Republicans suddenly quit budget talks on Thursday after claiming to have reached a dead end over Democrat-supported tax increases. House Majority Leader Eric Cantor said it’s time for the president to speak clearly and resolve the tax issue. The talks seek to increase the $14.3 trillion debt cap before August 2 or the government would default. The Treasury said money could run out if Congress fails to act by then and risk another recession and market chaos. Senate Democratic Leader Harry Reid thinks the matter has to be decided upon by President Barack Obama, House Speaker John Boehner and him. Vice President Joe Biden and his group knew it would soon be handed to Obama and Boehner. Talks may continue should Democrats take taxes out of the picture but Boehner said they’re not retreating.
Investors believe Washington is likely to strike a deal thus they remain unruffled but investors’ political analyst Greg Valliere believes it is going to be ugly for the next few weeks. Since spring’s budget argument, Obama and Boehner attempted to establish a bond, which Cantor and Biden tried to imitate. Still, as of Wednesday, there’s no sign of an agreement. Cantor’s withdrawal surprised them but Reid said progress has been made albeit it appears Cantor and Kyl had had enough of the negotiations.
An aide said tentatively, negotiators agreed on federal budget cuts of over $2 trillion that would affect health programs, farm and tuition subsidies and automatic future spending limits. Republicans said the House will not pass any tax increases which Democrats insist upon. They took advantage on the ethanol tax break supported by Senate Republicans but opposed by anti-tax activists. Democrats called for wider oil and gas tax breaks that benefit the rich. Republicans may not be supported in the House anyway as many conservatives are unwilling to compromise and Democrats may persist with tax increases. Without revenue raisers, Democratic Representative Allyson Schwartz said they may walk away.
Budget expert Stan Collender said prior to a compromise, Cantor and Boehner might have to permit an unsuccessful debt-ceiling vote. It may shock the market about a similar failed bank bailout vote which caused an 800-point plunge for Dow Jones Industrial Average in 2008. Senate Budget Committee Chairman Kent Conrad warned that such moves could result to further government interest cost of billions of dollars showing more doubts in U.S. debt investment. A Democratic aide said Cantor realized any deal will in due course have to involve tax increases but just won’t say it.