Grim jobs report casts shadow over debt talks

Grim jobs report casts shadow over debt talks

House Minority Leader Nancy Pelosi of Calif. gestures while speaking on Capitol Hill in Washington, Friday, July 8, 2011, to discuss the debt ceiling.

WASHINGTON (AP) -- President Barack Obama used a bleak jobs report Friday to prod Congress toward a swift agreement on deficits and the national debt. But the higher unemployment numbers hardened partisan views that a weak economy can't tolerate added taxes or cuts in spending, both key to the grand deal Obama seeks.

White House, congressional negotiators and their aides worked to bridge differences over how to reduce long term deficits by as much as $4 trillion over 10 years. Obama plans to call the eight top leaders of Congress to the White House on Sunday to assess progress.

Summing up the difficulties facing them, House Speaker John Boehner likened the task to a notoriously confounding puzzle. "This is a Rubik's Cube that we haven't quite worked out yet," he said.

A budget agreement is central to increasing the nation's borrowing limit, currently capped at $14.3 trillion, to avoid a potentially catastrophic government default after Aug. 2. That looming deadline and a new unemployment rate of 9.2 percent heightened the pressure for a deal, uniting the two most high-profile challenges now facing Obama's presidency.

Obama called on Congress to move quickly to raise the debt ceiling. He said uncertainty over a potential default has hindered hiring in the private sector.

"The sooner we get this done, the sooner that the markets know that the debt limit ceiling will have been raised and that we have a serious plan to deal with our debt and deficit, the sooner that we give our businesses the certainty they will need in order to make additional investments to grow and hire," Obama said from the Rose Garden in the morning.

Obama made his case privately Friday to House Democratic leader Nancy Pelosi during a half-hour meeting at the White House. And in Congress, Boehner, R-Ohio, embraced the desire to act with speed, even though some members of his party questioned the urgency.

"While some think that, you know, we can go past August the 2nd, I frankly think it puts us in an awful lot of jeopardy and puts our economy in jeopardy, risking even more jobs," Boehner said. "So I believe it's important that we come to an agreement, but it has to be an agreement that really does fundamentally change our spending and our debt situation."

Both parties as well as private economists agree that if Washington does not raise the debt ceiling by early August, the economy will be deeply shaken and perhaps slip back into recession.

Obama's contention that hiring is already freezing up because of the uncertainty, though, is a harder case to make. There is scant evidence that the markets are acting nervously.

The yields on Treasury bonds, which should go up if investors get nervous about a default, are close to historic lows. But it is possible that anxiety is affecting investment behavior in ways difficult to pin down.

The White House and Congress are seeking common ground on a budget deal that would trim 10-year deficits by as much as $4 trillion. Obama has urged lawmakers to strive for that number, but some officials on Friday said they believed that a smaller, $2 trillion deal appeared more realistic.

The larger package would require new tax revenues and significant spending reductions in the main government benefit programs, such as Medicare, Medicaid and Social Security.

"I don't think things have narrowed," Boehner said Friday. "I don't think this problem has narrowed at all in the last several days."

The jobless numbers complicated negotiations. Republicans argued that increasing taxes would be ill-timed during an economic slowdown; Democrats said a weak economy is not the time to cut government spending.

"Conservatives are just not going to vote for a tax increase on this economy, said Rep. Trent Franks, R-Ariz.

Countering with a typical Democratic view, Sen. Sheldon Whitehouse of Rhode Island said: "It's pretty clear that in this time of economic distress, attacks on Social Security and on Medicare are really wrong for the country."

Pelosi emerged from what she described as a "lively" Democratic caucus meeting Friday afternoon and declared: "We are not going to reduce the deficit or subsidize tax cuts for the rich on the backs of America's seniors and working families. No benefit cuts in Medicare and Social Security."

"You can't cut your way to prosperity," the chairman of the House Democratic Caucus, Rep. John Larson of Connecticut, said following the session.

On health care, negotiators have been closing in on cuts of about $200 billion over 10 years, about equally divided between Medicare and Medicaid, with most of the burden falling on individual industries such as hospitals, drug manufacturers and nursing homes.

One Social Security proposal on the negotiating table would lower annual cost-of-living increases, reducing the retirement benefits for older Americans over the long term.

Pelosi said Democrats voiced different views on the cost-of-living proposal for Social Security during their meeting, but she did not say where she stood when asked by reporters. She said that any savings in Social Security would have to be funneled back into the trust fund that finances the retirement program.

And Whitehouse warned Obama and his aides: "They're making a mistake if they think they can just deal away these programs."

Obama, in an interview Friday with Seattle's KING5 television station, sought to assure Democrats that his entitlement proposals would not harm beneficiaries.

"With respect to Social Security and Medicare, my core principle is anything that strengthens Social Security and Medicare and makes sure it's there for the next generation I'm for," he said. "Anything that dismantles it, weakens it, hurts current beneficiaries in ways that are fundamentally unfair, that's not something that I'll accept."

Republicans have showed some new flexibility on closing tax loopholes and ending corporate tax breaks as Obama has demanded. But they say any revenue generated by those steps would have to be used to lower tax rates and simplify the tax system. Such a step would require a major overhaul of the tax code and could not be accomplished in the few weeks left before the Aug. 2 debt ceiling deadline.

Rep. Jack Kingston, R-Ga., said that if Obama and Boehner can agree on an ambitious plan to tackle the nation's debt crisis, many lawmakers of both parties would strongly consider it despite having to swallow elements they strongly oppose.

He said House Republicans might support tax increases that derive mainly from closing unpopular loopholes. "If it's the underbrush of the tax code," it might not be too difficult, he said.