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Cantor Pulls Out of Biden-Led Budget Talks

By JANET HOOK And COREY BOLES

Associated Press
House Majority Leader Eric Cantor

WASHINGTON—House Majority Leader Eric Cantor Thursday said he was pulling out of the bipartisan budget talks headed by Vice President Joe Biden for now because the group has reached an impasse over taxes that only President Barack Obama and Speaker John Boehner (R., Ohio) could resolve.

Mr. Cantor, in an interview after a negotiating session he described as bitterly contentious, said he would not be attending Thursday's scheduled meeting of the bipartisan deficit-reduction leadership group because he believed it was time for the negotiations to move to a higher level.

"We've reached the point where the dynamic needs to change,'' Mr. Cantor said. "It is up to the president to come in and talk to the speaker. We've reached the end of this phase. Now is the time for these talks to go into abeyance."

Still, Mr. Cantor remained optimistic about the prospects for a deal. He said the Biden group had already made significant progress and had tentatively identified more than $2 trillion in spending cuts over the next 10 years. But he said there could be no agreement on an overall package without breaking the impasse between Republicans' refusal to accept any tax increase, and Democrats insistence that some tax increases be part of the deal.

"We have to get over this impasse on taxes," he said. "The utility of these talks has been building the specifics. The groundwork has been laid, the blue print is there, we have a vision of the agreement."

Mr. Cantor's move marks a major turning point in the negotiations, which are trying to craft a major deficit-reduction initiative to clear the way for a needed increase in the federal debt limit before Aug. 2. Most participants had expected the negotiations would be passed off to Mr. Obama and higher level congressional leader, but Mr. Cantor's move may force the shift sooner than many expected.

Mr. Cantor said that Wednesday's negotiating session repeatedly stalled over the tax issue, unlike most past meetings over the last six weeks. In those meetings, Mr. Biden had succeeded in keeping the talks focused on areas of possible agreement on spending cuts and sidestepping the divide between the parties on taxes.

"At each meeting, it has become a little more difficult to ignore that divide,'' Mr. Cantor said.

Mr. Cantor said the $2 trillion in spending reductions identified include savings both from the discretionary and the mandatory side of the federal budget. Discretionary spending accounts for roughly a third of the budget and involves spending that is set each year by Congress, while the larger mandatory side of the ledger are programs and spending that is renewed automatically each year without action by lawmakers.

The majority leader wouldn't go into specifics, but said that reductions had been broadly agreed to across the budget including in federal spending on health-care programs. He said that the group had yet to agree on a mechanism to control future spending, such as setting firm spending caps for example. Mr. Cantor said that had been on the agenda for Thursday's session.

The $14.29 trillion debt limit was breached on May 16, although Treasury officials have said they have the ability to juggle assets to delay the possibility of the U.S. defaulting on its debts until Aug. 2 at the latest.

Top administration officials and independent economists have warned that unless the statutory borrowing limit is increased before then the economic consequences could be dire. If the U.S. is unable to pay its creditors, the country faces the real prospect of losing its AAA credit rating, a move which could exacerbate the fiscal straits the country is facing by leading to drastically higher borrowing costs and a plummeting dollar.

That impasse has been reached as House Democrats have been expressing increasing anxiety that the budget deal would be comprised only of spending cuts. They have been holding out hope that Republicans would make some concession on taxes because of a vote last week in the Senate where 33 Republicans voted to abolish tax subsidies for the ethanol manufacturers.

But at the same time, Senate Republican Leader Mitch McConnell (R., Ky.) has been sounding an increasingly strident message of opposition to any form of tax increase in the budget deal.

"Taxes aren't going to be raised in what I hope will be a large and significant package that will make a difference for our country," Mr. McConnell said Wednesday at a breakfast hosted by the Christian Science Monitor. "If they couldn't raise taxes when they owned the government, you know they can't get it done now," he said referring to the Democratic lawmakers.

The left wing of the Democratic party was furious over the deal to extend the Bush-era taxes reached in December, and were also extremely unhappy with the spending deal reached to fund the federal government through the remaining months of fiscal 2011—an agreement that saw cuts to many domestic programs important to the party.

Write to Janet Hook at janet.hook@wsj.com and Corey Boles at corey.boles@dowjones.com


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