Congress Plans to Raise the Federal Debt Limit, Increase Income Taxes, Cut Medicare and Medicaid, and Restructure Social Security

Laying Down Blunt Budget Markers for Debt Crisis

May 10, 2011

AP – The battle over whether tax increases can be used to cut the nation's debt flared Tuesday as the Senate's Democratic budget writer floated a possible millionaire's surtax to help cut projected deficits over the next decade. But Republican leaders flatly said no to tax increases.

Senate Budget Committee Chairman Kent Conrad, D-N.D., raised the idea of an extra tax on the wealthiest taxpayers, Democratic officials said, and the Senate's Democratic leader, Harry Reid, D-Nev., called for an end to tax subsidies for oil and gas companies. House Speaker John Boehner and Senate Republican leader Mitch McConnell both staked out seemingly unyielding positions against tax increases.

The parties exchanged volleys over taxes even as bipartisan congressional negotiators working with Vice President Joe Biden struggled for common ground on spending cuts that would help erode long-term deficits.

Boehner is calling for trillions of dollars in spending cuts, and the Democrats, too, acknowledge that spiraling annual deficits require spending restraint. But the differences over possible tax increases, even if they would spare regular wage-earners, underscore the chasm between the two parties.

The conflicting approaches to debt reduction set the stage for a grand national debate that will likely play out for the next year and half over overhauling taxes and restructuring major government benefit programs such as Medicare, Medicaid and Social Security.

The bipartisan budget negotiators who met with Biden for the second time in a week Tuesday are seeking more immediate solutions to long-term deficits. Those talks are under way while the administration seeks an increase in the government's borrowing authority, and Republicans see that debt ceiling vote as critical leverage for spending cuts.

Biden, emerging from a two-hour meeting with congressional negotiators across from the White House, voiced optimism about the talks, but indicated that top House and Senate leaders might ultimately have to become involved to seal any bargain.

"Whether we get to the finish line with this group is another question," he said.

Another round of talks is scheduled for Thursday.

One of the Republicans' top negotiators with Biden, House Majority Leader Eric Cantor of Virginia, signaled flexibility Tuesday. Cantor said the talks were designed to find where the White House, Democrats and Republican were "in terms of commonality right now" and indicated that an agreement on spending cuts in broad terms could be enough to win support for increasing the debt ceiling.

Still, he said, "there's got to be assurances that the commitments are real" to cut spending.

Cantor, Biden and five other negotiators from the House and Senate are focusing on spending cuts by seeking budget programs that both sides agree can be cut. So while congressional leaders battle along partisan lines over large goals and approaches, Biden and the six lawmakers are poring over budget proposals, program by program, in hopes of cutting a deal that reduces spending but doesn't tackle politically difficult entitlement programs or tax increases.

McConnell, emphasizing the point, said: "Taxes will not be on the table in the discussions the vice president's leading."

Senate Democrats appear caught in a budget crossfire of their own as Conrad struggles to assemble a budget blueprint reflecting party priorities in the chamber. Reid told reporters that Conrad briefed members on a draft budget plan cutting projected deficits by $4 trillion over the coming decade with a "50/50" split between tax increases and spending curbs. Party liberals were unhappy with an earlier plan calling for tougher spending cuts.

Meanwhile, Boehner laid down his party's clearest marker yet, insisting on Monday that any legislation to raise the government's debt limit should be accompanied by spending cuts larger than any proposed increase in the debt ceiling. Republican officials characterized Boehner's demand as a goal, not a make-or-break threshold, and White House officials played down its significance.

"Maximalist positions do not produce compromise," White House spokesman Jay Carney told reporters.

"We understand that there are starting positions," he said. "We also understand that compromise involves acknowledging that you have to move off of your starting position."

Democrats such as Rep. Steny Hoyer of Maryland, the party's House whip, portrayed Boehner as a captive of the Republicans' conservative base. And several Senate Democrats introduced legislation to strip highly profitable oil companies of tax breaks that give them $2 billion a year and use the money to make at least a small dent in the federal deficit.

Senate Finance Committee Chairman Max Baucus, one of the lawmakers negotiating with Biden, plans a hearing Thursday with top oil and gas industry executives on the tax breaks. But that idea is unlikely to go anywhere, since Republicans and oil state Democrats would likely work to defeat it.

Boehner's office cast the end of such tax breaks as equivalent to a tax increase that would be felt at the gasoline pump.

"Making that a precondition for budget talks is, well, batty," Boehner spokesman Brendan Buck said.

As for increasing the debt ceiling, Treasury Secretary Timothy Geithner has not yet proposed a new borrowing limit but has said the government must act no later than Aug. 2.

The last increase in the debt ceiling was in February of last year, from $12.4 trillion to $14.3 trillion. Under Boehner's proposal, that would mean that a similar increase this year would have to include about $2 trillion or more in spending cuts, an unprecedented reduction in spending.

Such cuts would require lawmakers to deal with spending in the government's biggest benefit programs, such as a Medicare and Medicaid. But Cantor and other top Republicans appeared to concede last week that overhauling those programs would be virtually impossible before the 2012 presidential and congressional elections.

A Republican budget plan passed by the House last month would change Medicare, the health care program for older adults, from direct government payments for medical bills to a voucher-like system. The change would affect future beneficiaries who are now 54 years old or younger.

Without Medicare or Medicaid on the negotiating table, the list of budget items facing trims is far more limited. The House Republican budget lists about $715 billion in non-Medicare and non-Medicaid cuts. They include spending reductions in farm subsidies, food stamps and changes in mortgage finance programs.