Washington to nation: What economic crisis?

WASHINGTON _ A historic downgrade of U.S. debt and a plunge in stock markets did nothing Monday to change the way America's political establishment is waging battle over the federal budget, particularly taxes.

President Barack Obama renewed his search for a new budget agreement that would shave deficits by curbing spending on entitlements and raising taxes on the wealthy, essentially the same position he took last month before his efforts to forge a larger deficit deal with Republicans fell apart.

Congressional Republicans acknowledged that they'll face new pressures now to agree to tax increases as part of a broad deficit deal, but again they ruled taxes off the table.

Both major political parties signaled that they see no need to accelerate the deficit talks by a special committee of Congress established by the last debt deal. That committee is charged with filling in the remaining details of $2.5 trillion in deficit reductions, though analysts say that's not enough.

Obama said he'd offer a detailed proposal to help that panel _ in a few weeks. Congress made no move to cut short its August recess.

Congressional leaders are scheduled to appoint the eight members by Aug. 16. The panel is required to hold its first meeting by Sept. 16.

"Does the downgrade change some of the theology in Washington? I haven’t seen any evidence of that yet," said Michael Franc, the vice president for government affairs at the Heritage Foundation, a conservative research center. "Progressives are still saying don't touch entitlements. On the tax side, Republicans have signed the pledge not to raise taxes. Those are your theological lines."

“I share Standard & Poor’s view that certainly we have a political system that is not AAA,” said Robert Bixby, the executive director of The Concord Coalition, a nonpartisan group that works on fiscal issues. "There’s a way out, they just don’t want to take it.”

With markets already dropping last week after Obama and Congress signed a deal to cut projected deficits by $2.5 trillion over 10 years, the bond rating agency of Standard & Poor's said Friday evening that it wasn't enough.

S&P downgraded its rating of U.S. government debt, saying the debate left it doubtful that the political system could reach the kind of compromise needed for larger cuts in the deficits.

The company said it appeared that new tax revenues were off the table, and that there was little prospect for meaningful cuts in entitlements.

Obama, appearing for the first time since the downgrade, said Monday that he hoped the downgrade would give Washington a "new sense of urgency" on the deficits.

Both sides know what needs to be done to curb runaway deficits, he said: "Tax reform that will ask those who can afford it to pay their fair share and modest adjustments to health care programs like Medicare."

"It's not a lack of plans or policies that’s the problem here," he added. "It’s a lack of political will in Washington. It’s the insistence on drawing lines in the sand."

Criticized by Republicans for not offering a detailed proposal of his own in public, the president said he'd offer his recommendations "in coming weeks."

Republicans renewed their opposition to tax increases.

In an open memo to fellow Republicans, House Majority Leader Eric Cantor, R-Va., said the Standard & Poor's analysis wrongly put an emphasis on tax increases as part of any deep cuts in the federal deficits.

"S&P seems particularly focused on what it sees as the inability of the political parties to bridge our differences on the best way to eliminate the deficit. By this it means _ in part _ our unwillingness to raise taxes," Cantor wrote.

This," he added, "is a trade we simply cannot afford to make."

Franc said Congress needed to cut short its recess, return to Washington and agree to find a larger package of ways to reduce the deficit.

"They need to send a very clear signal that this is not business usual, that this is a wakeup call," Franc said."Does it send the wrong signal to simply stay out of town the next four weeks? As much as they may need to recharge their batteries, what kind of signal does it send to the American people and the world that it's recess as usual?"

He said the market plunge Monday _ the Dow slumped nearly 635 points _ could have an impact on Washington, much as a jaw-dropping market drop the same day that the House of Representatives rejected the Troubled Asset Relief Program in 2008 eventually helped force lawmakers back to pass the bill.

Bixby and other analysts noted that there are plenty of options already available to go beyond the $2.5 trillion package, either from the president's bipartisan deficit commission, a proposal from the bipartisan "gang of six" senators who wrote their own proposal or the grand bargain that Obama and House Speaker John Boehner, R-Ohio, discussed that included cuts in entitlements and $800 billion in new tax revenue.

"It's not as if there is no blueprint for how this might be done. It's a matter of the political will to do it," Bixby said.

But he called it a long shot, noting that "the two parties seem woefully dug in. As if to confirm S&P's very point, they go on television saying, 'Aha! This proves the other side was all at fault here.' "

One way to sell it, suggested former Comptroller General David Walker, would be a road show made up of nonpartisan groups. He noted that former President Bill Clinton launched a similar effort in 1998 to shore up Social Security, working with groups that included the Concord Coalition and the AARP.

“We’ve got too much partisanship. We’ve got too much of an ideological divide," he said. "We’ve got too much bumper sticker politics going on."

More from McClatchy

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