White House and Republicans flirt over new negotiations on 2012 budget

The White House and congressional Republicans on Tuesday signaled a new willingness to work together to reach a long-term budget deal.

After deriding President Obama’s proposal for debt negotiations to be led by Vice President Joe Biden, congressional Republicans announced they would send House Majority Leader Eric Cantor (Va.) and Senate Minority Whip Jon Kyl (Ariz.) as their representatives for the May 5 talks.

{mosads}Separately, Obama expressed optimism that a deal could be reached. “There will be those who say that we’re too divided, that the partisanship is too stark,” Obama said at a town-hall event in Virginia. “But I’m optimistic. I’m hopeful. Both sides have come together before. I believe we can do it again.”

Signs of cooperation and optimism came one day after a sharp warning from the Standard & Poor’s credit rating agency, which downgraded its outlook for U.S. debt from stable to negative.

The Monday report was the first overt signal from Wall Street of worry that Washington would fail to reach a budget deal before the 2012 election. If S&P downgraded the AAA rating on U.S. bonds, it could raise interest rates and make it that much more difficult to 
lower the national debt.

Whether or not S&P’s downgrade had a chastening effect, its wake has found Democrats and Republicans showing signs of interest in damage limitation and ameliorative talk.

Treasury Secretary Timothy Geithner on Monday sought to calm markets unnerved by the report. “I think the prospects for a bipartisan agreement are better than they’ve been in a long period of time,” he told Fox Business Network.

He added that there is “no risk” the U.S. will lose its top credit rating.

Despite the soothing words and signs of cooperation, the two sides still are far apart on the substance of a budget deal. Obama continued to attack GOP proposals to transform Medicare and Medicaid while retaining Bush-era tax rates, and Republicans blasted the White House for threatening to raise taxes.

The politics of 2012, when Obama hopes to win a second term and Republicans seek to add a Senate majority to the one they now enjoy in the House, already are seeping into the debate over the budget.

At the Northern Virginia Community College town hall, Obama appealed to young voters, one of his core electoral constituencies, saying that unless they mobilized, special interests will balance the federal budget by slashing student aid and other education spending.

Republicans want to cut Pell Grant scholarships with their budget, Obama said, while his own budget plan would increase education spending.

“There are powerful voices in Washington. … And they’re going to want to reduce the deficit on your backs. And if you are not heard, that’s exactly what’s going to happen,” Obama said.

The appointments of Kyl and Cantor add seriousness to the Biden-led talks, scheduled to begin when Congress returns to Washington, but they won’t make reaching a deal any less daunting, especially by the July deadline the administration has set for raising the nation’s $14.3 trillion debt ceiling.

Cantor, seen as a possible successor and rival to Speaker John Boehner (R-Ohio), immediately said he was doubtful a deal could be reached.

“I remain skeptical that the administration will take this effort seriously, especially after it all but ignored its previous debt commission and President Obama had to be dragged kicking and screaming to consider minimal spending cuts for the rest of this fiscal year,” he said.

Cantor and Kyl are fiscal conservatives with strong ties to business. Each sits on his chamber’s tax-writing committee, and both enjoy credibility with their colleagues.

Cantor, especially, is popular with House freshmen, and his appointment could reassure them they will not be sold out in a backroom deal.

While Cantor is seen as a possible future Speaker, Kyl announced earlier this year that he would not seek another term.

Senate Minority Leader Mitch McConnell (R-Ky.) said he was encouraged that Obama said in an interview last week that spending cuts would have to accompany a deal to raise the debt ceiling. The White House had argued for a “clean” bill that would only raise the debt ceiling.

“There is bipartisan opposition in the Senate to raising the debt ceiling unless we do something significant about the debt, and I was encouraged to see the president acknowledge that in an interview Friday,” McConnell said in a statement announcing Kyl’s appointment.

“With the president’s acknowledgment, and with the S&P warning of the consequences of inaction, it is my hope that there will be a new urgency from the White House and our friends across the aisle to finding solutions to what we all know must be done.”

The Republicans will be negotiating with one of Minority Leader Nancy Pelosi’s (D-Calif.) liberal lieutenants, Assistant Minority Leader James Clyburn (D-S.C.), in addition to Rep. Chris Van Hollen (D-Md.), the ranking member on the Budget Committee.

House Minority Whip Steny Hoyer (D-Md.), who has made deficit reduction one of his signature issues, was not selected for the talks. Neither was Rep. Paul Ryan (R-Wis.), the chairman of the Budget Committee.

Senate Majority Leader Harry Reid (D-Nev.) named Finance Committee Chairman Max Baucus (D-Mont.) and Appropriations Committee Chairman Daniel Inouye (D-Hawaii) to the talks. Baucus last week vowed to oppose cuts to Medicare, while Inouye is known as a champion of pork-barrel spending.