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Stalled Deficit Reduction Talks Results in Name Calling

After House Majority Leader Eric Cantor refused to budge on including a 4 to 1 ratio of new revenues to spending cuts in the “big deal” on federal deficit reduction, the President said that any Republican refusal to increase the federal debt limit would result in “a tax increase on everybody” because of the likely financial market response for increased interest rates on federal debt obligations.  He also said he would not sign a short-term debt limit increase nor bow to the demand by some Republicans for a balanced-budget amendment to the Constitution.  The likely result is for Senate Republicans and Democrats to forge a compromise measure that could pass in the Senate and then force the House to vote for the measure, or trigger a default by the U.S. government.  The President said he could not guarantee that Social Security benefits would go out on time if the Congress fails to act before the August 2nd deadline set by Treasury Secretary Timothy Geithner.  With a significant portion of House “Tea Party” Republicans likely to vote against any debt limit increase, or revenue increase, the President would have to encourage enough House Democrats to vote for any Senate compromise.  Senate Minority Leader Mitch McConnell has proposed a “last choice” plan to break the stalemate which would require the President to seek congressional authority to raise the debt ceiling by $2.5 trillion over three installments in the next 18 months.  Each installment would require the President to propose spending reductions of an equal amount with Congress debating the reductions under normal appropriations procedures.  Senate Majority Leader Harry Reid said he would work with Senator McConnell to improve the plan in the event negotiations with the White House fail.  House Speaker John Boehner did not immediately pour cold water on the proposal, but other House Republicans said they would not vote for such a move.  In addition, Senate Budget Committee Chairman Kent Conrad expressed displeasure with the proposal given his preference for a longer-term deficit reduction plan.  His so-called “Gang of Five” has crafted a ten year proposal that would cut the deficit by over $3.6 trillion by, among other things, eliminating the alternative minimum tax, providing entitlement reform and cutting various domestic spending programs.  Whether the details will be released will likely await a final resolution of the White House negotiations.  Any “big deal” would almost surely include changes to Medicare, Medicaid and Social Security.  President Obama has said he could support even higher Medicare premiums and higher copays for higher-income beneficiaries who already pay higher Part B premiums.  The Biden negotiations also identified Medicare and Medicaid savings at $334-353 billion and another $260 billion in savings from other entitlements.  A “big deal” would also likely include an increase in the Medicare eligibility age from 65 to 67 and limits on Medigap policies to totally fill in Medicare deductibles and copays.  House Democrats continue to express opposition to Medicare cuts with the latest volley being from 64 members who oppose any reduction in graduate medical education payments to hospitals.  House Republicans stepped up the pressure on the President and CMS to provide Congress with a plan to keep Medicare solvent, citing the MMA Act requirement for such a plan in light of the Medicare Board of Trustees’ funding warning that general tax revenues could exceed 45% of Medicare funding at some point in the near future.

Appropriations Issues
The Senate took up the House-passed FY 2012 Military Construction/VA appropriations measure last week, H.R. 2055, but further action will be delayed until this week in the face of Senator Jeff Sessions’ budget point of order maintaining that the bill violates budget rules given the Senate’s failure to pass an FY 2012 budget resolution.  The Senate substitute would provide $52.5 billion in FY 2013 advance funding for veterans’ medical care.  Senator Sessions said that the 1974 Budget Act prohibits spending money until there is a budget in place.  He also said he intends to offer an amendment to require a 60 vote total, rather than the current majority, to waive such budget points of order.  The House is also scheduled to take up H.R. 2560, the Cut, Cap and Balance Act, legislation sponsored by Rep. Jason Chaffetz that would, subject to certain war-related adjustments and direct spending limits, prohibit FY 2012 discretionary spending above $1,019,402,000,000 in new budget authority and $1,224,568,000,000 in outlays.

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