Debt-reduction talks at an impasse despite ‘breakthrough’

November 9, 2011

A senior Democrat on Wednesday hailed a decision by congressional Republicans to embrace higher taxes as “a breakthrough” in the year-long battle over the national debt. But that development only seemed to intensify partisan bickering over the shape of a debt-reduction blueprint.

With a Thanksgiving deadline less than two weeks away, Senate Republicans declared talks over the debt at an impasse and accused Democrats of walking away after the GOP for the first time offered to raise taxes above current levels to help restrain future borrowing.

“That was a great step forward, which proves that there have been significant discussions. And the worst thing to do when you make a step forward is to back away from the table,” said Sen. Johnny Isakson (R-Ga.), as he left a lunchtime meeting where GOP negotiators briefed Senate Republicans on the offer.

Democrats denied the charge and insisted that they were still working toward a compromise. But they said a deal depends on Republicans embracing far larger tax increases than they have so far been willing to accept.

“All we’re doing is waiting for them to come back with a fair and balanced proposal with adequate revenue, and we’ve been very clear to them,” said Sen. John F. Kerry (D-Mass.), a key Democratic negotiator. “They know precisely what is needed here for us to deliver to the American people a very positive and important result.”

Late-night meeting

No further bipartisan meetings had been scheduled as of late Wednesday, though people in both parties said talks continued through back channels among the 12 members of a special debt-reduction “supercommittee.” The panel risks triggering deep cuts to the Pentagon and other agency budgets in 2013 unless it can forge agreement on a blueprint to reduce borrowing by at least $1.2 trillion over the next decade.

During a three-hour meeting late Monday, Republicans said they believed they had found a path forward. In discussions that stretched nearly until midnight, Sen. Patrick J. Toomey (R-Pa.) outlined a GOP plan to save $1.2 trillion over the next decade that included as much as $350 billion in new taxes.

Most of the money would come from a revision of the individual tax code that would reduce tax rates for everyone but limit the value of itemized deductions, such as breaks for home mortgage interest and charitable contributions. Republicans said they also offered to raise taxes by as much as $60 billion on corporations, including the elimination of tax breaks for corporate jets and other special interests as President Obama has suggested.

The offer marked an unprecedented break from the anti-tax orthodoxy that has defined the GOP for decades and blocked a far-reaching debt-reduction deal for much of the past year. On Wednesday, Sen. Richard J. Durbin (D-Ill.), the No. 2 Democrat in the Senate and a veteran of the budget wars, described it as “a breakthrough.”

“The fact that some Republicans have stepped forward to talk about revenue, I think, is an invitation for Democrats to step forward and talk about entitlement reform as well as spending cuts,” Durbin told reporters. “Therein lies the core of an agreement.”

At the Monday meeting, some Democrats seemed to agree, according Republicans close to the discussions.

“Democratic negotiators wanted the revenue side to be higher. But both sides were working on it, and progress was being made,” said a Republican aide familiar with the talks, speaking on the condition of anonymity to discuss the private talks.

Democrats rolled out a new framework of their own that would save about $2.3 trillion over the next decade instead of the $3 trillion in their initial proposal. The blueprint, a copy of of which was provided to The Washington Post, called for $1 trillion in spending cuts, including a $400 billion reduction in federal health programs.

It also called for $1 trillion in new tax revenue, down from $1.3 trillion in the initial offer. The revenue would be split, with $350 billion coming in upfront tax increases and $650 billion to be gained through an eventual overhaul of the tax code. If Congress failed to approve tax legislation by January 2013, taxes would rise automatically by $650 billion.

Republicans said the Monday meeting ended on a positive note. “But then, something happened,” the GOP aide said.

Democrats denied that account, as well as the assertion that talks had been headed toward compromise. “I could not have been more clear that it was not sufficient revenue,” Kerry said.

Pressing ahead

Although the status of the talks remained uncertain, Republican negotiators pressed ahead with their blueprint. Participants in the lunchtime briefing said the plan was respectfully received by Senate Republicans, who were impressed that it was being offered by Toomey, a former president of the anti-tax Club for Growth.

Sen. John Cornyn (R-Tex.), a member of the GOP leadership, said he supports the proposal, though it “represents quite a stretch for some of the conservatives in our caucus. But we recognize that this is a good-faith way to allow the Democrats to say they got additional revenue by doing tax reform, cutting out a lot of loopholes the president has been railing about and getting the economy moving again.”

Lori Montgomery covers U.S. economic policy and the federal budget, focusing on efforts to tame the national debt.
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