Cantor’s exit leaves debt talks up to Boehner, Obama to get deal

Negotiations over cutting Washington’s debt plunged into crisis Thursday, as the top Republican negotiator walked out of talks over his Democratic counterparts’ demand that taxes be raised.

The walkout, by House Majority Leader Eric Cantor (R-Va.), means talks to avert a debt default can probably now be salvaged only by two men: President Obama and House Speaker John Boehner (R-Ohio).

The two men, who had sought to break the ice over a round of golf last weekend, met late Wednesday, before the president’s televised speech to the nation about the Afghanistan war, to discuss various issues.

{mosads}Thursday’s dramatic developments suggest Obama and Boehner will be speaking again soon. The Speaker told reporters Thursday that he expected to hear from the president in the wake of Cantor’s exit.

Senate Majority Leader Harry Reid (D-Nev.) on Thursday strongly hinted that negotiations now had to move up to a higher level than those that have taken place between GOP and Democratic lawmakers. “My honest feeling is that we are beyond gangs of five and gangs of sixes,” he said.

Cantor himself told The Wall Street Journal, ‘it is up to the president to come in and talk to the Speaker.’

In a statement released Thursday evening, Vice President Biden said the goal of the talks was always to report findings to “our respective leaders,” and suggested his group’s work had run its course.

“The next phase is in the hands of those leaders, who need to determine the scope of an agreement that can tackle the problem and attract bipartisan support,” he said. “For now, the talks are in abeyance as we await that guidance.”

The breakdown of talks led by Biden tosses aside weeks of diplomatic mutual praise among the five participants. Left exposed is a stark lack of progress on the key question: Will federal deficits be reduced by spending cuts alone, as the GOP insists, or will Democrats manage to head off some cuts by filling in the fiscal gap with higher tax revenues?

The Treasury warns that if the two sides don’t find an answer by Aug. 2 and raise the legally permitted debt ceiling above $14.3 trillion, the U.S. could default, triggering unknown consequences throughout the global economy and financial system.

In announcing his intention to skip the talks on Thursday, Cantor called on Obama to “resolve the tax issue.”

“Regardless of the progress that has been made, the tax issue must be resolved before discussions can continue,” he said. “Given this impasse, I will not be participating in today’s meeting and I believe it is time for the president to speak clearly and resolve the tax issue.”

The meeting was later canceled.

In a news conference Thursday morning, Boehner said he understood Cantor’s frustration but declined to say whether he supported his decision to ditch the negotiations being led by Biden. The Speaker also said the talks could continue if Democrats took tax hikes off the table.

Democrats have pushed to remove tax breaks for the oil-and-gas industry as part of a deficit-reduction deal, among other changes to the tax code. Cantor has said those items should be dealt with in a separate overhaul of the code, but Boehner did not completely close the door to including them.

Asked if he was opposed to eliminating subsidies and other tax expenditures as well as increases in rates, Boehner replied: “We’ve been opposed to increasing tax rates.” As for tax rate increases, he said earlier: “A tax hike cannot pass the U.S. House of Representatives. It’s not just a bad idea — it doesn’t have the votes, and it can’t happen.”

Democrats ripped Cantor for leaving the talks, and House Minority Leader Nancy Pelosi (D-Calif.) suggested he overreacted by quitting the talks as both sides were claiming progress toward a deal.

“Yes, we do want to reduce tax subsidies for Big Oil [and] we want to remove tax breaks for corporations that send jobs overseas — that list goes on,” Pelosi said. “I don’t know that that’s a reason to walk away from the table.”

{mosads}Rep. Chris Van Hollen (D-Md.), a participant in the talks, remained largely silent on the specific tax hikes Democrats have proposed, making only a passing reference to “a menu of eliminating different kinds of special interest tax breaks and dealing with tax exemptions for the very wealthy.”

“Yes, we have put proposals on the table to say for folks at the very high end, we believe there’s a responsible way to phase out some of those deductions,” Van Hollen said.

In his statement explaining his decision to exit the talks, Cantor said the discussions have established a “blueprint” for going forward.

“I believe that we have identified trillions in spending cuts and, to date, we have established a blueprint that could institute the fiscal reforms needed to start getting our fiscal house in order,” he said.

“That said, each side came into these talks with certain orders, and as it stands the Democrats continue to insist that any deal must include tax increases. There is not support in the House for a tax increase, and I don’t believe now is the time to raise taxes in light of our current economic situation,” he said.

Senate Minority Leader Mitch McConnell (R-Ky.) and Minority Whip Jon Kyl (R-Ariz.) released a joint statement criticizing Democrats for insisting on tax increases and calling on the president to speak out on the issue.

“The White House and Democrats are insisting on job-killing tax hikes and new spending. That proposal won’t address our fiscal crisis, our jobs crisis, or protect and reform entitlements. And a bill with new spending and higher taxes would fail with bipartisan opposition — as it should,” the two said in the statement.

“President Obama needs to decide between his goal of higher taxes or a bipartisan plan to address our deficit. He can’t have both. But we need to hear from him.”

—This story was posted at 10:18 a.m. and most recently updated at 8:31 p.m.

Julian Pecquet and Molly K. Hooper contributed to this story.