Obama said he was willing to negotiate deficit reduction with GOP leaders but insisted that those talks be separate from decisions to raise the $16.4 trillion debt ceiling and avert a possible first-ever national default.
“They will not collect a ransom in exchange for not crashing the American economy,” Obama said in a news conference one week before he is sworn in for a second term. “What I will not do is to have that negotiation with a gun at the head of the American people.”
Bitter brinkmanship between the White House and congressional Republicans over spending has become a defining event over the past four years, testing both Obama’s leverage and his resolve at different moments of his presidency. House Speaker John Boehner brushed off Obama’s insistence on separating the debt ceiling from negotiations over spending cuts.
“The American people do not support raising the debt ceiling without reducing government spending at the same time,” Boehner said. “The consequences of failing to increase the debt ceiling are real, but so, too, are the consequences of allowing our spending problem to go unresolved.
Underscoring the urgency, Treasury Secretary Timothy Geithner said in a letter to Boehner on Monday that the government will exhaust its borrowing limit as soon as mid-February, earlier than expected. The Treasury has been using bookkeeping maneuvers to keep from surpassing the debt ceiling, but Geithner said those measures will be exhausted by mid-February to early March.
In addition to noting possible effects on older Americans and veterans, Obama recited a litany of possible consequences if Congress fails to raise the debt ceiling, including sending the economy back into recession.
“We might not be able to pay our troops, or honor our contracts with small business owners,” he said. “Food inspectors, air traffic controllers, specialists who track down loose nuclear materials wouldn’t get their paychecks. Investors around the world will ask if the United States of America is in fact a safe bet. Markets could go haywire, interest rates would spike for anybody who borrows money. Every homeowner with a mortgage, every student with a college loan, every small business owner who wants to grow and hire.”
At this moment, the government faces three looming deadlines: The debt limit must be raised soon to meet spending obligations and prevent a first-ever default, a series of across-the-board spending cuts is to kick in on March 1, and funding for most government programs will run out on March 27.
After Obama won tax rate increases for wealthier Americans during budget negotiations last month, Republicans became doubly determined to win spending cuts. They see the confluence of events ahead of April 1 as their best opportunity.
Just weeks from hitting the first of the deadlines, the two sides are neither on the same page nor pursuing a common approach. In 2011, Obama and Boehner at least started off agreeing on the premise that the increase in the debt limit be matched dollar-for-dollar with deficit cuts, spread out over a decade. Obama ultimately won a $2.1 trillion debt increase, but only after agreeing to an equal amount of spending cuts over 10 years.
This time, White House officials believe the president has a stronger hand, having won re-election and, at least partially, the tax increases on which he had campaigned.
Eager to avoid blame for a default or for missed payments to seniors, some Republicans are getting ready to insist on certain payment priorities by the Obama administration if the debt ceiling is not raised in a timely manner.
Even without additional borrowing authority, the government would continue to receive tax revenue, but hardly enough to keep up with the bills.
Sen. Patrick Toomey, R-Pa., says he will introduce legislation next week that would require the government to pay interest on the debt as well as Social Security benefits and wages for active duty members of the military if the borrowing limit is not raised.
“Because the people who want to keep spending as usual and don’t want to negotiate some spending reductions are out there propagating this myth that somehow failure to raise the debt ceiling would result in a default, I felt like it’s necessary to demonstrate and, in fact I prefer to codify, the alternative,” Toomey said in an interview.
Congressional Democrats have recently urged the president to lift the debt limit unilaterally. He said — as he has before — that he won’t do it, that Congress has voted for the spending that resulted in federal borrowing, and should now agree to pay the bill.
“There are no magic tricks here,” Obama said Monday. “There are no loopholes. There are no, you know, easy outs.”
Obama noted that combined with other legislation he signed earlier in his term, he and Congress have reduced deficits by about $2.5 trillion over a decade, short of the $4 trillion he said is necessary to get them down to a manageable size.
He insisted that in negotiating deficit reductions, both spending limits and tax revenue increases need to be on the table. Aides have said that closing loopholes and placing limits on deductions could generate about $600 billion in new revenue. He added that he is “open to making modest adjustments to programs like Medicare to protect them for future generations.”
One option for Boehner is to package a debt limit increase together with a full catalog of spending cuts and try to pass it through the House. That could prove enormously challenging since he would have to accomplish the feat exclusively with GOP votes — and some conservative hard-liners simply refuse to approve any debt increase.
Boehner has made it clear that he’s eager to avoid a first-ever default on U.S. obligations — even if some Republicans aren’t afraid of the idea.
In one sign of flexibility, a Boehner spokesman says that though there is the so-called Boehner Rule requiring $1 in spending cuts for every $1 in increased authority to issue government debt, the speaker is willing to apply it more leniently to include savings from “reforms” to entitlement programs like Medicare and Social Security that accrue over the long term.
Obama has his doubters, who note that he has compromised before in the face of last-minute deadlines.
Asked during the news conference how steadfast he was, Obama replied: “We’ve got to break the habit of negotiating through crisis over and over again. Now is as good a time as any, at the start of my second term. Because if we continue down this path, then there’s really no stopping the principle.”