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Reid, Boehner huddle on U.S. budget deal

Wed, 16 Nov 2011 03:23 GMT

Source: reuters // Reuters

* No sign of a deal, but no sign of stalemate either

* Reid, Boehner meet to see if deal is possible

(Adds Hensarling quote, Democratic aide's reaction, background)

By Richard Cowan and Donna Smith

WASHINGTON, Nov 15 (Reuters) - The top Democrat in Congress said on Tuesday he saw few signs of progress on a U.S. deficit-cutting deal, as negotiators struggled to bridge their differences on tax increases and benefit cuts.

His Republican counterpart, meanwhile, predicted that Congress would approve a deal that might emerge from a 12-member "super committee" tasked with finding $1.2 trillion in budget savings.

Democrats and Republicans on the panel have less than a week to come up with a plan, but they remain far apart on how much of that total should consist of tax increases and how much should come from trimming retirement and health benefits.

Representative Jeb Hensarling, a Republican co-chairman of the super committee, said there was no deal yet but any compromise crafted by the panel would not include big tax hikes.

"Not going to happen," Hensarling said on the CNBC cable television network when asked about about the possibility of huge tax increases being an element of the budget deal.

"We're facing a jobs crisis and a debt crisis. We're certainly not going to exacerbate one by trying to address the other," he said. "Frankly, that's one of the reasons that we're somewhat stymied at the moment."

"We've gone as far as we feel we can go," Hensarling added. "Any penny of increased static revenue is a step in the wrong direction." Static revenue generally refers to revenue that can be reliably predicted to flow in or out of government coffers, such as tax revenue.

A Democratic aide familiar with the deficit-reduction talks said Hensarling has made clear that "it is the Toomey plan or he is walking away from negotiations."

Last week, Republicans fell in line behind a plan offered by Senator Patrick Toomey, a Republican member of the super committee, which he said would achieve around $250-$300 billion in new revenue.

But the proposal was linked to broad changes in the tax code that would have included limiting many tax deductions and lowering tax rates, including those for the wealthiest. Democrats rejected the proposal.

"Democrats are still at the table and want to come to a deal, but Republicans took a big step backward today by rallying around a plan that's a non-starter," the Democratic aide said on condition of anonymity.

UNTIL THE LAST MINUTE

Any agreement would likely challenge orthodoxies on the left and the right as the 2012 election season heats up. Party leaders would have to twist arms to ensure passage through the Republican-controlled House of Representatives and the Democratic-controlled Senate.

House Speaker John Boehner huddled with the top Democrat, Senate Majority Leader Harry Reid, to see if a deal was possible.

Republicans have moved off their staunch anti-tax stance in recent weeks, and Democrats have shown willingness to rein in benefit programs that are projected to blow a hole in the budget in coming decades, including Medicare, the healthcare program for the elderly.

After the 40-minute meeting in Boehner's office in the Capitol, Reid said he still saw no sign that Republicans will agree to the amount of tax hikes that Democrats want.

"So far I have not seen any indication Republicans are willing to agree to this balanced approach," he told reporters.

The panel has not held a full meeting for two weeks, though members have been working in smaller, informal groups. A deal will need to be reached before the formal Nov. 23 deadline to give budget analysts time to crunch numbers.

No new proposals have emerged since the two sides floated, and rejected, rival plans last week.

Republicans continued to ask Democrats for more deficit-reduction ideas, while Democrats said they wanted more details on how much new tax revenue they would be willing to accept. The two sides may opt to count future savings from winding down wars in Iraq and Afghanistan, which would make it easier to reach their target or include economy-boosting elements like enhanced unemployment benefits.

Aides said there was no sign of a deal but also no sign of a stalemate. Talks are expected to continue until the last minute.

"I am still hopeful that a few Republicans will put their country first and come to us with a credible offer," the panel's top Democrat, Senator Patty Murray, told reporters after meeting with fellow Democrats on the panel.

Republican negotiators also met with their party leaders.

Even if the panel reaches a deal, Reid and Boehner would have to ensure that it can pass Congress. Boehner in particular would face pressure from a conservative flank that has refused to back other budget agreements this year.

"I'm convinced, that if in fact there is an agreement, that it can in fact pass," Boehner told reporters after meeting with fellow Republicans.

The two congressional leaders were key players in an April budget deal that avoided a partial government shutdown and describe each other as friends.

Congress already faces rock-bottom approval ratings after a bruising year of budget battles that have pushed the federal government to the brink of default and prompted a first-ever downgrade of the U.S. credit rating.

Failure by the super committee could further undermine public confidence and lead investors to question whether Washington has the political will to make tough fiscal choices at a time when sovereign debt burdens in Greece, Italy and other countries are rattling world financial markets.

It would not necessarily prompt another credit downgrade because automatic spending cuts totaling $1.2 trillion would kick in, falling equally on military and domestic programs.

Analysts have voiced concern that sharp spending cuts could slow the already tepid U.S. economic growth.

(Additional reporting by Thomas Ferraro and Andy Sullivan; writing by Andy Sullivan; Editing by Deborah Charles, Cynthia Osterman and Paul Simao)