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Debt crisis: Dems, GOP at odds as debt default risk looms

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WASHINGTON (AP) - Rival Democratic and Republican plans to raise the government's borrowing ability have thrust Congress into a standoff just one week away from a potentially devastating debt crisis.

The President and the Speaker. Photos: AP

President Barack Obama made a last ditch call for compromise, but House Speaker John Boehner said negotiations with the White House had been futile.

"We can't allow the American people to become collateral damage to Washington's political warfare," Obama declared Monday in a prime-time address to the nation.

Boehner, in a nationally televised rebuttal, said he had given "my all" to work out a deal with Obama.

"The president would not take yes for an answer," he said.

The extraordinary back-to-back appeals to the public gave no indication that weeks of brinkmanship and sputtering talks over long-term deficit reductions were on the verge of ending. With an Aug. 2 deadline rapidly closing, Congress and the White House had limited options to avoid a potential government default that could send the already weak economy into a damaging swoon.

Both Democrats and Republicans softened previous hardline positions and appeared ready to leave quarrels over entitlement programs and higher tax revenues for later. But continued bickering on Capitol Hill overshadowed any signs of emerging common ground.

Obama reiterated his call for achieving lower deficits though spending cuts and new tax revenues. But in a notable retreat, he voiced support for a Senate Democratic plan that would reduce deficits by about $2.7 trillion over 10 years only with spending cuts, not with additional revenue.

The Senate plan, unveiled Monday by Senate Majority Leader Harry Reid, D-Nev., and the proposal announced the same day by Boehner overlap in significant ways. Both identify about $1.2 trillion in spending cuts to the day-to-day operating budgets of government agencies, though Reid's proposal also counts an extra $1 trillion in savings from winding down wars in Iraq and Afghanistan. Both proposals would create a bipartisan congressional commission to identify further deficit reductions, especially in major health care programs such as Medicare and Medicaid.

The primary difference between the two is timing. Reid's proposal would raise the debt ceiling enough so that it wouldn't have to be reconsidered until 2013, beyond the 2012 elections, as demanded by Obama. The GOP plan would only extend the debt ceiling for about six months.

For Republicans, the timing provides crucial leverage to force Democrats and the president to cut spending in Medicare, Medicaid and Social Security, expensive benefit programs that Democrats have long protected, despite escalating costs.

Obama has said he would not sign a short-term extension of the debt ceiling, but on Monday he stopped short of issuing a veto threat. Still, he said, a six-month-long increase in the debt ceiling would allow Republicans to try to force their will once again, demanding "harsh cuts" in program like Medicare and refusing to allow tax increases on the wealthy.

"Based on what we've seen these past few weeks, we know what to expect six months from now," he said. "Once again, the economy will be held captive unless they get their way."

Credit rating agencies such as Moody's and Standard & Poor's have threatened to downgrade the United States' gold-plated AAA rating if Congress and the White House don't extend the debt ceiling and take steps to bring long-term deficits under control.

While both plans would increase the debt ceiling, ratings agencies have said a short-term increase such as the one proposed by House Republicans may not be enough to protect the U.S. from a ratings downgrade. What's more, neither plan offers the larger deficit-reducing assurances that credit ratings have said they need for the U.S. to retain its place as one of the most secure investments in the world.

Until last week, Boehner had been negotiating with Obama for a deficit reduction package of up to $4 trillion that included spending reductions in Medicare, Medicaid and Social Security and provided for up to $800 billion in new tax revenue over 10 years.

But Boehner broke off those discussions after Obama asked for an additional $400 billion in tax revenue and after the two sides could not narrow the gap on other provisions.

"The sad truth is that the president wanted a blank check six months ago, and he wants a blank check today. That is just not going to happen," the speaker said.

In offering his new plan, Boehner had the backing of his top Republican leadership team. But he risked losing some potentially critical Republican votes by scaling back a bigger plan that passed the House and would have cut as much as $6 trillion. That plan failed in the Senate.

Rep. Jim Jordan of Ohio, one of the leading advocates of legislation that cleared the House last week and died in the Senate, said he could not support Boehner's new plan.

Obama says default would be "reckless"

WASHINGTON (AP) - In unprecedented back-to-back appearances on nationwide television, President Barack Obama and House Speaker John Boehner clashed Monday night over the cause and cure for the nation's debt crisis. The two men spoke as Congress remained gridlocked on legislation to avert a threatened default after Aug. 2.

Decrying a "partisan three-ring circus" in the nation's capital, Obama assailed a newly minted Republican plan to raise the nation's debt limit as an invitation to another crisis in six months' time. He said congressional leaders must produce a compromise that can reach his desk before the deadline.

"The American people may have voted for divided government, but they didn't vote for a dysfunctional government," the president said in a hastily arranged prime-time speech. He appealed to the public to contact lawmakers and demand "a balanced approach" to reducing federal deficits - including tax increases for the wealthy as well as spending cuts.

Boehner counters: Obama wanted 'blank check'

Responding moments later from a room near the House chamber, Boehner said the "`crisis atmosphere" was of the president's making.

"The sad truth is that the president wanted a blank check six months ago, and he wants a blank check today. That is just not going to happen," the speaker said. "The president has often said we need a `balanced' approach, which in Washington means we spend more, you pay more."

Obama stepped to the microphones in the East Room of the White House a few hours after Republican lawmakers, then his own Democrats, drafted rival emergency legislation to head off a potentially devastating default.

The back-to-back speeches did little to suggest that a compromise was in the offing, and the next steps appeared to be votes in the House and Senate on the rival plans by mid-week.

Despite warnings to the contrary, U.S. financial markets have appeared to take the political maneuvering in stride - so far. Wall Street posted losses Monday but with no indication of panic among investors.

Without signed legislation by day's end on Aug. 2, the Treasury will be unable to pay all its bills, possibly triggering an unprecedented default that officials warn could badly harm a national economy still struggling to recover from the worst recession in decades.

Obama wants legislation that will raise the nation's debt limit by at least $2.4 trillion in one vote, enough to avoid a recurrence of the acrimonious current struggle until after the 2012 elections.

Republicans want a two-step process that would require a second vote in the midst of the 2012 campaign with control of the White House and both houses of Congress at stake.

Monday night's speeches were a remarkable turn in a six-month-old era of divided government as first the president, then his principal Republican opponents appealed to the nation in a politically defining struggle.

Obama quoted Ronald Reagan - a hero to many conservatives – who also spoke of a balanced plan and stressed a need for compromise. Obama stopped well short of threatening a veto of the GOP-drafted legislation that he criticized.

Boehner's remarks seemed aimed at the general public and also at conservatives - tea party advocates included - who installed the Republicans in power in the House last fall.

There were concessions from both sides embedded in Monday's competing legislation, but they were largely obscured by the partisan rhetoric of the day.

With their revised plan, House Republicans backed off an earlier insistence on $6 trillion in spending cuts to raise the debt limit.

And while the president didn't say so, his embrace of legislation unveiled by Senate Majority Leader Harry Reid effectively jettisoned his longstanding call for increased government revenues as part of any deficit reduction plan.

The measure Boehner and the GOP leadership drafted in the House called for spending cuts and an increase in the debt limit to tide the Treasury over until sometime next year. A second increase in borrowing authority would hinge on approval of additional spending cuts sometime during the election year.

Across the Capitol, Reid wrote legislation that drew the president's backing, praise from House Democratic leader Nancy Pelosi - and criticism from Republicans.

Constituents call to voice concerns

Not all Republicans were happy with their leadership's decision to scale back legislation that had cleared the House last week, only to die in the Senate.

Among House conservatives who have provided the political muscle for the Republican drive to cut spending, the revised legislation was a disappointment. "I cannot support the plan," said Rep. Jim Jordan of Ohio, one of the leading advocates of legislation that cleared the House last week and died in the Senate.

But two rank-and-file Republicans said their constituents were voicing concerns other than the rising federal debt. Rep. Tom Rooney, R-Fla., said his office is getting calls from constituents saying, "If I don't get my Social Security check, it's your fault."

Rep. Tom Reed, a New York freshman, said many of his constituents are telling him to stand firm in his drive to cut spending. "But I will admit there's some anxiety in the district" about Social Security and other programs, he added.

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