Senate Majority Leader Harry Reid (D-Nev.) says tax loopholes must be addressed… (Brendan Smialowski, Getty…)
Reporting from Washington — Battle lines in federal debt talks sharpened markedly Thursday when the Senate's top Democrat rejected a proposal for $2 trillion in budget cuts as demanded by House Speaker John A. Boehner, saying any cuts must be accompanied by action on closing tax loopholes.
"You can't do $2 trillion just in cuts," Senate Majority Leader Harry Reid (D-Nev.) said in an interview in his Capitol office. "There has to be a mix of spending cuts, including defense. There has to be a more fair apportionment of tax policy in this country."
Republicans have resisted using tax reform to rein in deficits as Congress and the White House try to break a stalemate over raising the nation's debt limit by Aug. 2 to avoid a first-ever federal default. Boehner's office reiterated Thursday that tax hikes would not be "on the table" in talks.
Reid said negotiations are likely to drag until the 11th hour, a prospect certain to send shudders through the financial markets and fuel political debate.
Reid's comments came as budget talks unfold on various fronts across Washington. Both Democrats and Republicans are seeking a political advantage, especially among independent voters that can swing elections.
Polls show Democrats could find popular support for raising taxes on high-income earners and for ending corporate tax breaks, a stance Republicans have resisted as they try to shrink the size of government.
The rhetoric from Reid and Boehner is reminiscent of the showdown earlier this year over a 2011 budget standoff that almost shut down the government.
Boehner this month demanded $2 trillion in budget cuts in exchange for raising the government's debt ceiling, reductions presumably that would take place over the next decade.
"That certainly would be a big, big number," Reid said Thursday. "But you know these are numbers that are not impossible — if you do savings with the Pentagon, in addition to domestic discretionary [accounts] and rearrange the tax stuff. That's all doable.
"Whatever we do is going to have to, in my opinion, be substantial," Reid said.
Most Democrats and Republicans agree that the $14.3-trillion debt limit must be raised to avoid government default on accrued obligations, even as some GOP naysayers question predictions of financial mayhem if Congress fails to act.
With a divided Congress unlikely to approve much else this year, the unpopular debt vote provides Republicans with perhaps their best opportunity to fulfill their campaign promise of extracting steep budget cuts.
Vice President Joe Biden has been brokering talks, an effort that took on added significance this week after a parallel effort by a bipartisan "Gang of Six" senators stumbled when one key Republican dropped out.
Yet outside observers warned that with 10 weeks remaining to reach a deal, finding political agreement on both massive spending cuts and an overhaul of tax loopholes is unlikely.
About $150 billion in budget cuts have been identified by negotiators, a small start.
More likely, experts said, is that a deal may emerge to provide for immediate spending cuts and a pledge to require deeper budget reforms in the future.
"Aug. 2 feels awfully soon to me for both fundamental changes on both the spending side of the budget and the revenue side," said Donald Marron, director of the non-partisan Tax Policy Center.
At the same time, the Senate is preparing to vote on the House-passed GOP budget drafted by Rep. Paul D. Ryan of Wisconsin that cuts nearly $6 trillion in spending over the next decade, partly by privatizing Medicare.
The deeply unpopular Medicare provision is expected to doom the bill in the Senate. But Democrats are content to keep the GOP Medicare proposal in focus as a weapon against Republicans.
Democrats, meanwhile, have come under criticism for failing to present their own budget. They are divided over whether to include a provision for millionaires' surtax. Reid said budget legislation was not needed until later, when it would carry the deal reached in bipartisan talks.