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VOL. 35 | NO. 23 | Friday, June 10, 2011

Biden-led budget talks face daunting odds

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WASHINGTON (AP) — For all the optimistic talk, negotiators seeking a deal for lifting a lid on how much money the government can borrow are learning how difficult it is to cut deficits by $2 trillion over the next decade or so.

Just this week, the farm lobby showed it will fight to preserve its lucrative federal support as it rallied to the defense of a $5 billion a year subsidy on corn-produced ethanol, while House leaders maneuvered to protect up to $167 million in cuts in direct payments to farmers.

At the same time, a blistering outburst from House Democrats against GOP cuts to food aid for pregnant women and hungry people overseas demonstrated that the two parties are miles apart on cutting domestic programs.

Republicans are saying "no way" to revenue increases. Democrats, in turn, are taking Medicare off the table.

And there's no certainty that even if leaders can produce an agreement, they'll be able to line up the followers. In 1990, a closed-door pact between President George H.W. Bush and a Democratic Congress was scuttled on the House floor by an insurgency led by then-Rep. Newt Gingrich, who was furious that Bush had broken his "Read my lips" promise against new taxes. It was subsequently modified and revived.

"It wouldn't be the first time that a bunch of people got together behind closed doors and worked out this elegant deal only to find out that nobody supported it," said GOP lobbyist Jack Howard, who's worked for Gingrich and Presidents George H.W Bush and George W. Bush.

It took months to produce a balanced-budget pact in 1997, an era of relative political tranquility. Now, with both sides looking forward to next year's elections, there's only seven weeks left to prevent a first-ever, market-quaking default on U.S. obligations.

Vice President Joe Biden, who is leading the talks, ducked reporters Wednesday as he left the eighth in a series of increasingly frequent meetings with top lawmakers. Their aim is finding spending cuts to accompany must-do legislation allowing the government to continue to borrow to finance its operations and avoid defaulting.

The two sides, officials close to the talks said, have been methodically discussing options but haven't reached any agreements on what elements might be included. The most difficult decisions are sure to get kicked upstairs to President Barack Obama and House Speaker John Boehner, R-Ohio.

Crafting the plan is a high-wire act. Deep cuts to the Pentagon could drive GOP defense hawks away. Anti-tax activists are ready to howl about anything even resembling a tax increase. Farm state lawmakers are extremely sensitive to cuts in agriculture subsidies. And Democrats whose votes will be needed to offset tea party defections won't stand for huge cuts in domestic programs demanded by Republicans.

The pressure is extraordinary since economists and top officials are warning of an economic calamity if the government defaults on its debt and is forced to pay higher interest on U.S. Treasurys to entice shaken investors to keep buying the bonds. The hope is to pass the legislation with room to spare before the Aug. 2 deadline.

In discussions this week, Republicans sought deep cuts in the money set aside in future years for the day-to-day operations of domestic agencies whose budgets are approved annually. Democrats, in turn, are targeting the Pentagon for future-year savings.

In one of the few areas of commonality, both sides are eager to claim credit for hundreds of billions of dollars in savings as troop levels in Iraq and Afghanistan are drawn down.

The discussion on Wednesday included a debate over ways to chart future budget targets, or "caps," that would be backed up with the threat of automatic spending cuts and perhaps tax increases if lawmakers aren't able to draft future legislation to meet the targets.

The negotiators are hoping this so-called trigger mechanism will allow them to claim hundreds of billions of dollars in deficit savings as a building block to a package cutting perhaps more than $2 trillion from the deficit over the next decade or so.

"We all support the idea that we would put in place a mechanism that assures deficit reduction," said Rep. Chris Van Hollen, D-Md. But he also said the two sides have fundamentally different ideas on whether the approach would include possible revenue increases.

"The purpose is to get a handle on the debt and reduce the deficit, and there are two sides to that equation — spending cuts as well as revenue," Van Hollen said.

The $2 trillion-plus figure is crucial because it's the amount of new borrowing authority it would take to keep the government afloat through the 2012 elections. GOP leaders have made it plain they only want to have to cast one vote on the politically toxic issue before the elections.

Sen. Jon Kyl, R-Ariz., said last week he thought it would require a $2.4 trillion increase in the debt limit to punt the issue into 2013.

History shows the challenge that lies ahead. A deficit-curbing bill enacted by a GOP-controlled Congress and signed into law by President George W. Bush in 2005 saved just $100 billion over a decade. Getting that relatively innocuous legislation through a system controlled entirely by Republicans was enormously difficult. Now multiply the amount by 20, toss in a government that's divided between the parties and factor in the ire of tea partiers horrified by the idea of voting to increase the U.S. borrowing cap.

Much of the optimism stems from a tone in the negotiating room that, by all accounts, is serious and respectful. And since nothing's been decided, there's nothing for interest groups and rank-and-file lawmakers to rally against.

In that light, Tuesday's vote on ethanol can be read as both a plus and a minus. The vote on the ethanol subsidy showed the tenacity of the farm lobby, but it also demonstrated at least some willingness by Republicans to kill special interest tax breaks this year and use the money to defray the deficit.

"There's a path forward, but we've got a long way to go," Van Hollen said. "There're still a lot of impediments to reaching a final deal. But we are making progress."

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