Washington’s debt-ceiling talks have entered a new and desperate phase. With two weeks to go until the U.S. begins to cut government services to avoid defaulting on its credit obligations, negotiators are further apart on a plan to stem the nation’s deficits than they have ever been. Spring talks led by Vice President Joe Biden failed. A grand bargain dreamed up by President Barack Obama and House Speaker John Boehner was brought down by a revolt on the right led by majority leader Eric Cantor. And subsequent negotiations ended last week with no agreement. Now, with no more high-level White House talks scheduled, all sides are trying to regroup and move forward with their own plans.
The focus will shift to Congress this week as both chambers begin a series of test votes to shake out where members stand. Votes on a balanced-budget amendment and the conservative Republican Study Committee’s deficit-reduction plan, known as Cut, Cap and Balance, are designed to appease the Tea Party wing of the GOP, whose members are upset at their leaders’ inability to persuade Democrats to cut trillions in spending without increasing revenues. “The American family has to balance its budget. Companies that are trying to create jobs have to balance their budget. Why wouldn’t we expect that a great nation can continue on indefinitely without balancing its budget?” said Representative Jeb Hensarling of Texas, the chairman of the House Republican Conference. But both measures are extreme — the Cut, Cap and Balance plan would cut half a trillion dollars more than Paul Ryan’s drastic budget, and a balanced-budget amendment would go as far as capping spending at 18% of GDP and requiring any tax increases to be approved by a two-thirds majority of Congress. These votes may please freshmen eager to slash spending, but they will also prove that while conservatives have had the loudest voice in the debate, their support is limited: the balanced-budget amendment and Cut, Cap and Balance plan are expected to fail in both chambers.
Meanwhile, Senate minority leader Mitch McConnell and Senate majority leader Harry Reid will continue their talks on a contingency plan. Reid has conceded more short-term budget cuts than those offered in the Biden talks — upping the ante from a paltry $2 billion in cuts in 2012 and 2013 to tens of billions of dollars in more immediate savings. House Republicans discussed a rough version of the Reid-McConnell proposal at a conference meeting on Friday and overwhelmingly rejected it. However, if it’s the only option left by the end of this week, they may have few other options if they hope to avoid a default.
Indeed, congressional leaders are relying on Wall Street’s nervous nature to help them as the deadline approaches. Entrenched positions are bound to soften as market worries of a default increase. But thus far, the market has shown surprising confidence in Washington’s ability to work things out. Treasury yields have barely budged. The Dow closed up on Friday. And Intrade online betting has laid odds that negotiators will come to a deal before the Aug. 2 deadline at 50.5% and that there’s a 78% chance they will reach a deal before the end of August.
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There is still a small group in Washington that believes that if markets begin to panic — and if lawmakers start to get angry calls from constituents — a grand bargain on deficit reduction is still possible. On Friday, Boehner and Cantor met with Obama chief of staff Bill Daley and White House budget director Jack Lew as well as House minority leader Nancy Pelosi. In those meetings, Boehner floated a new deal worth $4 trillion in savings, according to Politico. “We’re keeping lines of communication open, and ideas have been exchanged, but there haven’t been any formal offers at all,” said Michael Steel, Boehner’s press secretary.
Obama asked congressional leaders last Thursday to come up with plans and present them to him within the next “24 to 36 hours.” That deadline has now passed. Although Obama met with senior staff on Saturday and White House staff members have been in touch with their congressional counterparts, another White House meeting has not been set. In a Friday press conference, Obama stressed that he is still pushing for a bigger deal. And on Sunday-morning talk shows, Lew called for Boehner to come back to the negotiating table to renew his work with the President on a grand bargain. “I think the Speaker knows quite well how far the President is willing to go,” Lew said on ABC’s This Week. “And I think the President has shown that he’s willing to move into space that is a very hard place for Democrats to go … We need a partner to work with.”
Last week’s talks failed because there were too many chefs in the kitchen. This week, everyone is cooking up their own plans.