White House: 'Significant' deal on debt possible

WASHINGTON — President Barack Obama plunged into deadlocked negotiations to cut government deficits and raise the nation's debt limit Monday, and the White House expressed confidence a "significant" deal with Republicans could be reached. But both sides only seemed to harden their positions as the day wore on, the administration insisting on higher taxes as part of the package but Republican leaders flatly rejecting the idea.

Obama and Vice President Joe Biden met with Senate Majority Leader Harry Reid, D-Nev., for about 30 minutes at the White House, setting the stage for an evening meeting with Republican Senate leader Mitch McConnell of Kentucky.

White House spokesman Jay Carney said Obama reported after the morning session that "everyone in the room believes that a significant deal remains possible." But Carney also affirmed that Obama would only go for a deficit-reduction plan that included both spending cuts and increased tax revenue, an approach that Republicans say would never get through Congress.

Said Carney: "It's the only way to get it done if you want to do it right."

McConnell, in a speech just hours before heading to the White House himself, said: "It's time Washington take the hit, not the taxpayers."

McConnell said any tax increase or new spending would be counterproductive to economic recovery, and he pointed out that Democrats had been unable to pass tax increases on the wealthy when they controlled both chambers of Congress last year.

"Let's move past tax hikes, talk about what's actually possible, and let's talk about what has and hasn't worked over the past two years," said the Kentucky Republican.

Reid said, "I hope my Republican colleagues will put the economy ahead of politics." Speaking on the Senate floor, he said, "I hope they'll join us to create jobs and set aside their desire to please the tea party and defeat President Obama."

At issue is not just the staggering national debt but a showdown on the federal borrowing limit that carries enormous risks.

Absent an agreement that cuts long-term deficits, Republicans say they will not vote to increase the nation's borrowing, which will exceed its $14.3 trillion limit on Aug. 2. The administration has warned that if Congress does not raise the debt ceiling, it could mean the first U.S. financial default in history and send economic shockwaves around the world.

The president made his move to get more personally involved in the negotiations on Friday. That happened after bipartisan talks led by Biden stalled when Republican lawmakers abandoned the negotiations, saying the issues still on the table had to be addressed by the president.

Obama already has met privately with House Speaker John Boehner, R-Ohio, and with House Democrats.

Until Friday, Biden had held a series of meeting over several weeks with bipartisan teams from the House and Senate, focusing on areas where the two sides were amenable to cuts until the dispute over taxes caused Republicans to walk out.

Carney rejected suggestions that Obama should have become more involved earlier. "If you honestly believe that the public is out there wondering why the president wasn't in every one of these meetings, you know, I think that's nuts."

The White House is pushing for some tax increases on the wealthy or the elimination of tax breaks for big companies and wealthy individuals as part of a deficit-cutting plan. During the Biden-led negotiations, Democrats proposed about $400 billion in additional tax revenue, including ending subsidies to oil and gas companies, an idea that has failed previously in the Senate.

The administration also would tax private equity or hedge fund managers at higher income tax rates instead of lower capital gains rates, change the depreciation formula on corporate jets and limit itemized deductions for wealthy taxpayers. It also has called for repealing a tax benefit for an inventory accounting practice used by many manufacturers.

Republicans are demanding huge cuts in government spending. While they are insisting there be no tax increases, they have been willing to consider other forms of revenue, particularly higher user fees.

"Revenues have never been off the table," said Sen. Jon Kyl of Arizona, the Senate's Republican participant in the Biden talks. "There are some user fees that are probably way low compared to when they were originally set."

Obama's budget wants $85 billion in new user fees over 10 years, including raising the airline passenger security fee from a maximum of $5 per one-way trip to $11. Other proposals range from Food and Drug Administration food inspection fees to duck hunting fees.The $85 billion also includes federal auction of parts of the broadcast spectrum and the sale of surplus federal property.

But the bulk of deficit reductions envisioned by Republicans would come from spending cuts. Kyl, in a House floor speech, said the government could save from $1 trillion to $1.5 trillion over 10 years by cutting spending on Cabinet agency budgets passed by Congress each year. These budgets, called discretionary spending, range from education to defense to homeland security programs.

Complicating matters is the congressional schedule. While the Senate is in session, the House is off this week ahead of the July 4 holiday. The House is scheduled to return next week when the Senate will be away. That makes it difficult for leaders in both chambers to find consensus among their respective memberships.

"It will take time, and that is a bit troublesome," Kyl said. "It will take time to both reach the agreement, to put it all together and to debate it on the floor. Nobody wants this to be just parachuted in three days before they vote on it. They want time to take it back to their constituents, talk about it, debate it on the floor."

Carney wouldn't set a deadline for a deal, saying he didn't want to name a "token timetable." He said Obama and Biden would hold additional meetings with congressional lawmakers, though none is scheduled at this point.

Many economists and government analysts say the government needs to get control of its long-term debt by taming its deficits. The non-partisan Congressional Budget Office last week called the nation's budget outlook "daunting" and said that without major changes in policies, an aging population and rising health care costs would result in a surging federal debt.