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Positions harden as Obama intervenes in deficit talks

By Tom Cohen, CNN
  • The president meets Monday with Senate Democratic and Republican leaders
  • Whether to increase tax revenue is the main obstacle to a deal
  • An August 2 deadline to raise the federal debt ceiling looms

Washington (CNN) -- Congressional leaders hardened their positions on a possible deficit reduction deal the day before President Barack Obama is to intervene in the negotiations.

Talks led by Vice President Joe Biden concluded last week without an agreement, and the White House announced that Obama will meet Monday with the Senate Democratic and Republican leaders to keep the process going.

With an August 2 deadline looming to increase the federal debt ceiling or face possible default on debt obligations, pressure is mounting to reach a deal that will prevent market jitters and corresponding harm to the still-recovering economy.

On Sunday talk shows, legislators confirmed that the main impasse involves Democratic calls for more tax revenue, which Republicans oppose.

Specifically, Democrats seek a broad approach that makes some spending cuts but also ends tax breaks to bring in more revenue.

"You cannot achieve what you set out to do if you say it's just about cutting. It has to be about increasing the revenue stream as well," House Minority Leader Nancy Pelosi, D-California, told CNN's "State of the Union."

Taking aim at GOP leaders, Pelosi noted that Republicans insisted during the eight years of the previous administration that tax cuts would produce jobs.

"They didn't," Pelosi said. "They produced a deficit."

Republicans counter that any increased tax burden will further slow economic recovery. They insist the government collects enough revenue but spends too much on excessive or unnecessary programs, as well as economically unfeasible entitlement programs such as Medicare and Social Security.

To Senate Minority Leader Mitch McConnell, R-Kentucky, who will meet with Obama on Monday, the question is one of political reality -- Republicans control the House and a strong minority in the Senate, and they oppose any tax hike.

"Throwing more tax revenue into the mix is simply not going to produce a desirable result, and it won't pass," McConnell told the ABC program "This Week." "I mean, putting aside the fact that Republicans don't like to raise taxes, Democrats don't like to either."

Another conservative, Arizona Sen. Jon Kyl, told "Fox News Sunday" that Republicans want to change the tax code in an effort to lower rates, eliminate loopholes and possibly increase revenue, but not as part of the deficit reduction deal being negotiated now.

"What we've said is we're perfectly willing to consider those kinds of issues in the context of tax reform, which we would very much like to do," Kyl said. "But we're not going to have the time to do it or be able to do it in order just to raise revenue as part of the exercise, which should be about reducing spending."

At the heart of the GOP resistance is a bedrock principle pushed by anti-tax crusader Grover Norquist against any kind of tax increase at all. A pledge pushed by Norquist's group, Americans for Tax Reform, against any tax increases has been signed by more than 230 House members and 40 senators, almost all Republicans.

Norquist and his supporters want to shrink the federal government and believe any new revenue will enable continued government growth.

However, some Republicans, including conservative Sens. Tom Coburn of Oklahoma and Lindsey Graham of South Carolina, have expressed support for increased tax revenue as part of a deficit reduction deal, and the Senate recently supported ending ethanol subsidies -- which would increase revenue.

To Rep. James Clyburn, D-South Carolina, eliminating tax loopholes that benefit the wealthy and other steps to boost revenue are logical ways to help attack the deficit problem and make the tax system more fair.

"Now, the question is, how do you define a tax increase?" Clyburn said on ABC. "And I don't know of anybody who will define a tax increase as closing the loophole. If you tell me that my tax rate is going to be 30 or 35% and I come up with all kind of gimmicks with pretty smart lawyers and only pay 9%, there's something wrong with the loopholes in the law. We want to close those loopholes up. We do not want to raise anybody's tax rates."

Loopholes targeted by Democrats include oil and gas subsidies, as well as some write-offs for people earning more than $500,000 a year. In addition, Democrats call for ending Bush-era tax cuts for people earning more than $250,000 a year, which Republicans steadfastly reject.

Republicans are linking a deficit reduction deal to the separate need for Congress to raise the federal debt ceiling by August 2 or face possible default on some financial obligations.

To conservatives such as Sen. Jim DeMint, R-South Carolina, the debt ceiling must be accompanied by a combination of spending cuts, mandatory caps on future federal spending and a balanced budget amendment.

Otherwise, DeMint and other Tea Party favorites such as Rep. Michele Bachmann, R-Minnesota, say they will oppose increasing the debt ceiling by the $2.4 trillion requested by Obama to meet debt obligations through 2012.

Obama, Treasury Secretary Tim Geithner and economic analysts call such a stance dangerous, warning that market reaction to a potential U.S. default on its obligations could stall or reverse the fragile economic recovery so far.

However, Bachmann called such warnings "scare tactics" on Sunday, telling the CBS program "Face the Nation" that the government takes in enough money to pay its debts while making spending cuts elsewhere, which conservatives want anyway.

"It would be very tough love," Bachmann conceded.