Speaker John Boehner (R-Ohio) abandoned efforts to craft a far-reaching $4 trillion debt deal Saturday night because of insistence from the White House that such a package include tax increases.
Instead, Boehner is insisting on a smaller deal that would raise the debt ceiling but include a more modest level of cuts to spending, and possibly entitlements.
The announcement set off a flurry of pronouncements from both parties on what they would and wouldn't accept as part of a deal to raise the debt ceiling. Treasury Secretary Timothy Geithner has warned that the U.S. faces a potentially catastrophic default on Aug. 2 the date Treasury has said the U.S. will no longer be able to service its debts without an increase to the limit.
Boehner spoke with President Barack Obama Saturday evening to give the president and Congressional leaders time to plan ahead for the Sunday meeting at the White House, which is still expected to go forward as planned.
"Despite good-faith efforts to find common ground, the White House will not pursue a bigger debt reduction agreement without tax hikes," Boehner said in a statement. "I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase." Boehner was referencing talks led by Vice President Joseph Biden.
The White House quickly issued a statement making it clear that Obama had no intention of letting up on his drive for a comprehensive package or for some tax code sacrifices from the wealthy and businesses that receive tax subsidies, even if the price of the deal goes down.
"We need a balanced approach that asks the very wealthiest and special interests to pay their fair share as well, and we believe the American people agree," said Dan Pfeiffer, a White House spokesman.
"Both parties have made real progress thus far, and to back off now will not only fail to solve our fiscal challenge, it will confirm the cynicism people have about politics in Washington. The President believes that now is the moment to rise above that cynicism and show the American people that we can still do big things. And so tomorrow, he will make the case to congressional leaders that we must reject the politics of least resistance and take on this critical challenge."
Republicans said Boehner's decision could mean a formal resumption of talks between Biden and House Majority Leader Eric Cantor (Va.). Those talks had identified more than $2 trillion in cuts and were the foundation of the talks between Boehner and Obama.
Though Cantor notably walked out of those talks late last month also over Democratic demands for higher revenues both Biden and Cantor have stayed in contact and their staffs have had debt and deficit discussions in the interim period, Republicans said.
Biden and Cantor have apparently developed a solid working relationship, and their approach could represent a middle road between Obama's "Grand Bargain" and a short-term debt extension.
Cantor spokesman Brad Dayspring said in a statement, "As Eric has said for weeks, tax increases that the Democrats are insisting upon cannot pass the House and are the last thing Congress should be doing with so many people out of work. Eric has always believed the Biden group identified between $2 and 2.5 trillion in spending cuts that could represent the framework for an agreement."
As for Boehner backtracking from his previous position that a bigger deal in the $4 trillion range was doable, a Republican familiar with the discussions said that taxes and entitlement cuts both became sticking points. The two sides could not agree on the core elements of a tax reform package sought by Boehner, and remained apart on what to do in the medium and long-term structural reforms.
Boehner now believes a smaller package, potentially one built on spending cuts identified through the talks led Biden may be the more likely vehicle for moving forward.
The smaller package would still have to exceed the size of the debt limit increase expected to be at least $2.4 trillion.
Taxes had been at the heart of the negotiations since the beginning, with Republicans demanding that any new tax revenue be offset by tax cuts somewhere else. According to the Republican source, Boehner would only support increased revenue if it came from economic growth resulting from tax reform efficiencies in the economy, not from changes in the tax code itself.
Boehner also demanded a trigger that would mandate deep spending cuts if a tax reform package was not enacted by the end of this year.
Democrats quickly criticized Boehner for what they described as the GOP's insistence on protecting the wealthy from bearing any burden of reducing the deficit.
Senate Majority Leader Harry Reid (D-Nev.) issued a statement saying he was "disappointed that Republicans are unable to work with us to take a historic step forward that would have dramatically reduced our long-term deficit."
But Reid expressed confidence that a debt deal is still within reach: "We asked Republicans to consider a balanced approach that would have required shared sacrifice, but they would not. We still need to make sure we avert the economic catastrophe that would occur if we were to let America fail to pay its bills for the first time in our history, and I am confident that we will. Americans have a right to expect their leaders to rise above partisanship and do the right thing for our economy and the middle class."
Rep. Chris Van Hollen (D-Md.), who participated in the earlier Biden talks, was more frank.
"It's disappointing that the Republican fixation with protecting tax breaks for corporate special interests and the very wealthy prevented them from agreeing to a balanced and broad deficit reduction plan to help our economy and our country," said Van Hollen.
Senate Minority Leader Mitch McConnell (R-Ky.), however, backed up Boehner.
"Like the Speaker, Sen. McConnell has consistently said that we should cut Washington spending without raising taxes on job creators, particularly in the middle of a jobs crisis. And he remains concerned with the Democrats' unwillingness to take steps to protect entitlement programs from bankruptcy, but hopes the President will be able to use Sunday night's meeting to encourage them to take action on needed reforms," McConnell spokesman Don Stewart said.