Obama warns business GOP debt-ceiling 'game' will hurt economy

President Obama warned Republicans against using a hike in the debt ceiling as leverage to win entitlement cuts, arguing it would play havoc with the economy.

In an address to corporate CEOs at the Business Roundtable, Obama said business leaders “should not accept going thorough” another debt-ceiling crisis like the one in 2011 that caused stocks to fall and led Standard and Poor’s to devalue the U.S. credit rating.

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He warned a repeat of that showdown would be a “catastrophe” for the nation that would cause a “self-inflicted series of wounds that will potentially push us back into recession.”

Obama’s use of the business venue for the comments was meant to invoke a contrast between his stewardship of the economy and Republicans'. It came in front of business leaders that have differed with the White House over financial reform and the new healthcare reform law.

The president told the CEOs that a fight over the debt ceiling would cause more uncertainty for business. “We can't go there again,” Obama said.

He also quoted Business Roundtable President John Engler, the former Republican governor of Michigan, who said the debt ceiling was "not a good weapon for anything except destroying our own credit rating."

Obama’s comments drew a sharp rebuke from Republicans, who argue Congress’s role in raising the debt ceiling serves as a key check on excessive government spending. GOP leaders noted proudly they were able to force some $2 trillion in cuts during the debt-ceiling showdown last year.

In talks with congressional Republicans to prevent a series of tax hikes and spending cuts scheduled to begin in January, Obama has called for changing the way the debt ceiling is raised. Obama’s proposal would remove much of Congress’s role in raising the debt ceiling, making it more difficult for lawmakers to oppose a hike to the borrowing limit.

“The president wants to have the ability to raise the debt ceiling whenever he wants, for as much as he wants, with no responsibility or spending cuts attached,” said Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell (R-Ky.). “This is an idea opposed by Democrats and Republicans alike; it's a power grab that has no support here.”

Earlier Wednesday, the Treasury Department posted a statement advocating that Congress adopt a so-called "McConnell Provision," named after an idea first floated by the GOP Senate leader. Under the proposal the debt ceiling would automatically increase, and Congress could only stop it with a two-thirds majority vote in both chambers. 

"Extension of the McConnell Provision would lift the periodic threat of default from the U.S. economy and remove politics from future debt limit debates, while preserving Congress’ essential role in spending, revenue and borrowing decisions," argued Treasury spokeswoman Jenni LeCompte.

But McConnell's office rejected the Treasury Department's characterization of his idea and indicated he would not support such a plan today.

Obama said GOP use of the debt ceiling as leverage in the current round of tax and spending talks was a "bad strategy for America, it is a bad strategy for your businesses, and it is a game I will not play.”

The main fight in the tax-and-spending talks has been over tax rates on wealthier households, which Obama wants to raise. Republicans have ruled out an increase in tax rates, but have been willing to agree to higher taxes in the form of eliminating tax breaks.

The GOP also wants more spending cuts and reforms to Medicare and Social Security, which Obama has balked at so far.

Obama on Tuesday rejected a House GOP proposal that would have reduced the deficit by $2.2 trillion. It included $800 billion in new tax revenues.

Speaker John Boehner (R-Ohio) told reporters Wednesday the burden was on the president to propose a plan that was acceptable to both parties.

“If the president doesn’t agree with our proposal and our outline, I think he’s got an obligation to send one to the Congress — and a plan that can pass both chambers of Congress,” Boehner said. “If you look at the plans that the White House has talked about thus far, they couldn’t pass either house of the Congress.”

“We’re ready and eager to talk to the president and to work with him to make sure that the American people aren’t disadvantaged by what’s happening here in Washington,” he continued.

There has been some speculation in Washington that Republicans could use a debt ceiling fight in February or March of 2013 to exert deeper spending cuts and entitlement reforms from the White House. In that scenario, Republicans would agree to a deal that would raise tax rates on the wealthy but turn off scheduled cuts to the Pentagon set forth by Congress last year. 

Boehner has dismissed the suggestion, and White House spokesman Jay Carney on Wednesday called it implausible and irresponsible. 

Speaking with the business leaders Wednesday morning about the tax and spending debate, Obama said that leaders could “probably solve this in a week.” 

“It's not that tough,” Obama said. “But we need that conceptual breakthrough that says we need a balanced plan.”

He also emphasized again that he did not believe a package could only include the closing of tax deductions and loopholes on the wealthiest taxpayers, arguing that rates also needed to rise on the wealthy.

"It's possible to do theoretically, but it is not practical to do… the notion that somehow we're just going to eliminate charitable deductions is unlikely," Obama said.

This story was updated at 2:43 p.m.