Lawmakers Need To Solve Debt Issue By Early July

The next big deadline for Congress comes in early July when the U.S. government hits the debt ceiling. The limit needs to be raised or else the U.S. will default on its obligations for the first time in history.

STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. I'm Steve Inskeep.

RENEE MONTAGNE, host:

And I'm Renee Montagne.

There's been lots of fiscal activity in Washington this week, and we're not done yet. Yesterday the House and Senate passed the measure that funds the government for the rest of the year. Later today the House plans to vote on the Republican budget plan for the 2012 fiscal year. That's the budget President Obama excoriated on Wednesday in his speech laying out his plan for long-term deficit reduction.

The next big deadline comes in early July, when the U.S. government hits the debt ceiling. It needs to be raised or else the U.S. will default on its obligations for the first time in history.

Here to sort out all of this is NPR's national political correspondent Mara Liasson. Good morning.

MARA LIASSON: Good morning, Renee.

MONTAGNE: What have been the reaction and maybe the fallout from the president's speech?

LIASSON: Well, Republicans were angry about it. They say it was a campaign speech. Paul Ryan, the House Budget Committee chairman, said instead of building bridges, the president was poisoning wells. But it was a campaign speech. And the next campaign is going to be about two very different visions of government - how big government should be, what services it should provide. So the speech really did mark a new chapter in this debate.

I think there's not going to be any more deficit denial. Now both sides agree something has to be done. Defense spending has to be part of the mix. More has to be done on Medicare. And the two parties are going to spend the next two years, maybe, and beyond, arguing about exactly what the solution should be -how much taxes, how much spending, do we want to trim or radically reshape the big government healthcare programs?

MONTAGNE: Mara, though the two visions seem so far apart, what are the chances of a grand bargain on the deficit and taxes?

LIASSON: Well, none in the next two years, if you mean a grand bargain on what the balance of spending and taxes should be. That will be what the next election is about. But there is something that could be done soon and has to be done soon, because the Republicans say they won't vote for a debt ceiling increase unless it's accompanied by a mechanism to control spending and the deficit.

And on Wednesday in that speech the president essentially agreed to link the two, by calling for these negotiations - bicameral, bipartisan negotiations -to begin right after Easter recess and end in late June, just as the drop-dead date for the debt ceiling arrives.

MONTAGNE: What exactly, though, are they going to negotiate that could be attached to the debt ceiling bill? I mean it seems, you know, in a way pretty straightforward.

LIASSON: Well, it would be kind of downpayment on deficit reduction, some kind of framework with targets and an enforcement mechanism in case Congress fails to do it on their own. But it's not so straightforward because the two sides aren't even talking about the same kind of target. Republicans presumably want the target to be a spending cap, say, keep spending to 20 percent of GDP, for instance. If it doesn't get there by a certain date, they want a trigger that would force automatic cuts in spending. So Republicans are all about spending.

The president wants the target to be the deficit - bring the deficit down to 2.5 or 2.8 percent of GDP by a certain date. And if it's not, the trigger would automatically cut spending and what's called tax expenditures - that's spending through the tax code, those loopholes and special interest tax breaks for individuals and corporations.

But the president wants to exempt Medicare and Social Security and low-income programs from that trigger.

MONTAGNE: But the Republicans say they won't discuss raising taxes in the debt ceiling discussions.

LIASSON: That's right. And it's possible that Republicans would only consider touching tax breaks if it's in the context of big, bigger tax reform, a bigger overhaul that would lower income tax rates across the board.

MONTAGNE: What could break this impasse?

LIASSON: Well, that's unclear. Maybe the bipartisan Gang of Six, those three Republican senators and three Democratic senators who've been negotiating for months, will ride to the rescue. Their plan is to be released after the congressional Easter recess, just as these debt ceiling negotiations begin in May.

The Gang of Six is willing to go further than the president is on Medicare and they might inject some new solutions into this next round of high-stakes fiscal politics.

MONTAGNE: Mara, thanks very much.

LIASSON: Thank you, Renee.

MONTAGNE: NPR's Mara Liasson.

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