Both Sides Hardening in Debt-Limit Imbroglio

Donald Lambro

7/15/2011 9:32:00 AM - Donald Lambro

WASHINGTON -- The gulf between President Obama and a divided Congress grows ever wider as the debt-limit crisis stumbles toward a potentially catastrophic deadline.

Tempers flared Wednesday at the high-level negotiating session, with Obama walking out of the meeting at one point, angrily warning House Majority Leader Eric Cantor, "Don't call my bluff. You know I'm going to take this to the American people."

But apparently the president, who thinks he can tax his way out of this mess, is unaware that Americans are strongly behind Cantor and the Republicans on the issue of tax increases versus spending cuts.

The Gallup Poll reported Thursday that when people are asked how Congress should deal with the mountain of deficits and debt that threaten to sandbag our economy, 50 percent "prefer spending cuts to tax hikes."

The nationwide poll showed 20 percent saying the debt should be dealt with only through spending cuts, while another 30 percent said "mostly spending cuts."

Only 32 percent said they would prefer to cut the deficits equally between tax hikes and spending cuts, with just 11 percent saying "only" or "mostly" with tax increases.

Neither side is giving an inch as the Aug. 2 deadline looms, when the government will run out of sufficient capital to pay all of its bills.

The White House and most Republican leaders agree that failure to raise the debt limit will roil the financial markets and could plunge our fragile economy into yet another recession.

Even if an agreement is reached in the negotiations, leading credit rating agency Moody's warned mid-week, our AAA credit rating could still be downgraded. With the government's public debt rapidly approaching $15 trillion -- or more than our economy's entire gross domestic product -- our debts now exceed our total income.

A downgrade would mean not only that the Treasury would have to pay higher interest rates to borrow money, but it would also drive up interest rates for mortgages, car and business loans, and credit cards.

"President Obama wants a big deficit reduction deal -- a long-term solution to the nation's unbalanced finances. Yet, what the president and Republicans propose -- even if both could accept much of what the other offers -- would only delay the inevitable. Like Greece, America's finances will grow worse and worse," writes University of Maryland business economist Peter Morici.

The reasons: Dangerously excessive spending levels that even the largest economy in the world cannot afford to maintain, and a snail's-pace 2 percent economic growth rate, combined with near-zero job creation and an ever-climbing unemployment rate, that have flattened federal tax revenues.

Obama's tax-raising proposals would worsen our fiscal situation. His plan to raise taxes on incomes over $200,000 would hit tens of thousands of small businesses struggling to survive, and wouldn't make a dent in this year's $1.6 trillion deficit. Slapping manufacturers and corporations, such as oil companies, with higher taxes would shrink domestic production, yield less revenue and worsen the budget.

Throw in Obamacare, which is driving up state Medicaid costs and private insurance premiums. Raising business expenses that force job cuts would result in less revenue to pay the government's bills.

Until now, Republican leaders believed that just the threat of not raising the debt ceiling would force Obama to drop his insistence that higher taxes be a major part of any budget deal. But he knows that would anger his liberal political base, which is already showing signs of division and disapproval of his presidency. As of Wednesday, he was not budging from his tax posture.

Meanwhile, GOP opposition to raising the debt ceiling appears to be hardening, despite fears that it would push the economy over the edge.

"Currently, there is not a single debt limit proposal that can pass the House," Cantor said in a statement this week.

Senate Minority Leader Mitch McConnell, however, is preparing a "backup plan" to give Obama the authority to raise the debt ceiling in three installments by up to $2.5 trillion, accompanied by spending cuts equal to each increase. Lawmakers would then have 15 days to pass a resolution of disapproval that Obama could veto, in which case the debt increase would become law.

The thinking in the White House high command right now is that if a budget-cutting deal isn't forthcoming, a debt-limit crisis cannot be averted, and an offensive strategy is being prepared to blame it all on the Republicans.

If it comes to that, McConnell -- who thinks the focus needs to be on spending and the Obama economy, not on the debt-limit bill -- will bring his plan up for a vote.

"All of a sudden we have co-ownership of a bad economy. That is very bad positioning going into an election," McConnell said on the Laura Ingraham talk-radio show Wednesday.

His strategy: Let Obama take full responsibility for raising the nation's debt, along with a failing economy -- the issues on which Republicans can defeat him and his party in the 2012 elections.