Rival plans ensnarl Congress over debt ceiling

[July 26, 2011]  WASHINGTON (AP) -- Rival Democratic and Republican plans to raise the government's borrowing ability have thrust Congress into a standoff just one week away from a potentially devastating debt crisis. President Barack Obama made a last ditch call for compromise, but House Speaker John Boehner said negotiations with the White House had been futile.

"We can't allow the American people to become collateral damage to Washington's political warfare," Obama declared Monday in a prime-time address to the nation.

Boehner, in a nationally televised rebuttal, said he had given "my all" to work out a deal with Obama.

"The president would not take yes for an answer," he said.

The extraordinary back-to-back appeals to the public gave no indication that weeks of brinkmanship and sputtering talks over long-term deficit reductions were on the verge of ending. With an Aug. 2 deadline rapidly closing, Congress and the White House had limited options to avoid a potential government default that could send the already weak economy into a damaging swoon.

Both Democrats and Republicans softened previous hardline positions and appeared ready to leave quarrels over entitlement programs and higher tax revenues for later. But continued bickering on Capitol Hill overshadowed any signs of emerging common ground.

Obama reiterated his call for achieving lower deficits though spending cuts and new tax revenues. But in a notable retreat, he voiced support for a Senate Democratic plan that would reduce deficits by about $2.7 trillion over 10 years only with spending cuts, not with additional revenue.

The Senate plan, unveiled Monday by Senate Majority Leader Harry Reid, D-Nev., and the proposal announced the same day by Boehner overlap in significant ways. Both identify about $1.2 trillion in spending cuts to the day-to-day operating budgets of government agencies, though Reid's proposal also counts an extra $1 trillion in savings from winding down wars in Iraq and Afghanistan. Both proposals would create a bipartisan congressional commission to identify further deficit reductions, especially in major health care programs such as Medicare and Medicaid.

The primary difference between the two is timing. Reid's proposal would raise the debt ceiling enough so that it wouldn't have to be reconsidered until 2013, beyond the 2012 elections, as demanded by Obama. The GOP plan would only extend the debt ceiling for about six months.

For Republicans, the timing provides crucial leverage to force Democrats and the president to cut spending in Medicare, Medicaid and Social Security, expensive benefit programs that Democrats have long protected, despite escalating costs.

Obama has said he would not sign a short-term extension of the debt ceiling, but on Monday he stopped short of issuing a veto threat. Still, he said, a six-month-long increase in the debt ceiling would allow Republicans to try to force their will once again, demanding "harsh cuts" in program like Medicare and refusing to allow tax increases on the wealthy.

"Based on what we've seen these past few weeks, we know what to expect six months from now," he said. "Once again, the economy will be held captive unless they get their way."

Credit rating agencies such as Moody's and Standard & Poor's have threatened to downgrade the United States' gold-plated AAA rating if Congress and the White House don't extend the debt ceiling and take steps to bring long-term deficits under control.

While both plans would increase the debt ceiling, ratings agencies have said a short-term increase such as the one proposed by House Republicans may not be enough to protect the U.S. from a ratings downgrade. What's more, neither plan offers the larger deficit-reducing assurances that credit ratings have said they need for the U.S. to retain its place as one of the most secure investments in the world.

Until last week, Boehner had been negotiating with Obama for a deficit reduction package of up to $4 trillion that included spending reductions in Medicare, Medicaid and Social Security and provided for up to $800 billion in new tax revenue over 10 years.

But Boehner broke off those discussions after Obama asked for an additional $400 billion in tax revenue and after the two sides could not narrow the gap on other provisions.

"The sad truth is that the president wanted a blank check six months ago, and he wants a blank check today. That is just not going to happen," the speaker said.

In offering his new plan, Boehner had the backing of his top Republican leadership team. But he risked losing some potentially critical Republican votes by scaling back a bigger plan that passed the House and would have cut as much as $6 trillion. That plan failed in the Senate.

Rep. Jim Jordan of Ohio, one of the leading advocates of legislation that cleared the House last week and died in the Senate, said he could not support Boehner's new plan.

[Associated Press; By JIM KUHNHENN]

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