Schieffer: Dysfunctional D.C. back to square one

Political wrangling over the budget deficit and raising the debt ceiling heated up Thursday, as Republicans left talks saying said the two sides had reached an impasse.

House Majority Leader Eric Cantor announced he was pulling out of the negotiations led by Vice President Joe Biden, followed quickly by Arizona Senator Jon Kyl.

Negotiators had been saying for weeks that the talks led by Vice President Biden were going well, and that they had managed to cobble together about a trillion dollars in spending cuts.

But Democrats were also proposing slashing tax breaks for oil and gas companies; for companies that ship jobs overseas; and for wealthy Americans.

That's where Republicans balked.

House Speaker John Boehner - referring to the closing of tax loopholes as "tax hikes" - said talks could continue if Democrats take them out of the conversation.

"The Democrats continue to insist that any deal must include tax increases," Cantor, R-Va., said in a statement. "There is not support in the House for a tax increase."

The move came as a complete surprise to Democrats, reports CBS News Congressional correspondent Nancy Cordes. She said many believe the entire move was designed to force President Obama off the sidelines and into the talks so he ends up sharing responsibility for some of the painful spending cuts.

Democratic negotiators scrambled to regroup.

"I'm terribly disappointed," said Senate Majority Leader Harry Reid. "It appears they are giving up."

The two sides are trying to come up with a deficit-cutting package worth roughly $2.5 trillion, which is what Republicans want in exchange for raising the nation's debt limit in time for an August 2 deadline.

"One thing that would take a fragile economy and break it would be for the United States to default on its obligations," said Rep. Chris Van Hollen, D-Md.

When asked if the budget talks collapse was mere political posturing or a real impasse, CBS News chief Washington correspondent Bob Schieffer said he feared it was "just another example of the dysfunctional state that the Congress now finds itself in.

"I mean, stop and think about it: Congress has been in session since January, and it is yet to do anything," Schieffer said on CBS' "The Early Show."

"We have the country very divided right now; that is being reflected in the Congress," he told CBS News business and economics correspondent Rebecca Jarvis. "Basically, what's happened here, the Democrats do not want to be on record as cutting deeply into social programs and entitlements.

"Republicans, on the other hand, want nothing to do with anything that can be branded a tax hike. We're not talking about raising taxes in the conventional sense; you're talking about eliminating subsidies for some big businesses - things like subsidies to the oil companies, subsidies to ethanol producers. And the Republicans are saying, if you eliminate those subsidies, that is, in effect, a tax increase.

"Bottom line here is, we are back to square one - and square one could be ground zero" if the debt ceiling is not raised and the country has to default on its financial obligations. "It could set the world into a recession.

"We're in very dangerous territory right now," Schieffer said.

Schieffer said President Obama will have to play a greater role in the negotiations.

"The kind of ironic thing here is, Republicans were saying yesterday they want to get the president more heavily involved. Democrats on Capitol Hill were saying they were afraid that they'd be cut out of the process if the president does get involved."

Reiterating a point made last week by Sen. Tom Coburn, R-Okla., at a town hall meeting sponsored by CBS News, Schieffer said the real problem is "no one in either party is willing to step up to the plate and do what needs to be done because they're worried that if they do, they won't get elected in the next election.

"And that's what this is all about. Somehow, they've got to find the political courage to get this done. And right now, I don't see it."