Senate cancels recess to keep working on debt

Washington’s deficit-reduction talks are deadlocked over taxes. Republicans won’t touch them, and Democrats want new levies on everything from horses to airplanes. Senate Majority Leader Harry Reid explained he is keeping the Senate in town next week to keep fighting against “Republicans’ stubborn insistence on protecting taxpayer-funded giveaways to corporations and individuals that don’t need the giveaways.”

President Obama had laid down the class-warfare marker Wednesday, insisting that tax increases on “millionaires and billionaires” would reduce the deficit and create jobs. In reality, anyone with a combined income of more than $250,000, including small-business owners who file as individuals, would pay more. The president also would end “tax breaks for oil companies and hedge-fund managers and corporate-jet owners.” Senate Majority Whip Richard J. Durbin added on Thursday that the Democrats want to end “the litany of subsidies we’ve gone through, from yachts, to thoroughbred horses, to jetliners of commercial entities.”

Feeling betrayed, union bosses at the International Association of Machinists and Aerospace Workers and General Aviation Manufacturers Association fired off an angry letter to Mr. Obama saying that “such talk may appear to some as good politics, the reality is that it hurts one of the leading manufacturing and exporting industries in the United States. And it adds to the pain so many working families have endured.” That pain would produce little gain. At best, closing this so-called loophole would yield about $3 billion to Uncle Sam over 10 years. All the proposed taxes on U.S. oil companies would generate $44 billion over 10 years - all of which would be passed along to consumers already suffering from paying $4 at the pump. These measures add up to 0.3 percent of our $14.3 trillion debt.

Obama administration has warned that if the government's $14.3 trillion borrowing limit is not raised by Aug. 2, the United States will face its first default ever, potentially throwing world financial markets into turmoil, raising interest rates and threatening the economic recovery.

Many congressional Republicans indicate they're unconvinced that such scenarios would occur, and some administration officials worry that it could take a financial calamity before Congress acts.

One Democratic official familiar with the debt talks said the real deadline for reaching a bipartisan agreement on the debt and deficit reduction is mid-July to give congressional leaders time to win votes and put final details of a deal into shape. The official spoke on condition of anonymity to reveal details of private negotiations.

Obama has said that Republican and Democratic negotiators have found more than $1 trillion in potential spending cuts over the coming decade, including reductions both sides favor.