Sharp differences remain between Senate Republicans and the White House. Fall preview: Shutdown, debt fight

With Washington consumed by scandals this summer, the White House and GOP congressional leaders are slowly lurching toward a potential debt default or government shutdown this fall.

Three months after President Barack Obama began his charm offensive with Senate Republicans, the two sides have yet to even agree on the scope of the spending or deficit problems — let alone what’s needed to solve it.


Their sharp differences were on display in private meetings on Capitol Hill last week between Senate GOP lawmakers and top White House officials. They underscore the growing expectations that the two sides will fail to reach a budget agreement this year, meaning the crisis atmosphere that dominated the fiscal debate during much of 2011 and 2012 could return in the coming months.

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House Republicans and Senate Democrats remain more than $90 billion apart on 2014 discretionary spending, with prospects for a House-Senate conference on the budget dwindling daily. Obama has issued veto threats for two spending bills already approved by the House, and the Appropriations panels in both chambers know many of their bills might not ever reach the floor. The fiscal year ends on Sept. 30, but both sides are already preparing for a continuing resolution to fund the government into next year.

While the Senate was paying its respects on Wednesday to the late Democrat Frank Lautenberg, White House chief of staff Denis McDonough privately met with more than a dozen Senate Republicans who outlined their view of the budget picture over the next three decades instead of over the 10-year window used by administration number crunchers, according to attendees.

McDonough and Rob Nabors, White House deputy chief of staff, were noncommittal on Senate Republicans’ budget projections, which were presented by Sen. Ron Johnson (R-Wis.). But sources familiar with the meeting say the White House is skeptical of the Republican numbers because they would make it easier for the GOP to achieve its policy objectives.

“You’re not going to solve the problem until you properly define the problem,” Johnson told POLITICO on Monday. “We are at the stage — which I think is a necessary first step — that we have got to agree on the extent of the problem. It’s pointless to talk about solutions until we agree on the extent of the problem.”

Separately, Republicans and Democrats on the Senate Finance Committee met behind closed doors with Treasury Secretary Jack Lew about whether there should be conditions tied to boosting the U.S. debt limit. But the two sides remain at an impasse on how to proceed on that hugely controversial issue. The Treasury Department has said it will the borrowing limit by Labor Day, although outside forecasters predict that deadline won’t be until October.

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At that meeting, according to attendees, Republicans demanded that any increase in the debt ceiling be tied to an overhaul of the federal Tax Code as well as potentially major changes to entitlement programs.

“Sen. [Orrin] Hatch believes that any debt ceiling increase should include spending reductions and reforms and that it’s time the president get in the game to come to a meaningful resolution instead of creating a false fight,” said Antonia Ferrier, his spokeswoman. Hatch, the top Republican on the Senate Finance Committee, and GOP leaders have ruled out any tax increases as part of a budget deal.

Lew, though, flatly rejected that idea, saying that tax reform should be held off until the debt limit is increased and that the national borrowing limit should be increased without preconditions. New York Sen. Chuck Schumer, a senior member of the Democratic leadership, strongly backed Lew’s position , several sources said.

“[Lew] delivered the same message he’s delivered publicly many times,” a Treasury official said on condition of anonymity. “We have a shared interest in tax reform, but [that] needs to happen in the context of a broader fiscal frame. In other words, [you] need to know what your revenue target is before you set out.”

As he opened the meeting with Lew, Finance Committee Chairman Max Baucus (D-Mont.) declared the debt limit should be raised with no preconditions, according to attendees.

But Baucus pointedly disagreed with Schumer, even going so far as to say the two sides shouldn’t have to make a separate deal on revenues before opening debate on tax reform.

Sean Neary, a Baucus spokesman, said his boss believes that there needs to be a clean debt-limit extension.

“[Baucus] thinks we should not put our work on tax reform on hold until we have an agreement on how much revenue,” Neary said.

The uptick in private talks underscores how a bloc of Senate Republicans — including deal makers like Sens. Lindsey Graham of South Carolina and Bob Corker of Tennessee — has supplanted House Speaker John Boehner as the lone group that stands a chance of cutting an elusive deficit-cutting deal with the Obama administration.

Yet, as last week’s talks revealed, the two sides are nowhere near that point — in fact, they have yet to agree on what they believe are the fundamental drivers of the deficit.

The GOP senators who met with McDonough last week are an offshoot of the group that dined with Obama earlier this year, including at the Jefferson Hotel in March. Republicans have been quietly meeting among themselves since the two dinners and occasionally have looped McDonough into the talks.

At last week’s meeting, Johnson made a presentation to McDonough on behalf of Senate Republicans on how they view the deficit problem. And the GOP senators urged the White House to begin a public campaign, noting how entitlement programs — namely Medicare — need to be reformed as part of a larger deficit deal.

Rather than typical budgets that show 10-year windows, Johnson laid out government revenue and spending projections covering three decades. The Wisconsin Republican argued that using a 30-year window would depict a more accurate picture of the growth of entitlement programs like Medicare and Social Security. One source pegged the budget gap growing from $70 trillion to $120 trillion over the next three decades, depending on the assumptions.

Republicans asked the White House how Obama’s final offer to Boehner during last winter’s fiscal cliff negotiations would fare under a 30-year budget window. That offer included a range of spending cuts, higher taxes and lower Social Security payments because of a change in how inflation is calculated.

“I think [the White House officials] were hoping for us to lay our solutions on the table — more looking to that as opposed to the definition of the problem,” Johnson acknowledged. “Let’s face it, the 10-year budget window is pretty favorable in terms of minimizing what kind of solutions we have to look at.”

“We have suggested to the chief of staff — [what] we need to do is to agree on the size of the problem,” said Sen. Lamar Alexander (R-Tenn.) “The next step is for them to come back with a response.”

“We’re not negotiating anything; we are discussing,” said Sen. Johnny Isakson (R-Ga.) “We are making progress on getting some understandings.”

From the Obama administration’s standpoint, Republicans want to make the fiscal problem look as dramatic as possible in order to increase pressure to overhaul entitlement programs. GOP lawmakers also don’t trust the White House, and they remain cautious about being outmaneuvered in any government shutdown or debt-limit showdown with Obama.

In addition, Obama has put some dramatic proposals on the table, including the use of the so-called chained CPI, which would slow the growth of entitlement programs. That move has angered liberal Democrats, but the White House has pointed to the proposal to argue it is serious about solving the long-term budget problems. Republicans, they say, have done nothing of the sort since the failure of the supercommittee talks in late 2011.

“It wasn’t a good meeting or a bad meeting,” said a source familiar with the meeting.

The source added: “The status quo is not going to be acceptable to us.”

David Rogers contributed to this report.