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Obama continues debt talks with Democrats, then Republicans

By Alan Silverleib and Tom Cohen, CNN
Sen. Tom Coburn, R-Oklahoma, rejoined the "Gang of Six" after withdrawing from the group.
Sen. Tom Coburn, R-Oklahoma, rejoined the "Gang of Six" after withdrawing from the group.
  • NEW: Anti-tax crusader says likely deal will contain no tax hikes
  • President Obama calls the debt ceiling problem "self-created" in some ways
  • Spokesman puts strict limits on a possible short-term debt-ceiling extension
  • The United States must raise its $14.3 trillion debt ceiling by August 2 or risk a default

Washington (CNN) -- President Barack Obama held separate meetings Wednesday with top congressional Democrats and Republicans as part of ongoing talks on a measure that would raise the nation's debt ceiling by August 2 to avoid a government default.

With time running out to reach an agreement, the possibility of a comprehensive deficit-reduction deal sought by Obama appeared less likely, with the president and Congress instead being forced to focus on a narrower goal of increasing the government borrowing limit in the next 13 days so it can pay its bills after August 2.

At his daily briefing, White House Press Secretary Jay Carney signaled to reporters that Obama would be willing to accept a short-term increase in the debt ceiling -- which caps the amount of money the government can borrow -- if it is tied to agreement by both parties on a broader deficit reduction deal sought by the president.

Obama previously rejected such a short-term increase in the debt ceiling, and Carney's remarks sought to bolster support for a compromise in the talks as the deadline for default nears.

"We believe a short-term extension absent an agreement to a larger deal is unacceptable," Carney said.

He later issued a statement on the matter that said Obama opposes a short-term extension of the debt limit, but "the only exception to that is in the event that both sides reach a deal on a long-term extension of the debt limit plus significant deficit reduction, and we needed a very short-term extension (like a few days) to allow a bit of extra time for a bill to work its way through the legislative process."

So far, the main sticking point in negotiations has been Republican refusal to accept increased tax revenue sought by Obama and Democrats as part of a deal. Spurred by conservatives elected with tea party backing, Republicans seek to shrink the size of government through spending cuts while either keeping tax revenues where they are now or reducing them through a reformed system.

'Gang of Six'
A bipartisan group of U.S. senators who have unveiled a $3.7 trillion debt reduction plan. Its members are:

  • Republicans: Saxby Chambliss of Georgia, Mike Crapo of Idaho and Tom Coburn of Oklahoma.
  • Democrats: Dick Durbin of Illinois, Kent Conrad of North Dakota and Mark Warner of Virginia.
  • Obama argues for a balanced approach that includes spending cuts and increased tax revenues to enable the government to continue what he calls critical spending for future economic growth in education, infrastructure development and clean energy.

    In addition, Republicans are linking proposals to shrink the mounting federal deficit to getting their support for raising the federal debt ceiling, while Obama and Democrats say the two issues should be separate to prevent politics from affecting the U.S. credit rating in the event of a government default.

    Anti-tax crusader Grover Norquist, whose Americans for Tax Reform is spearheading Republican opposition to any tax increase, told CNN on Wednesday that a likely deal will mean "the president will get less money than he wanted, the Republicans will get less spending cuts than they wanted, but it won't raise anybody's taxes."

    Top Democrats from both chambers met with Obama for about 50 minutes on Wednesday afternoon. Later, the top two House Republicans -- Speaker John Boehner and Majority Leader Eric Cantor -- met with the president for about 80 minutes.

    Boehner then gathered with members of his staff and six first-term House Republicans -- elected in last year's tea party-backed conservative wave -- for talks over pizza in a Capitol building conference room.

    Earlier, Democratic and Republican sources confirmed that the top four House leaders -- Boehner, Cantor, Minority Leader Nancy Pelosi and No. 2 Democrat Steny Hoyer -- had their own meeting to discuss proposals to raise the debt ceiling.

    The White House meetings came a day after Senate negotiators from both parties, the so-called "Gang of Six," unveiled the possible compromise plan, and the House voted 234-190 almost completely on party lines to pass a tea party-inspired "cut, cap and balance" bill dismissed by Obama and Democrats.

    Key administration and congressional officials are currently focused on the new bipartisan $3.7 trillion debt reduction plan by the "Gang of Six" -- the latest effort to avoid a potentially catastrophic default next month on the federal government's financial obligations.

    Obama: Closer to debt deal
    Debt talks: What's the solution?
    Debt ceiling: What does it mean?
    Gang of Six breathes 'sigh of relief'

    Obama has offered strong praise for the initiative, calling it "broadly consistent" with his own approach to debt reduction because it mixes tax changes, entitlement reforms and spending reductions. However, Carney made clear Wednesday that Obama was not adopting the plan outright, and that further negotiations on specific provisions would be necessary.

    Senate Democratic leaders have expressed skepticism that they will be able to increase the debt limit and pass the "Gang of Six" plan by the looming August 2 deadline.

    If Congress fails to raise the current $14.3 trillion debt ceiling by that date, Americans could face rising interest rates, a declining dollar and increasingly jittery financial markets, among other problems.

    The seriousness of the overall situation was reinforced last week when a major credit-rating agency, Standard and Poor's, said it was placing the United States' sovereign rating on "CreditWatch with negative implications." Another major agency -- Moody's Investors Services -- said it would put America's bond rating on review for a possible downgrade.

    In an interview Wednesday with KMBC-TV of Kansas City, Missouri, Obama called the situation "a self-created crisis in some ways" because of political intransigence.

    "It has to do with folks who are digging into set positions rather than saying how do we solve a problem," Obama said.

    The House Republicans' "cut, cap and balance" bill would raise the debt ceiling while imposing strict caps on all future federal spending and making it significantly tougher to raise taxes -- the solution favored by hard-line conservatives.

    The bill -- which also requires Congress to pass a balanced budget amendment to the Constitution before raising the debt ceiling -- has little chance of clearing the Democratic-controlled Senate or surviving a certain presidential veto.

    The Tuesday vote did, however, allow rank-and-file Republicans to clearly demonstrate their preference for steps favored by many in the tea party movement even as their leadership seeks a middle ground with Democrats.

    "While President Obama simply talks tough about cutting spending, House Republicans are taking action," Boehner, R-Ohio, said in a statement after the vote.

    Obama said before the vote that legislators "don't have any more time to engage in symbolic gestures."

    "We have a Democratic president and administration that is prepared to sign a tough package that includes both spending cuts (and) modifications to Social Security, Medicaid and Medicare that would strengthen those systems and allow them to move forward, and would include a revenue component," Obama added. "We now have a bipartisan group of senators who agree with that balanced approach. And we've got the American people who agree with that balanced approach."

    Obama also refused to rule out a fallback plan proposed by Senate Minority Leader Mitch McConnell, R-Kentucky, that would raise the debt ceiling up to $2.5 trillion through the 2012 election. Carney said the McConnell plan, now being worked out with Senate Majority Leader Harry Reid, D-Nevada, is not the preferred option but must be ready to go in case a bigger deal proves unattainable.

    Under the "Gang of Six" plan -- put together by three Democrats and three Republicans -- $500 billion in budget savings would be immediately imposed, with marginal income tax rates reduced and the controversial alternative minimum tax ultimately abolished.

    The plan would create three tax brackets with rates from 8% to 12%, 14% to 22%, and 23% to 29% -- part of a new structure designed to generate an additional $1 trillion in revenue. It would require cost changes to Medicare's growth rate formula, as well as $80 billion in Pentagon cuts.

    Sen. Tom Coburn, R-Oklahoma, announced Tuesday that he had decided to rejoin the group. Coburn had recently withdrawn due to a dispute over entitlement cuts, but declared Tuesday that the plan, which now includes $116 billion in entitlement health care cost savings, has "moved significantly, and (is) where we need to be."

    The other members are Republican Sens. Saxby Chambliss of Georgia and Mike Crapo of Idaho, and Democratic Sens. Dick Durbin of Illinois, Kent Conrad of North Dakota and Mark Warner of Virginia.

    Other legislators supporting the plan included two conservative Republicans -- Sen. Lamar Alexander of Tennessee and Rep. Roger Wicker of Mississippi -- while another GOP conservative, Sen. Jeff Sessions of Alabama, raised questions about whether it achieves necessary spending cuts and raises taxes.

    "We don't have 60 votes, but we're moving toward it," Durbin, the Senate majority whip, told reporters Wednesday, referencing the number of votes necessary to overcome a potential filibuster and win Senate approval.

    A spokesman for Boehner said Tuesday the "Gang of Six" plan is similar in concept to what Boehner and Obama had discussed in their negotiations so far, "but also appears to fall short in some important areas."

    Other House Republican leaders, including Majority Leader Eric Cantor of Virginia and Budget Committee Chairman Rep. Paul Ryan of Wisconsin, also questioned the plan's call for increased tax revenue and commitment to reducing future costs.

    Asked about such resistance to the plan's tax provisions, Chambliss said Wednesday that those raising questions "need to read the plan."

    Meanwhile, Durbin pointed out that the plan still must be drafted into legislative language and analyzed by the Congressional Budget Office before it can be considered.

    Reid said he's open to incorporating some elements of the proposal into the fallback bill he is working out with McConnell.

    Several new public opinion polls, meanwhile, show that a majority of Americans want legislators to forge a comprehensive deal that includes spending cuts and tax hikes instead of refusing to yield from their starting positions.

    At the heart of the tax dispute has been Obama's call for more revenue by allowing tax cuts from the Bush presidency to expire at the end of 2012 for families making more than $250,000. The president's ideal plan would keep the lower tax rates for Americans who earn less.

    Obama noted last week he is not looking to raise any taxes until 2013 or later. In exchange, the president said, he wants to ensure that the current progressive nature of the tax code is maintained, with higher-income Americans assessed higher tax rates.

    But resistance to higher taxes is now a bedrock principle for most Republicans, enforced by conservative crusaders such as Norquist. His group has sponsored a high-profile pledge to oppose any tax increase. The pledge has been signed by more than 230 House members and 40 senators, almost all of them Republicans.

    Despite their differences, leaders from both parties insist they are committed to reaching an agreement that will allow them to raise the debt ceiling before August 2. McConnell's fallback proposal would give Obama the power to raise the borrowing limit by a total of $2.5 trillion, but also require three congressional votes on the issue before the 2012 general election.

    Specifically, Obama would be required to submit three requests for debt ceiling hikes -- a $700 billion increase and two $900 billion increases. Along with each request, the president would have to submit a list of recommended spending cuts exceeding the debt ceiling increase. The cuts would not need to be enacted in order for the ceiling to rise.

    Congress would vote on -- and presumably pass -- "resolutions of disapproval" for each request. Obama would likely veto each resolution. Unless Congress manages to override the president's vetoes -- considered highly unlikely -- the debt ceiling would increase.

    The unusual scheme would allow most Republicans and some more conservative Democrats to vote against any debt ceiling hike while still allowing it to clear.

    McConnell and Reid are also working on two critical additions to the plan, according to congressional aides in both parties. One would add up to roughly $1.5 trillion in spending cuts agreed to in earlier talks led by Vice President Joe Biden; the other would create a commission meant to find more major spending cuts, tax increases and entitlement reforms.

    Changes agreed to by the commission -- composed of an equal number of House and Senate Democrats and Republicans -- would be subject to a strict up-or-down vote by Congress. No amendments would be allowed.

    Sources say the panel would be modeled after the Base Closing and Realignment Commission, which managed to close hundreds of military bases that Congress could not otherwise bring itself to shut down.

    CNN's Ted Barrett, Kate Bolduan, Lisa Desjardins, Paul Steinhauser, Deirdre Walsh, Xuan Thai and Jessica Yellin contributed to this report.