“The news on the economy and on the jobs front of the last several days, I think, underscores the importance of this meeting we just came out of,” House Majority Leader Eric Cantor (R-Va.) said after emerging from the talks at the U.S. Capitol. “We believe that much of the problem surrounding the lack of job creation and growth for this country has to do with the fact that there isn’t a credible plan to manage down the debt and deficit.”
Private-sector job creation slowed in May, and the unemployment rate ticked up to 9.1 percent — the first increase in eight months. The slowing recovery has given rise to talk of a new round of economic stimulus, including discussions at the White House about allowing employers to take advantage of a temporary payroll tax holiday that currently benefits only workers.
That idea gained little traction on Capitol Hill, where lawmakers said the country would be better off with a long-term plan to manage government spending than more stimulative sweeteners to boost economic activity in the short term.
“A lot of senators are saying that temporary [tax] credits don’t bring the kind of confidence you need to cause a lot of the business investment and hiring to come off the sidelines,” said Sen. Ron Wyden (D-Ore.). “The appetite now is for something that would do more to produce predictable approaches in terms of growth and investment.”
Wyden is pushing a plan, along with Sen. Daniel Coats (R-Ind.), to stimulate growth by overhauling the nation’s tax code. While such action has broad support at the White House and in Congress, congressional leaders say it is too complicated to play a major role in the Biden effort, which is operating under a tight Aug. 2 deadline. The talks are aimed at producing a compromise that can persuade reluctant lawmakers to raise the nation’s $14.3 trillion debt limit and avert the risk that the U.S. Treasury would, for the first time in history, default on its obligations.
Negotiators have been walking through a list of potential areas of compromise, with a focus Thursday on revenue. Treasury Secretary Timothy F. Geithner made the administration’s pitch for raising taxes, including a plan to limit the value of itemized deductions for the wealthiest households, according to people familiar with the talks.
Republicans have rejected any move to raise taxes, and Cantor restated that position, arguing that a package that includes tax increases cannot pass the Republican-dominated House. Biden said fresh revenue would be necessary to plug the yawning budget gap, according to people familiar with the talks, but he did not press the issue Thursday with Cantor and Sen. Jon Kyl (Ariz.), who represents Senate Republicans.
Much remains to be decided in the sessions, which are set to resume Tuesday. There has been no agreement on how much to raise the debt limit, how much to cut spending or what form the agreement will take, according to people familiar with the talks. Republicans have said they want cuts equal in size to the increase in the debt limit, and the Treasury needs an increase of at least $2 trillion to get through the end of next year. But a shorter extension is also a possibility.
Next up on the agenda: agency spending, including at the Pentagon, and an enforcement mechanism to lock in any multi-year budget deal. Republicans want spending caps with automatic cuts if the caps are breached. Democrats want caps on annual deficits that could trigger tax increases.
One potentially large area of conflict is the spending level for fiscal 2012, when the economy is likely to remain weak. While some liberals are eager for additional government spending to create jobs, House conservatives are calling for large cuts next year in exchange for supporting a debt-limit increase.
So far, the Biden group has not discussed new forms of stimulus. Instead, the White House is focused on cutting a deal that permits spending cuts and tax increases to start slowly and ramp up over time.
“Our belief is that balanced deficit reduction that is phased in appropriately and is substantial and credible will increase confidence, help financial markets and help create jobs today,” said White House economic adviser Jason Furman.
Meanwhile Thursday, a group of five senators sought to revitalize a separate push to draft a bipartisan debt-reduction plan. The effort stagnated last month after Sen. Tom Coburn (R-Okla.) bowed out of the Gang of Six.
Senate Budget Committee Chairman Kent Conrad (D-N.D.) and the other remaining members of the group briefed 13 of their colleagues on a framework for cutting $4.7 trillion from projected deficits over the next decade. Conrad declined to say how or whether he expects that plan to influence the debt-limit negotiations.