Obama, GOP: Looking for something to talk about

[June 28, 2011]  WASHINGTON (AP) -- President Barack Obama and the congressional Republican leadership have publicly dug in their heels on critical debt talk negotiations. While they appear immovable, however, they are talking.

Obama and Vice President Joe Biden spent more time in the Oval Office on Monday with Senate Republican leader Mitch McConnell than they did with a fellow Democrat, Senate Majority Leader Harry Reid.

"They will continue to talk," McConnell spokesman Don Stewart declared after the meeting.

But about what? To be sure, neither McConnell nor Obama is fond of small talk.

Obama and Democrats insist that for there to be a deal on reducing long-term deficits, any agreement must include some tax increases on the wealthy or on corporations, mostly through closed loopholes. But before McConnell even walked into the white House, he had flatly rejected tax increases.

"It's time Washington take the hit," he said, "not the taxpayers."

That would seem to put a damper on the conversation. But the deal is crucial to winning congressional support for raising the government's borrowing limit, a step it must take by Aug. 2 to avoid a potential default. The current debt ceiling of $14.3 trillion would likely have to be increased by $2.4 trillion to last through the end of next year.

Republicans want an equal amount in deficit reduction over the next 10 years and say they cannot support increasing the debt ceiling without a budget deal at the same time.

"Compromise and an agreement will depend on each side being willing to accept some tough choices," White House spokesman Jay Carney said Monday.

Failure to raise the ceiling "would do serious damage," said Mark Zandi, chief economist at Moody's Analytics, whose views are frequently cited by the Obama administration. "It will unhinge the already very fragile collective psyche."

But Zandi said that if Republicans are being asked to give up their deep-seated opposition to tax increases, then Obama needs to sacrifice as well by abandoning a major campaign promise, such as his demand that Congress end Bush-era tax cuts for wealthier Americans.

Another option is for Obama to propose his own plan for further savings in Medicare. Republicans might find that appealing after the House Republican plan ran into broad public opposition and became a campaign issue for Democrats.

"The president needs to take a chance himself, and do something that shows he's willing to give up something that's very large to move this forward," Zandi said in an interview.

The president stepped up his personal involvement in negotiations after bipartisan talks led by Biden stalled last week. 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 meetings 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 led Republicans to walk out.

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.

All in all, Obama has proposed more than $600 billion in tax increases and would like a ratio of $1 in tax revenue for every $3 in spending reductions.

"At the end of the day I would be surprised if it was that 1-to-3 ratio the White House was talking about," said Chris Krueger, a policy and politics analyst at MF Global's Washington Research Group. "That is probably a bridge too far for congressional Republicans. But I wouldn't be surprised if there a couple of ceremonial revenue raisers."

While Republicans insist on 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 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 includes a federal auction of parts of the broadcast spectrum and the sale of surplus federal property.

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's a really delicate balance and there is not a lot of time left," Krueger said.

[Associated Press; By JIM KUHNHENN]

Associated Press writer Andrew Taylor contributed to this report.

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