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Benefits at risk, Geithner warns

Ties Social Security to higher debt cap | Leaders meet; more talks today

“The people who set the fire are now the ones calling the fire department. They ran up the deficits and now they’re complaining about the deficits,” said Rep. Richard E. Neal, a Springfield Democrat. “The people who set the fire are now the ones calling the fire department. They ran up the deficits and now they’re complaining about the deficits,” said Rep. Richard E. Neal, a Springfield Democrat.
By Donovan Slack
Globe Staff / July 11, 2011

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WASHINGTON - As the nation inched closer yesterday to what the White House says would be a catastrophic default on its massive debt, President Obama’s administration ratcheted up the pressure on Republicans by suggesting Social Security checks for some 55 million Americans could be in jeopardy if no deal is reached in the next three weeks.

Treasury Secretary Timothy Geithner said his agency must borrow 40 cents of every dollar it spends and suggested that without the ability to borrow, it may not be able to deliver crucial benefits to Americans who rely on them to pay for food and other necessities.

“On August 2d, we’re left running on fumes,’’ Geithner said on CBS’s “Face the Nation.’’ “We have no capacity to borrow. . . . We have to act; Congress has to act ahead of that point. If they don’t act, then we face catastrophic damage to the American economy.’’

President Obama met with congressional leaders from both parties at the White House last night in an effort to reach a compromise to avert default on the debt. Obama and the lawmakers made no statements immediately after the meeting, but they are scheduled to meet again today.

The nation is set to surpass the legal cap on its borrowing on Aug. 2, accumulating debt of more than $14.2 trillion, and Congress must pass legislation to raise that cap to prevent default.

Despite House Speaker John Boehner’s announcement Saturday night that he favors a $2 trillion plan for debt reduction rather than the $4 trillion sought by Democrats, Geithner and other administration officials said yesterday that they still are hoping for a larger deal.

The two sides have been mired in negotiations for months, stymied in a political and ideological standoff over taxes and the size of the federal government.

Republicans who control the House do not want to raise the debt ceiling un less Democrats agree to significant spending cuts to offset the increased borrowing potential. Democrats have said they will not agree to significant cuts without tax increases on wealthier Americans and big business to help offset the cuts, something the GOP has scoffed at.

The parties were working toward a possible agreement last week that would have cut some $4 trillion in spending and raised the debt ceiling, but Boehner, an Ohio Republican, said on Saturday that larger deal was off the table as long as the White House continued to insist on tax increases. He expressed support for a smaller agreement that would not include tax increases.

Senate Republican leader Mitch McConnell of Kentucky reiterated that position on “Fox News Sunday,’’ saying, “We’re not going to raise taxes in the middle of this horrible situation.’’

However, McConnell said Republicans do not want the Aug. 2 deadline to pass without action. “I haven’t heard that discussed by anybody,’’ he said of the prospect of letting the government default on its debts.

McConnell said he had a “contingency plan’’ for raising the debt ceiling before the deadline, which he would reveal later this week if talks with the administration fail to produce an agreement.

Obama’s chief of staff, William Daley, yesterday called Boehner’s position “unfortunate’’ and sought to cast the debate as an opportunity for leaders in Washington to do “big things’’ rather than “kick the can’’ to future leaders with a smaller, shorter-term agreement.

“Everyone agrees that a number around $4 trillion is a number that will make a serious dent in our deficit,’’ he said on ABC’s “This Week with Christiane Amanpour.’’ “It will send a statement to the world that the US has gotten hold of their fiscal problems and they’re moving forward, and it will give confidence to the American people.’’

Suggestions from the Obama administration that it was prepared to make cuts to entitlement programs such as Medicare as part of a deal have drawn a fierce reaction from members of the Massachusetts congressional delegation, who wrote a letter to Obama asking him to fight any effort to undermine such programs.

The letter, signed by all 10 Bay State members of the House, said that if Republicans get their way, more than 1 million seniors in Massachusetts could be denied some Medicare benefits, and seniors would have to pay an extra $540 per month for health care. And they said some 1.4 million low-income and disabled residents in the state depend on Medicaid.

Yesterday, Representative Richard E. Neal, a Springfield Democrat and member of the House Ways and Means Committee, said that 60 cents of every Medicaid dollar goes to nursing home care.

He said those programs should not suffer because Republicans ran up the debt when they were in power with the wars in Iraq and Afghanistan, tax cuts, and a prescription benefit for seniors.

“The people who set the fire are now the ones calling the fire department. They ran up the deficits, and now they’re complaining about the deficits,’’ he said, noting that he would favor a short-term agreement if it preserved entitlement programs.

Representative Stephen Lynch, a South Boston Democrat, said his party has compromised enough.

“I’d like to see Republicans put something on the table that includes some revenue raisers,’’ Lynch said. “Until they do that, I feel like we’ve already voted for substantial cuts on our side.’’

Representative Edward Markey, a Malden Democrat, also lashed out at Republicans, saying they have to consider tax revenue as part of any deal. Democrats have proposed eliminating subsidies for oil and gas companies and tax cuts for the wealthiest 2 percent of Americans that were passed under President George W. Bush and extended by Congress and Obama last year.

“Resolution of the budget impasse only will be possible if Republicans put everything on the table, not persist in shoveling under the table billions in tax breaks to giant corporations and the privileged few,’’ Markey said.

Senator Scott Brown, the only Republican in the Massachusetts congressional delegation, said that he would not comment on specifics while negotiations are ongoing, but that in general he agrees with Republican demands for cuts.

“Scott Brown is opposed to increasing the debt ceiling without significant cuts in spending,’’ Brown spokesman Colin Reed said. “Republicans and Democrats need to continue working on a plan that meets that goal.’’

Economists are split on the options available to the administration to avert default. Peter Morici, an economics professor at the University of Maryland, said in an interview yesterday that the country has enough money to pay interest on the debt as well as pay for Medicare, Social Security, and Medicaid, without raising the debt limit.

But he did acknowledge there would be little money left for anything else, aside from keeping the lights on in the White House and Congress.

“We don’t have to default,’’ Morici said. “Now if [Geithner] chooses to default, it would be a catastrophe. We’re playing a game of chicken here.’’

Other economists, more than 200 of whom signed a letter to congressional leadership in recent weeks, said the debt limit must be raised.

“Not doing so promptly could have a substantial negative impact on economic growth at a time when the economy looks a bit shaky,’’ they wrote. “In a worst case, it could push the United States back into recession.’’

Senator John F. Kerry of Massachusetts referenced their letter in an impassioned speech on the Senate floor last week.

“Here we are - less than five weeks from August 2d - the day the US government will default on its obligations for the first time in our history,’’ he said. “And Washington is still playing the same old political games - a dangerous game of chicken with enormous consequences.

Donovan Slack can be reached at dslack@globe.com. Follow her on Twitter @DonovanSlack.

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