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Originally published July 13, 2011 at 9:14 PM | Page modified July 14, 2011 at 6:47 AM

Dealing with Debt

House, Senate GOP leaders divided on debt-ceiling deal

Two top Republican leaders clashed Wednesday over a plan that could allow the government to avoid a potentially catastrophic default but would not ensure the deep cuts in federal spending that party members seek.

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WASHINGTON — Two top Republican leaders clashed Wednesday over a plan that could allow the government to avoid a potentially catastrophic default but would not ensure the deep cuts in federal spending that party members seek.

In an interview with radio talk-show host Laura Ingraham, Senate Minority Leader Mitch McConnell of Kentucky, who offered a proposal this week that would allow President Obama to raise the federal debt limit without guaranteed spending cuts, warned fellow conservatives that failure to raise the debt limit would probably ensure Obama's re-election in 2012.

Republicans are demanding deep spending cuts as the price for agreeing to raise the debt limit, but the talks have bogged down over Obama's demand for tax increases that Republicans say they won't accept.

McConnell predicted that if Congress fails to act, Obama will argue "that Republicans are making the economy worse and try to convince the public, maybe with some merit, if people start not getting their Social Security checks and military families start getting letters saying their service people overseas don't get paid."

"You know, it's an argument he has a good chance of winning, and all of a sudden we (Republicans) have co-ownership of a bad economy," McConnell said. "That is a very bad positioning going into an election."

But House Majority Leader Eric Cantor of Virginia has argued that raising the debt ceiling without significant and guaranteed spending cuts would surrender the party's momentum from the 2010 midterm elections.

Talking with reporters at the Capitol after he left a White House meeting to resolve the differences, Cantor said Obama had backed away from spending cuts agreed to earlier and the two sides were far from agreement on a $2.4 trillion package of deficit cuts that would allow the Treasury to borrow through the next election.

Cantor quoted Obama as saying the talks had reached the point that "something's got to give," and then demanded Republicans either jettison their demand for deficit cuts at least equal to the size of the debt limit or drop their opposition to tax increases.

"And he said to me, 'Eric, don't call my bluff.' " He said, 'I'm going to the American people with this."

Democratic officials said that in fact Cantor had twice earlier in the meeting raised the possibility of a short-term bill, and that he interrupted the president midsentence to do so a third time. But as he left, Obama added, "I'll see you tomorrow," they said.

Another round of talks is set for Thursday.

Congressional Democrats like the McConnell approach because it could end the stalemate without forcing them to concede dramatic cuts to health-care and retirement programs that they have vowed to protect.

With a threatened default less than three weeks away, Moody's Investors Service announced Wednesday it was reviewing the U.S. bond rating for a possible downgrade, and the Treasury said the annual deficit was on a pace to exceed $1 trillion for the third year in a row.

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