back their growth forecasts.

The national average at the pump on Friday was $3.90 a gallon— 31 cents higher than a month ago and more than $1 than what consumers paid a year ago.

Less growth in consumer spending was a big reason the overall economy slowed sharply in the first three months of the year. The 1.8 percent growth rate was weaker than the 3.1 percent growth in the previous quarter. Consumer spending is important because it accounts for roughly 70 percent of economic activity.

“The increase in prices is absorbing pretty much all of the windfall from the payroll tax cut,” said Paul Dales, an economist with Capital Economics. “If gasoline prices were to stop rising, real consumption could bounce back in the second quarter. But even then, jobs growth and wage growth are not strong enough to result in a significant and sustained acceleration in consumption growth. This economic recovery is going to continue to disappoint both this year and next.”

The rise in spending was heavily concentrated in nondurable goods, which includes gasoline. Spending in this category jumped 0.9 percent while spending on longer-lasting manufactured goods, such as autos, was essentially flat. Spending on services rose 0.5 percent.

The savings rate remained unchanged at 5.5 percent of after-tax incomes in March. Americans saved just 2.1 percent in 2007 before the recession. The bursting of the housing bubble has made them more cautious with their finances.

A key inflation gauge that is closely watched by the Federal Reserve showed prices rising 0.4 percent in March, the same as February. Excluding food and energy, prices were up a more subdued 0.1 percent in March and are 1.8 percent higher than a year ago, well within the Fed’s comfort zone.
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Source: The Chicago Sun-Times