Officials: President Obama seeks $3 trillion to $4 trillion in cuts

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http://www.cnn.com/2011/POLITICS/07/07/debt.crisis/index.html?hpt=hp_t2

Officials: President Obama seeks $3 trillion to $4 trillion in cuts

By Yellin and Ted Barrett, CNN

July 7, 2011 7:53 a.m. EDT

Washington (CNN) -- President Barack Obama is seeking $3 trillion to $4 trillion

in deficit cuts over the next decade, a move that would require putting Social

Security, Medicare, defense spending and tax reform on the table as part of a

balanced approach to cuts, Democratic officials familiar with the negotiations

told CNN.

The officials, speaking on condition of anonymity, did not say what types of

cuts would have to be considered under such a proposal. In the past, one Social

Security adjustment debt negotiators have discussed is cost-of-living.

The news comes as top Republican and Democratic congressional leaders head to

the White House Thursday to negotiate a deal to tackle mounting deficits and

allow an increase in the federal debt ceiling.

The House returned to work Wednesday from its Fourth of July break, a day after

the Senate cut short its recess to come back to Washington. Democrats and

Republicans are at sharp odds over what sort of conditions should be attached to

a hike in the current $14.3 trillion debt ceiling.

A congressional aide, close to the negotiations, said the only real talks going

on are between Obama and House Speaker Boehner, who are discussing " in good

faith " a $4 to $5 trillion debt reduction package.

To reach that number, they will need to include significant revenue increase and

significant changes to entitlement programs.

The aide said the two parties are discussing reductions in Medicare, Medicaid

and even Social Security, something Democrats like Harry Reid have long said is

off the table. The cuts are in the range of $500 billion, the aide said.

Who's to blame for debt ceiling stalemate?

If Obama and Boehner reach an agreement on such an ambitious package, they

realize it will likely be met with stiff opposition from lawmakers in both

parties, the aide said. Republicans will oppose revenue hikes and Democrats will

oppose entitlement cuts, the aide said.

That said, the aide indicated, Obama and Boehner believe they can each gain

politically from making attempt to cut a grand deal -- even if it is rejected --

because the public see they tried to take bold steps to solve the problem. If it

is rejected, the two can fall back on the $2.4 trillion deal put forth before

the talks collapsed.

Senate Minority Leader Mitch McConnell will likely reject such a deal, in part,

because Republicans have a better chance of winning back the Senate, if a long

term deal Obama and Boehner are considering fails, the aide said.

Democrats are confident Republicans will ultimately agree to some revenue

changes -- such as a hike in some fees like at national parks and the closing of

some unpopular tax loopholes. But it will be much more challenging to get them

to agree to significant and costly reforms like the capping of deductions for

people earning more than $250,000 per year, the aide said.

If Republicans reject any revenue increases and Congress can't raise the debt

limit, Democrats believe Republicans will be blamed for causing a default,

according to the aide.

Publicly, both sides have railed against proposals by the other.

Obama said Wednesday he wants a deal with Congress in the next two weeks, but

didn't rule out using a constitutional argument to increase how much money the

government can borrow.

" I don't think we should even get to the constitutional issue, " Obama said

during a Twitter town hall at the White House in response to a tweeted question

on whether he would rely on a clause in the Fourteenth Amendment to unilaterally

raise the debt ceiling.

Obama downplays talk of constitutional move

The debt ceiling should not be " used as a gun against the heads of the American

people to extract tax breaks for corporate jet owners, " Obama said, calling for

" a balanced approach where everything's on the table. "

However, McConnell, who will take part in Thursday's talks, objected to the

president's characterization of his side's positions as absolutist or

maximalist.

" We have a better term for it -- common sense, " McConnell, R-Kentucky, said of

GOP opposition to tax increases and more government spending in some areas.

Republicans are refusing to go along with any debt ceiling increase unless it

includes deep spending cuts and avoids any tax increases. Democrats are trying

to minimize the impact of cuts to social services and are calling for the

elimination to certain tax breaks and loopholes benefiting wealthier Americans.

Treasury Department officials and leading economists have warned of potentially

catastrophic consequences if the ceiling is not raised by August 2, at which

point the country could default on its debt obligations. Among other things, the

country could face skyrocketing interest rates and a plummeting dollar.

Increasing the debt ceiling will allow the government to borrow more money in

order to pay for spending already accrued.

Obama and Boehner met over the weekend as part of the ongoing negotiations, a

Republican official told CNN.

Boehner, one of the eight congressional leaders from both parties invited by

Obama for Thursday's meeting, indicated that he will take part but warned that

Congress will not accept tax increases sought by Obama and Democrats.

" I'm happy to discuss these issues at the White House, but such discussions will

be fruitless until the president recognizes economic and legislative reality, "

Boehner, R-Ohio, said in a statement Wednesday.

He added, " I'm pleased the president stated today that we need to address the

big, long-term challenges facing our country. "

In particular, Boehner and other Republicans oppose Obama's push to end Bush-era

tax cuts for the wealthiest Americans, saying such a move would stymie economic

growth by adding to the tax burden of small businesses that are the main driver

of job creation.

At the Twitter town hall, Obama argued for restoring tax rates on families

making more than $250,000 a year to levels from the 1990s, noting that America

at that time experienced a high rate of job growth and poverty reduction.

" If the wealthiest among us are willing to give up a little bit more, then we

can solve this problem, " Obama said. He challenged the Republican argument,

saying that a " modest " increase in taxes on wealthy Americans would not affect

job creation.

Obama noted that the higher rates of the 1990s, before the Bush tax cuts, were

part of a stronger economy than the reduced rates of the next decade, adding the

tax cuts " didn't work " and that " we should go with what works. "

Democrats also want to end some tax loopholes and subsidies, such as tax breaks

for corporate jet owners and government payments to the oil and gas industry.

Republicans have indicated openness to the idea as part of overall tax reform

that they say will require more time than the current negotiations allow.

" I'm open to tax reform, " McConnell told reporters Wednesday, adding that " we

need to do it broadly. "

" To sort of cherry pick items in the context of this current negotiation with

the White House strikes me as pretty challenging, " McConnell said.

The day before, Obama made an unscheduled appearance in the White House briefing

room to announce the Thursday meeting. He told reporters that talks on deficit

reduction over the Fourth of July weekend with congressional leaders from both

parties made progress, but " we still have to work through some real

differences. "

White House spokesman Jay Carney later said Obama believes that everyone knows

the issues involved in forging a comprehensive agreement to reduce federal

deficits by as much as $4 trillion in the coming decade.