GOP shows flexibility, Obama aims for higher cuts

GOP shows flexibility, Obama aims for higher cuts

House Majority Leader Eric Cantor of Va., right, speaks to reporters during a pen and pad on Capitol Hill in Washington, Wednesday, July 6, 2011.

WASHINGTON (AP) -- Republicans showed new signs of flexibility to break a budget impasse Wednesday, but the White House raised the ante - pushing for more deficit reduction and taking a pugnacious tone casting the GOP as defenders of corporate tax giveaways.

The repositioning by both sides appeared to open new compromise possibilities a day before President Barack Obama was set to host the bipartisan congressional leadership for new talks on the budget. The secret negotiations were gaining new urgency because they are tied to an Aug. 2 deadline to raise the government's borrowing authority.

First, House Majority Leader Eric Cantor, R-Va., declared he was open to closing tax loopholes that the White House says are wasteful and ineffective and that would generate some money toward reducing deficits over the long term.

Democratic officials, in turn, said President Barack Obama wants far more deficit reduction than the $2 trillion over 10 years that for weeks has been the target for budget negotiators. Obama in April proposed deficit reduction of $4 trillion over 12 years and White House spokesman Jay Carney said Wednesday that goal remained "something to aspire to."

But even as White House officials expressed confidence that negotiations ultimately would succeed, Obama took a combative approach ahead of Thursday's meeting.

"The debt ceiling should not be something that is used as a gun against the heads of the American people to extract tax breaks for corporate jet owners or oil and gas companies that are making billions of dollars," Obama said during a town hall that featured questions posed through the online social network Twitter.

The president was referring to existing tax benefits that allow corporate jets to depreciate faster than commercial jets and to tax subsidies available to energy corporations. Obama has proposed ending both as part of an effort to reduce deficits with new tax revenue.

Obama's remarks - one of his harshest of the budget debate - sounded especially dissonant coming less than two hours after Cantor had indicated Republicans were amenable to some discussions about taxes.

"If the president wants to talk loopholes, we'll be glad to talk loopholes," Cantor said. He added that any revenues raised from closing such loopholes "should be coupled with offsetting tax cuts somewhere else."

Cantor's comments reflected important, if nuanced, flexibility by Republicans. His earlier position was that closing loopholes should wait for a comprehensive overhaul of the tax code.

In the Senate, Republican leader Mitch McConnell appeared to douse the idea. "To sort of cherry pick items in the context of this current negotiation at the White house strikes me as pretty challenging," he said.

But Republican Sen. John McCain voiced support for ending corporate tax breaks as well as ethanol and agricultural subsidies in exchange for lower rates for businesses.

"The distorting effect of subsidies is clearly evident in the energy sector," McCain said. "We should eliminate these subsides, lower the corporate tax rate, and allow the marketplace to pick winners and losers, not the government."

It is unclear, however, whether Congress and the administration could undertake such an overhaul in the limited time available to negotiate a deal.

Obama in the past has called for a "revenue neutral" revamping of corporate taxes, meaning that the changes would not result in new money for the government. But Obama's calls for curtailing oil and tax subsidies and ending some tax-friendly inventory accounting practices, proposed as part of the budget talks, are designed to raise new tax revenue, not lower corporate rates.

Until now, the talks have centered on reducing the deficit over 10 years by roughly the same amount it would take to raise the debt ceiling over two years - a formula initially proposed by House Speaker John Boehner, R-Ohio. That would mean about $2.4 trillion in deficit reduction.

Democratic officials familiar with the budget talks said Obama believes it would be easier to win bipartisan support in the House and Senate for a deal that embraces a larger number, closer to the $4 trillion over 12 years that he proposed in April.

The officials, speaking on the condition of anonymity because of the delicacy of the talks, said the precise number was still in flux, but said Obama would be making the case for more, rather than less deficit reduction, in his discussions with congressional leaders on Thursday.

In taking new public stances, Republicans and the White House also were reacting to political circumstances. The Wall Street Journal, whose opinion pages are generally friendly to Republicans, published an editorial Wednesday that the tax breaks targeted by Obama "will be hard for Republicans to defend."

Republicans, on the other hand, had taken the lead in demanding higher deficit reduction, a stance that was proving popular with the public. By calling for an even bigger number, the White House appeared to be seeking to neutralize that advantage.

"The president believes, we believe, that there are enough members of both parties in both houses who support the idea that a big deal has to be balanced and therefore include spending cuts in the tax code," Carney said.

The assertion reinforced and expanded on Obama's comments Tuesday that back-channel talks with congressional leaders last weekend made progress in advance of Thursday's talks. But Carney cautioned that no final deal should be expected.

Obama, in his Twitter town hall Wednesday, pushed aside a question over whether he would use the 14th Amendment to raise the debt ceiling by executive order, a suggestion floated by some Democrats.

The amendment states: "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."

Obama said: "I don't think we should even get to the constitutional issue. Congress has a responsibility to make sure we pay our bills. We've always paid them in the past. The notion that the United States would default on its debt is just irresponsible."