WASHINGTON — President Barack Obama said Sunday that "we need to" work out a debt deal within the next 10 days as he convened a meeting with congressional leaders, aiming to fashion a deficit reduction package for the next 10 years.
Obama and the eight top House and Senate leaders assembled in the White House Cabinet Room for a rare Sunday session, less than 24 hours after House Speaker John Boehner abandoned plans to negotiate a massive $4 trillion deal for reducing the deficit.
As the meeting opened, Obama and the leaders sat around the table in Sunday casual dress. Asked whether the White House and Congress could "work it out in 10 days," Obama replied, "We need to."
Despite Boehner's preference for a smaller, $2 trillion plan for deficit reduction, White House aides said Sunday that Obama would press the lawmakers to accept the larger deal. Republicans object to its substantial tax increases and Democrats dislike its cuts to programs for seniors and the poor. The aides, however, left room for negotiations on a more modest approach.
The dispute threw into question the extent to which Sunday's meeting at the White House would move the talks toward a resolution as an Aug. 2 deadline loomed. That's when the nation would begin to default on its debts, administration officials say, if no deal is reached to raise the borrowing limit from $14.3 trillion.
The International Monetary Fund's new chief, Christine Lagarde, said in an interview broadcast Sunday that if the U.S. fails to act, she foresees "interest hikes, stock markets taking a huge hit and real nasty consequences" for the American and global economies.
Republicans have demanded that any plan to raise the debt limit be coupled with massive spending cuts to lighten the burden of government on the struggling economy. Higher taxes, Republicans have said from the start, are deal-killers if not offset elsewhere.
But Obama has a long way to go to satisfy lawmakers in his own party, too. Many Democrats are unnerved by the president's $4 trillion proposal because of its changes to Medicare and Medicaid, the government-funded programs that provide health care coverage to the elderly and poor.
Both U.S. political parties are under pressure from voters to resolve the debt crisis ahead of next year's congressional and presidential elections. Obama is seen as a candidate who is tough to beat, though voters' fears over the economy have been dragging down his numbers.
Expectations for Sunday's White House meeting took an abrupt turn Saturday after House Speaker John Boehner informed Obama that a package of about $2 trillion, which bipartisan negotiators had identified but not agreed to, was more realistic than the president's proposal.
Republicans late Saturday rejected Obama's $4 trillion proposal, the largest of three under consideration, because its tax increases would doom it in the Republican-controlled House of Representatives, Boehner said.
Senate Republican leader Mitch McConnell of Kentucky left little doubt that the $4 trillion deal was dead.
"I think it is," McConnell said. Raising taxes amid 9.2 percent unemployment, he added, "is a terrible idea. It's a job killer."
Administration officials said Obama would press for a bigger deal one last time at Sunday's White House negotiating session, but they left room for considering a more modest approach.
Political pain is part of the deal and should be worth bearing, White House chief of staff William Daley said. Obama, he added, was calling on lawmakers to "step up and be leaders."
"He's not someone to walk away from a tough fight," Daley said. "Everyone agrees that a number around $4 trillion is the number that will ... make a serious dent in our deficit."
But embedded among the tough words was rhetoric that acknowledged that the prospects for a big deal had become uncertain at best.
"We're going to try to get the biggest deal possible," said Treasury Secretary Timothy Geithner.
Geithner cast Obama as uninterested, for now, in a more modest proposal which, like the $4 trillion deal, would extend the debt limit through 2012.
Geithner cautioned that a package about half the size of the one Obama prefers would be equally tough to negotiate because it, too, could require hundreds of billions in new tax revenue — anathema to Republicans. Lawmakers said that previous bipartisan talks, led by Vice President Joe Biden, identified a fraction of cuts that would be needed even for the more modest packages.
Even so, Boehner insisted the smaller proposals had more realistic chances of passing. One, identified but not signed off-on by the Biden group, would call for about $2 trillion in deficit reductions, most accomplished through spending cuts.
"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 said.
The package of $2 trillion to $2.4 trillion in deficit reduction identified by the Biden-led negotiators would still require Republicans to accept some increase in tax revenue. Republicans walked out of those negotiations after they were unable to accept about $400 billion in new tax money that the White House proposed by closing loopholes, ending some corporate subsidies, and limiting the value of deductions for wealthy taxpayers.
One option now under consideration by Obama administration officials would call for capping some deductions for wealthy taxpayers at the 28 percent tax rate and using the revenue to help pay for a yearlong extension of a current payroll tax cut. The extension would expire at the end of 2012, but the cap on deductions would continue, generating new revenue in the long term. Capping all itemized deductions at the 28 percent rate would generate about $293 billion over 10 years.
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