Pat Dollard

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Politico:

Speaker John Boehner told President Barack Obama Saturday that he would not move forward with talks on a large-scale deficit reduction plan, pointing to taxes and entitlements as the main sticking points.

Boehner will still attend a meeting Sunday at the White House with other congressional leaders, but a Republican familiar with the negotiations said a smaller package worth more than $2 trillion would be the speaker’s target for raising the debt limit.

In a statement released by the Ohio Republican Saturday night — just a day before talks with Obama — Boehner said the “White House will not pursue a bigger debt reduction agreement without tax hikes.”

“I believe the best approach may be to focus on producing a smaller measure, based on the cuts identified in the Biden-led negotiations, that still meets our call for spending reforms and cuts greater than the amount of any debt limit increase,” Boehner said in the statement.

White House Communications Director Dan Pfeiffer countered in his own statement Saturday night that Obama wants “a balanced approach that asks the very wealthiest and special interests to pay their fair share as well, and we believe the American people agree.”

“Both parties have made real progress thus far, and to back off now will not only fail to solve our fiscal challenge, it will confirm the cynicism people have about politics in Washington,” Pfeiffer said. “The president believes that now is the moment to rise above that cynicism and show the American people that we can still do big things. And so tomorrow, he will make the case to congressional leaders that we must reject the politics of least resistance and take on this critical challenge.”

For a few days, at least, it appeared that Republicans and Democrats could craft a historic bargain that would not only raise the debt ceiling but also cut away at the $14 trillion deficit. Obama recognized that he would have to do a major budget reform deal at some point, so by coupling it with the debt limit vote, he could avoid having to grapple with the issue later when the politics might not be as favorable.

But the White House and congressional leaders had an obstacle: a House Republican Conference averse to any additional revenue.

Indeed, there were splits in the House GOP leadership. House Majority Leader Eric Cantor (R-Va.) was pushing for a smaller-scale deal, wary of how the GOP would be able to pass a deal that topped $4 trillion since as much as $1 trillion could come from additional tax revenue.

“As Eric has said for weeks, tax increases that the Democrats are insisting upon cannot pass the House and are the last thing Congress should be doing with so many people out of work,” said Brad Dayspring, a spokesman for Cantor. “Eric has always believed the Biden group identified between 2 and 2.5 trillion in spending cuts that could represent the framework for an agreement.”

A Republican close to Boehner said he and the president spoke by phone earlier in the evening before Boehner issued his statement. While stepping back from the larger package, the speaker was described as still insisting that any increase in the debt ceiling in August be matched dollar-for-dollar by deficit reduction measures.

That will not be an easy matter given the Republican hard line against new tax revenues. Weeks of negotiations led by Vice President Joseph Biden have identified deficit reduction in the range of $1.7 trillion to $2 trillion in savings. But that leaves a gap of $400 billion to $700 billion to be filled and Democrats have argued strongly that revenues must be part of the mix.

Indeed, it was because of this very difficulty that the larger deal had political appeal to the president and speaker. By being bolder and putting more options on the table, the hope had been to make it easier for the two sides to come together on a package aimed at the deficit — but also the lagging economy.

Coming into this weekend, Boehner and the White House were still pursuing an estimated $4 trillion 10-year deficit reduction package that would have demanded big domestic savings but ultimately represented a huge bet on putting in place tax reforms by early next year. Obama would be able to make permanent the lower bracket tax rates established in the Bush era, while Boehner was to get a commitment to broad reform — covering personal and corporate taxes — with the goal of lowering rates by establishing a more efficient code.

Boehner has repeatedly said he will oppose any increase in tax rates, and the plan was structured so as to put the reforms in place before the high-end Bush tax breaks for the wealthy are due to expire in 2013. The goal was a simplified personal income tax code with fewer different rates, and the corporate tax rate would also be lowered after first doing away with hundreds of billions in tax exemptions, many of which have been criticized by Obama.

The criticism from the right was immediate, focusing on the fact that the deal assumed a net increase in revenues of about $1 trillion over 10 years even with the reduced rates. Advocates of the proposal argued that a large portion of this new money would be generated by added growth in the economy because of the reforms. But almost certainly some portion would represent a net increase in taxes — albeit far less than the spending cuts that the president was willing to put on the table.

At the same time there were continued tensions with the White House over the principles that would govern tax reform. Obama insisted that the relative tax burden on middle- and lower-income taxpayers not be altered. Republicans wanted greater flexibility to deal with middle-income deductions so as to ensure enough revenues to maintain favorable capital gains rates, for example, said two people familiar with the breakdown.

Republicans in the House also were wary of cutting a deal with the White House on taxes, unsure of where Obama stood on overhauling the code.

The Wall Street Journal weighed in Saturday morning critical of the proposal and suggesting that Boehner had been willing to accept tax increases first before reform.

“A tax increase now for the promise of tax reform later won’t fly” was the premise of the piece. The speaker’s office disputed this account, which distorts what was being negotiated since Boehner insisted that the reforms be in place before tax cuts run out in 2013. But the tone of the attack, coming from a prominent conservative newspaper that has championed reform, illustrated the upward battle Boehner faced in moving his rank-and-file toward a deal.

Lost in the process will be hundreds of billions in savings that Obama had been willing to put on the table impacting major government benefit programs. Also lost is an opportunity which promised quicker action on reforms impacting future taxes for corporations and small business.

“I am disappointed that Republicans are unable to work with us to take a historic step forward that would have dramatically reduced our long-term deficit,” Senate Majority Leader Harry Reid (D-Nev.). “We asked Republicans to consider a balanced approach that would have required shared sacrifice, but they would not.”

Republicans have sent signals that they would close some loopholes but would need to offset with other tax cuts.

None of this debate is particularly new for the GOP. House Republicans have been preparing for hiking the debt ceiling for several months. Majority Whip Kevin McCarthy (R-Calif.), who helped cobble votes together for the GOP’s budget, has held meetings in his office several times a week in an effort to understand just where lawmakers stood on the issue. Republican aides even made spreadsheets detailing what freshmen said during the campaign about hiking the debt cap

Conservatives in the House and Senate have said they won’t vote to accrue more debt without Congress passing balanced budget amendment — a tough task in both chambers.

A smaller-scale deal could significantly alter the internal political dynamics in the House.

House Democrats already have been stung twice by Obama: He worked with Republicans in the Senate to extend the Bush-era tax rates and Republicans in the House to cut roughly $30 billion in spending to keep the government open. Leaving significant revenues aside in a final package could further alienate the House minority.

It could also complicate the vote count. Minority Whip Steny Hoyer (D-Md.), the more centrist House leader who commands several dozen votes in the lower chamber, has told Boehner he would provide him with assistance to pass a debt ceiling hike, as long as it was balanced with revenues.

Whatever deal is made, time is running out. Sunday’s meeting with House leaders — including top Democrats and Republicans in both chambers — is just 23 days before the nation can no longer borrow money. Congress is scheduled to be in session 14 of those days.

Carrie Budoff Brown contributed to this report