Thursday, June 23, 2011


The two Republicans participating in bipartisan budget talks headed by Vice President Joe Biden said they were pulling out due to an impasse over taxes that only President Barack Obama and House Speaker John Boehner could resolve.

House Majority Leader Eric Cantor (R., Va.) said he wouldn't be attending Thursday's scheduled meeting of the deficit-reduction leadership group because he believed it was time for the talks to move to a higher level. After Mr. Cantor's remarks, Senate Minority Whip Jon Kyl (R., Ariz.) also withdrew from the talks, and the Thursday meeting was canceled.

"We've reached the point where the dynamic needs to change," Mr. Cantor said in an interview. He described Wednesday's session with Mr. Biden as contentious. "It is up to the president to come in and talk to the speaker. We've reached the end of this phase. Now is the time for these talks to go into abeyance."

From the start, Democrats have insisted that some form of new revenue or tax increases would need to be part of the solution, given the goal of a deficit-reduction package of $4 trillion. At the same time, Republicans have been equally staunch in opposing the idea as negotiations progressed. Messrs. Cantor and Kyl have been the GOP representatives in the negotiations for the past six weeks.

On Thursday, Mr. Cantor said there could be no agreement on an overall package without bridging the divide on taxes. Mr. Kyl said in a statement that "The White House and Democrats are insisting on job-killing tax hikes and new spending."

Still, Mr. Cantor remained optimistic about the prospects for a deal. He said the group had already made progress and had identified more than $2 trillion in spending cuts over the next 10 years. "The groundwork has been laid, the blueprint is there, we have a vision of the agreement," he said.

White House press secretary Jay Carney later said the deficit negotiations would continue. Mr. Carney said Mr. Obama met with Mr. Boehner, an Ohio Republican, at the White House Wednesday night, but wouldn't address what was discussed. Senate Majority Leader Harry Reid (D., Nev.) said that in light of Messrs. Cantor and Kyl's decision to abandon the talks, it would now be up to the president, speaker and himself to move the negotiations forward.

Mr. Cantor's move marks a turning point in the negotiations to craft a deficit-reduction agreement that would be tied to an increase in the federal debt limit before Aug. 2. Most participants had expected the talks would eventually be passed off to Mr. Obama and higher-level congressional leaders, but Mr. Cantor's move may force the shift sooner than many expected. Mr. Boehner said he understood Mr. Cantor's frustrations, and added that he remains willing to talk with the president.

Mr. Cantor said Wednesday's session stalled over the tax issue. This was unlike past meetings, when Mr. Biden kept the talks focused a possible spending-cut agreement and sidestepped the divide on taxes.

"At each meeting, it has become a little more difficult to ignore that divide," Mr. Cantor said.

Mr. Cantor said the $2 trillion in spending reductions identified include savings both from the discretionary and the mandatory side of the federal budget. Discretionary spending accounts for roughly a third of the budget and is set each year by Congress, while the mandatory spending is renewed automatically each year without action by lawmakers.

Without discussing specifics, Mr. Cantor said spending cuts had been broadly agreed to across the budget, including health-care programs. He said the group had yet to agree on a mechanism to control future budgets, such as setting firm spending caps for example.

One proposal under consideration would be use a variation of the Consumer Price Index to adjust a variety of federal programs for inflation. The other measure, called the chained CPI, better accounts for people's changing spending habits when prices jump. According to the nonpartisan Committee for a Responsible Federal Budget, the change could decrease projected federal spending by as much as $300 billion over the next decade due to slower growth of benefits, such as Social Security, while raising revenue from resulting changes to tax brackets. Mr. Boehner said Thursday the idea "has merit."

The nation's $14.29 trillion debt limit was breached on May 16, though Treasury officials have said they can delay a possible U.S. debt default until Aug. 2. If the U.S. is unable to pay its creditors, the country could lose its AAA credit rating, which could in turn push up U.S. borrowing costs and erode the value of the U.S. dollar.