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Deficit Politics Now Moves to Congress

President Barack Obama and Congressional Republicans drew sharp contrasts Wednesday in the latest budget standoff — this time over the debt limit.

In a quickly scheduled speech, Obama waded into the roiling debate over long-term deficit reduction, outlining $4 trillion in cuts over the next 12 years that were intended to provide a sufficient counterpoint to a Republican budget proposal that would cut spending heavily.

But Obama’s proposal merely sets an opening bid for negotiations with the GOP over the next two months.

Obama’s proposal for an extra $1 trillion in tax revenue from reforming the tax code was rejected by GOP leaders even before he spoke. And Obama vowed that budget proposals by House Budget Chairman Paul Ryan (R-Wis.) to privatize Medicare and slash Medicaid while cutting taxes for the wealthy aren’t going anywhere.

“They want to give people like me a $200,000 tax cut that’s paid for by asking 33 seniors to each pay $6,000 more in health costs? That’s not right, and it’s not going to happen as long as I’m president,” Obama said.

Obama called for bipartisan talks led by Vice President Joseph Biden to begin in May and conclude by the end of June. That’s near the drop-dead date for raising the debt ceiling and avoiding a potentially catastrophic debt default.

Speaker John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) told reporters after meeting with the president but before his speech that they would work with him to reach a deal to avoid a default on the debt. But they said his call for higher taxes on the wealthy will not fly.

“We will not be discussing raising taxes” as part of a deal on increasing the debt limit, McConnell said after a meeting at the White House.

“I think the president heard us loud and clear,” Boehner said. “Raising taxes will not be part of that.”

The Republican leaders said an agreement to increase the debt ceiling would need to include new controls on spending to pass both chambers.

“There’s bipartisan opposition to raising the debt ceiling unless we do something about the debt,” McConnell said.

After the speech, Republican leaders criticized it as long on politics and class warfare and short on specifics.

Ryan, who attended Obama’s speech, said he was disappointed at what amounted to a “political broadside from our campaigner in chief.”

In particular, Republicans argued that Obama did not advance the debate because he didn’t provide details, instead opting to set up what amounts to a second commission to hash out specifics.

“I’m afraid we’re left with more questions than answers,” said Sen. Rob Portman (R-Ohio), a former Office of Management and Budget director who welcomed Obama to the debate.

One idea that has been gaining steam among both Democrats and Republicans is to put deficit targets or spending caps on the debt limit increase in order to get it through Congress. But exactly how to construct those caps is sure to have both sides bickering for weeks.

Obama offered his own idea for a debt cap Wednesday. Under his plan, debt would have to start dropping as a percentage of the economy by 2014. Failure to do so would trigger automatic spending cuts and tax increases.

Proposals from Republicans for spending caps would require much deeper cuts than Obama is contemplating and trigger across-the-board cuts but not tax increases. Republicans also are united behind a proposal for a balanced-budget amendment to the Constitution, although Ryan’s own budget fails to comply with it because it doesn’t balance the budget until the late 2030s.

In the meantime, the political rhetoric isn’t cooling off despite last week’s agreement on funding the government for the next six months.

Obama painted a grim picture of grandparents being kicked out of nursing homes and poor kids losing their health insurance if Ryan’s cuts are enacted.

“This is a vision that says up to 50 million Americans have to lose their health insurance in order for us to reduce the deficit,” Obama said.

He particularly targeted Ryan’s proposal to force anyone 55 or younger to obtain private insurance with a set federal subsidy instead of traditional Medicare.

“I will not allow Medicare to become a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs,” he said.

Obama instead called for shared sacrifice, requiring the wealthy to pay more in taxes alongside far more modest cuts in spending.

Obama’s blueprint, which builds off the proposal of his fiscal commission, includes $2 trillion in spending cuts, including cuts in defense, discretionary accounts and entitlements; $1 trillion from shrinking tax deductions; and $1 trillion from reduced interest payments.

The tax reform package would reduce deductions and tax expenditures enough to simultaneously lower tax rates and generate more revenue to cut the deficit, Obama said. He also said Social Security should be shored up for future generations, but without slashing benefits.

Senate Majority Leader Harry Reid (D-Nev.), who has vowed to oppose any cuts to Social Security, praised Obama for separating Social Security from the larger debate over the debt.

And Rep. Chris Van Hollen, ranking member of the Budget panel, said it’s not clear whether Congress can reach a deal in the June timeline set by the president. But he said it was important to set a target.

“If you don’t set a target, then it’s hard to get people to focus,” the Maryland Democrat said.

The looming backdrop of a potential default on the federal debt had Democrats warning a stalemate could lead to a catastrophe.

Nearly four dozen House Democrats signed a letter Wednesday saying they want a “clean” vote on the debt ceiling.

“Nobody should be playing the game of political chicken with the full faith and credit of the United States,” Van Hollen said.

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