The Sydney Morning Herald
Bipartisan plan to dodge US default unravels
By Simon Mann
WHITE House efforts to broker a bipartisan deal that would avoid the US defaulting on its debt have suffered a new blow with Republican leader John Boehner backing away from an ambitious plan to slash the budget deficit by $US4 trillion ($A3.7 trillion) over 10 years.
Mr Boehner and President Barack Obama had been working on the deal, which includes $US3 trillion of spending cuts, with the rest made up of an increase in tax revenues. The plan, though sketchy, is believed to have countenanced measures that were politically risky for both leaders. It seemed Mr Obama was willing to cut into Medicare and Social Security programs provided Mr Boehner, the Speaker of the Republican-controlled House of Representatives, would agree to allow reduced tax rates on dividends, capital gains and top income earners to expire after 2012.
But before a meeting of Congressional leaders with Mr Obama set for Sunday evening (8am today Melbourne time), Mr Boehner sent word that he was prepared only to pursue a smaller $US2 trillion deficit reduction plan, an acknowledgment that he could not garner party support for a deal that included an increased tax take.
Retreating to his party's default position - driven by fiscal conservatives, including Tea Party-backed representatives, many elected for the first time last November - Mr Boehner said negotiators should focus on deficit reductions identified by a bipartisan group led by Vice-President Joe Biden.
However, that package also relies on an increase of about $US400 billion in tax revenues - to be achieved by closing loopholes that have benefited the rich and business - and is certain to be resisted by Republican hardliners. Mr Boehner's decision effectively sent the negotiations back to square one, although Mr Obama, too, was unlikely to have been able to deliver on his side of the deal; Democrats would certainly have objected to cuts to benefit programs.
A deal to reduce the deficit by about $US2 trillion would probably pave the way for Congress to agree to lift America's debt ceiling, the statutory limit for government borrowings, which currently stands at $US14.3 trillion.
Although US debt has already hit that figure, Treasury has been shuffling federal funds in order to meet interest payments and avoid a default. The Obama administration says Treasury's ability to do so will expire early next month, making a default probable on August 2.
This would send global financial markets into turmoil, risking the US's coveted AAA credit rating and putting the recovery further at risk.
Disappointing jobs figures released at the weekend showed unemployment climbing to 9.2 per cent, highlighting again the fragility of the US economy. But some Republicans, including some of those vying for the party's 2012 presidential nomination, reject claims that a default would precipitate a financial meltdown.
Congresswoman Michele Bachmann, whose popularity has been rising, drew applause from supporters at a weekend rally when she said she would not vote for any compromise debt package. ''It's time for tough love,'' said Mrs Bachmann, who heads the House Tea Party caucus, which is made up of dozens of representatives. ''Don't let them scare you by telling you that the country's going to fall apart,'' she said, and referred to Congress as ''a dysfunctional family''.
White House spokesman Dan Pfeiffer said Mr Obama would continue to push for as big a deficit reduction number as possible with tax revenues a part of the mix. ''To back off now will not only fail to solve our fiscal challenge, it will confirm the cynicism people have about politics in Washington.''
http://www.smh.com.au/world/bipartisan-plan-to-dodge-us-default-unravels-20110710-1h8vq.html
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