White House sees promise in revisiting elements of ‘grand bargain’ on taxes, spending

During the negotiations between Obama and Boehner, the president offered about $900 billion in spending cuts, including $600 billion to entitlement programs such as Medicare. Obama has also been willing to adopt a less-generous measure of inflation in calculating Social Security payments.

At the same time, Obama insists tax revenue must be further increased in exchange for spending cuts. The bill approved by Congress this week raised slightly more than $600 billion of revenue over 10 years by raising tax rates. Obama now wants to raise about $600 billion more by limiting tax breaks.

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The discussion of a new grand bargain would center on replacing the sequester, which is set to slice domestic and military spending by $1.2 trillion over a decade. While a budget agreement could also include an increase in the debt ceiling, Obama had said he will not explicitly trade anything for that increase.

“He’s willing to have negotiations on further long-term deficit reduction and he’s willing to do that in a balanced way,” said Rep. Chris Van Hollen (D-Md.), a White House ally. “The context of the discussions will be in terms of replacing the sequester.”

Republicans, however, say they will put the debt limit at the center of negotiations and are willing to shut down the federal government in March, when a resolution funding it expires.

“The coming deadlines will be the next flash points in our ongoing fight to bring fiscal sanity to Washington,” Sen. John Cornyn (R-Tex.) said Friday. “It may be necessary to partially shut down the government in order to secure the long-term fiscal well-being of our country, rather than plod along the path of Greece, Italy and Spain.”

Some Democrats say they are worried that Obama may have relinquished the upper hand by failing to raise the debt ceiling as part of the fiscal cliff deal.

“By not insisting that the debt limit be tied that to the package, it’s entirely possible they’re going to win the week and lose the quarter,” former Obama budget director Peter R. Orszag said on CNBC on Thursday. “You don’t know yet until you see how February and March plays out, and I think there’s no doubt that they have somewhat less leverage than they did in the round just completed.”

White House officials said this week they expected to prevail on the debt limit issue in part because the sequester is noxious to GOP priorities, such as preserving defense spending. As a result, the thinking goes, Republicans would not demand dramatic cuts in exchange for raising the debt limit.At the same time, Democrats noted that some of their priorities, such as Medicaid, the health-care program for the poor, are exempt from the sequester.

And if Republicans do resist an increase in the debt ceiling, the White House plans to attack them for risking an economic calamity in an effort to slice the highly popular Medicare program, according to people familiar with the matter.

Scott Wilson and Peter Wallsten contributed to this report.

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