POLITICS

Obama: Debt Ceiling Talks Fell Apart, Boehner Walked Out

WASHINGTON -- Social Security and Medicare may have been saved by the Tea Party's refusal to accept President Barack Obama's "grand bargain."

On Friday evening, Speaker John Boehner (R-Ohio) walked away from the latest offer on the table by Obama, who summoned congressional leaders back to the White House on Saturday for an 11:00 meeting to hash out a Plan B. The most viable option left for addressing the debt crisis, crafted by a bipartisan pair of Senate leaders, calls for much smaller cuts than the ones the president was willing to make.

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President Obama and Treasury Secretary Tim Geithner will be joined by Senate Majority Leader Harry Reid (D-Nev.), Minority Leader Mitch McConnell (R-Ky.) and the House leaders, Speaker John Boehner (R-Ohio) and Minority Leader Nancy Pelosi (D-Calif.). Noticeably absent are the congressional deputies, particularly Majority Leader Eric Cantor (R-Va.) whose testy exchanges with the president have added an extra layer of difficulty to the talks.

With the Tea Party's major proposal knocked down by the Senate, and with the Obama-Boehner talks scuttled, negotiations are now focusing on finding a solution that can garner just enough votes in both chambers to become law in under ten days. It's all about whipping votes now.

"No one wants to punt until default is the only other option," a Democratic aide said Friday morning, before the Senate voted down a House offer that coupled a debt ceiling raise with a radical constitutional amendment.

With the "Cut, Cap and Balance" bill out of the way, the lone obstacle to the debate's conclusion was the talks between Boehner and Obama. The collapse in those grand bargain negotiations paradoxically move the broader debt ceiling negotiations closer to an end. And not a moment too soon: The White House has repeatedly said that July 22nd was the day by which Congress must have identified a path forward and begun work toward its passage.

During a hastily called press briefing on Friday night, Obama said Boehner called him half an hour earlier and "indicated he was going to be walking away" from the compromise the two of them had been privately working on. A Democratic source told The Huffington Post that the president had called Boehner on Thursday evening to discuss the deal, but never heard back. The president tried again Friday afternoon. He finally got a return call at 5:30 p.m. The speaker, the source added, briefed the press about his decision to pull out of the deal before telling Obama.

"I've been left at the alter now a couple of times," said Obama.

Speaking to a half-filled room of reporters, the president laid out just how dramatic the cuts to the social safety would have been in the deal he was trying to give Republicans. He said that he couldn't believe Boehner walked away from the proposal he was offering: $3.5 trillion in spending cuts over 10 years, smaller tax increases than those laid out in a bipartisan Senate plan and cuts to entitlement programs, something Democrats have pushed hard against. It also didn't include revenues that Obama has insisted be in a final package, namely via closing tax loopholes and ending subsidies for the oil and gas industry.

"In other words, this was an extraordinarily fair deal," Obama told reporters. "If it was unbalanced, it was unbalanced in the direction of not enough revenue."

The president appeared genuinely flummoxed at the talks falling apart, saying there "doesn't seem to be a capacity for [Republicans] to say yes." He said he couldn't believe Congress would "end up being that irresponsible" as to impose a "self-inflicted wound on the economy at a time when things are so difficult."

The New York Times also played a major part in the breakdown of talks between Boehner and the White House, reporting Thursday that the pair had moved very close to a deal. Both sides spent the rest of the day knocking down the report, while Senate Democrats fumed that the White House was caving.

The latest breakdown comes with about a week left until the Aug. 2 deadline, at which point the government is expected to run out of money to pay its bills. Even if a default is averted, the protracted debate over raising the debt limit has left the U.S. government dangerously close to having its credit rating downgraded. In that event, Americans could expect a spike in interest rates on their credit cards, student loans and mortgages, with ramifications felt through the U.S. and global economy.

"We have now run out of time," the president said. He said he told congressional leaders to come back to the White House at 11 a.m. on Saturday "to explain to me how we are going to avoid default."

In a press conference later Friday night, Boehner accused the White House of having “moved the goal post” in negotiations.

“The president demanded $400 billion more” in revenues when the two of them met Thursday, Boehner said, which is “nothing more than a tax increase on the American people.”

He said he and House Majority Leader Eric Cantor (R-Va.) were “very disappointed” by that demand. Boehner also sent a letter to House Republicans on Friday night explaining why he pulled out.

"It has become evident that the White House is not serious about ending the spending binge that is destroying jobs and endangering our children's future," the GOP leader wrote. "A deal was never reached, and was never really close."

At a briefing with reporters shortly after the president spoke, three senior White House officials laid out in detail their version of where the discussions fell apart.

On the discretionary spending front, both sides had "identical offers," said one of the officials. There would be $1.2 trillion in cuts over the course of ten years; $1 trillion in savings that would come from the draw-down of the wars in Afghanistan and Iraq; and $250 billion in savings in Medicare over the course of 10 years. Both sides had also agreed to attach a second piece of legislation, to be decided via the reconciliation budget process, that would have changed the retirement age for Medicare and changed the premium structure for Medicare Part B and D, while eliminating certain kinds of supplemental insurance. That bill would also contain changes to the way Social Security benefits were paid starting in 2015, with buffers put in to protect the lowest-income beneficiaries.

There was, in addition, an informal agreement to try and extend Social Security's solvency by an additional 75 years. How they would get there, however, remained a point of contention, with the president wanting a package of benefit and premium changes and Republicans focusing just on the benefit side. Unable to overcome that impasse, the two sides settled on vague language requiring them to meet that 75-year goal with future reforms.

Where the two sides remained apart were on Medicaid cuts, with Republicans demanding tens of billions of dollars more in cuts than the president was comfortable making. White House officials described that difference as possible to overcome, however.

The revenue component, in the end, remained unbridgeable. According to senior White House officials, each side had agreed to pass tax reform down the road that would result in $800 billion in revenue generated -- the equivalent amount of savings that would be achieved if the top-end Bush tax cuts were simply allowed to expire. The administration wanted $400 billion in revenues on top of that. Republicans wanted zero, and in statements on Friday night GOP leadership aides insisted that the White House had changed the contours of the negotiations by making that demand in recent days.

Obama offered to move off that $400 billion mark should GOP leadership lessen the type of cuts to entitlement programs they were demanding, White House aides said.

In addition, the two sides could not figure out what to do if that aspirational tax reform package wasn't achieved. The White House, at various points, proposed that the fallback option be the actual expiration of the Bush tax cuts for the wealthy. Republicans demanded that they have something as bluntly frightening to Democrats. On Thursday, GOP leadership proposed that the penalty for inaction on tax reform be the repeal of the health care law's individual mandate as well as the newly created Independent Advisory Board, which has been set up to find cost savings in Medicare. The White House balked at the offer.

"Our view was we are not going to put the individual mandate in a deficit reduction package," said a senior White House official. "But we were open to other ideas and there are any number of formulations for us."

All of which does not mean that the big deal is now dead. In fact, White House officials made it abundantly clear that they would welcome GOP leadership back into those discussions.

"The speaker withdrew from the talks. This offer is still available,” said one of those officials.

Boehner, at his briefing, said he didn’t think his relationship with Obama, or debt talks, are beyond repair. He said he planned to go to the White House on Saturday with other leaders.

At this stage, the most viable proposal left on the table appears to be a far less ambitious debt plan put together by Reid and McConnell. Their proposal, dubbed a "fallback option," calls for $1.5 trillion in cuts, generates no new revenues and would put the onus fully on Obama to raise the debt limit, without Congress. It would also require the president to raise the debt ceiling in three increments over the next year and a half -- a politically driven requirement by McConnell aimed at making Obama take responsibility for all debt ceiling hikes ahead of the 2012 elections.

The other potential remedy -- for the president to exercise the so-called constitutional option and invoke 14th Amendment powers to raise the debt ceiling himself -- was ruled out, once again, during the White House briefing.

"There are no options other than a legislative solution,” said a senior White House official.

A Democratic staffer familiar with Hill negotiations concurred that the Reid-McConnell plan appears the most likely resolution. The fight now heads to the trenches: The leaderships of both parties will cobble together coalitions in the House and Senate that can move the package through. In both parties, the wings will generally oppose leadership and the center will hold, if history is any guide. The same coalition passed the Wall Street bailout and the Obama-GOP tax cuts.

"We are prepared to compromise consistent with our values," House Minority Leader Nancy Pelosi (D-Calif.) said in response to the news. "Speaker Boehner's ‘adult moment’ is long overdue. Our economy, our children's education, our seniors' security and our nation's fiscal soundness require that we act without further delay."

Of course, there's also the bipartisan Senate Gang of Six proposal, which would slash $3.7 trillion in deficits over 10 years and raise up to $1 trillion in new revenues through tax code reform. But that proposal has critics in both parties, and some say there isn't enough time to turn it into a bill, send it to various committees for debate and pass it by Aug. 2.

Frustrations are clearly high on both sides of the aisle. As Twitter blew up at the news of the Obama-Boehner talks crumbling, Cantor spokesman Brad Dayspring chimed in with a tweet knocking Obama for making it seem as if Republicans thwarted the process.

“As if there's really a question whether President Obama threw a tantrum at the White House last week - same guy just appeared,” Dayspring tweeted.

Rep. Peter Welch (D-Vt.) said Congress had to move fast now that things have gotten hairy. He warned that the situation is nothing like the government shutdown narrowly averted earlier this year.

"If you've got the speaker walking away from the White House -- astonishing in and of itself -- the next step is meltdown in the markets," Welch said. "This is tempting the markets to turn, and when they do, it will be sudden and savage, then things will be out of control and the damage will be huge and irreversible."