With the prospect of a drastic suspension of government services to avoid default looming eight days away, Congressional leaders were unable to reach a deal to raise the federal debt limit despite a weekend of fevered negotiations, heightening the risk that lawmakers will trigger an economic crisis by failing to break the impasse by an Aug. 2 deadline.
Despite efforts to devise a framework that would assuage Asian markets before the opening bell, talks broke down again on Sunday, and stock indices fell overseas. Stymied in their attempt to find common ground, Democrats and Republicans’ paths have instead forked, as both scramble to devise dueling plans that would raise the $14.3 trillion debt ceiling.
During an hour-long meeting at the White House Sunday evening, Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi briefed President Obama “on the state of negotiations on the Hill,” according to a White House official. The newest wrinkle in the stalled talks is a proposal Reid is drafting that would raise the debt by $2.7 trillion, enough to delay a repeat of this protracted tussle beyond the 2012 elections and assure skittish ratings agencies and investors that the U.S. economy can weather the partisan gridlock in the nation’s capital.
In a statement announcing the broad contours of his plan, Reid blasted Boehner for adopting a “my-way-or-the-highway” approach. “Speaker Boehner’s plan, no matter how he tries to dress it up, is simply a short-term plan, and is therefore a non-starter in the Senate and with the President,” the Democratic Senate leader said on Sunday night. Reid’s framework would meet the GOP’s twin demands: spending cuts commensurate with the size of the debt limit increase, and no new taxes. In addition, it would fulfill Democrats’ desire to avoid a recurrence of the debt debate in the pressure cooker of the 2012 presidential campaign and would not cut the entitlement programs that Reid’s party has sought to protect. But Democrats have repeatedly insisted that deficit-reduction efforts pair spending cuts with increased revenue, and the lack of new taxes raises questions about whether it would prove sufficient to progressive caucus members.
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There are signs Reid’s plan may gain traction nonetheless. On Friday, Pelosi suggested that if the alternative were kneecapping the shaky U.S. economy, Democrats could accede to Republican demands for dollar-for-dollar cuts if the package spared entitlement programs. “There’s a path to get there,” Pelosi said, citing savings from discretionary spending, non-health mandatory spending and unwinding the wars in Iraq and Afghanistan. “That’s a non-revenue path,” she told a group of reporters, according to Talking Points Memo. “I don’t like it at all, but it doesn’t go near entitlements.”
On the GOP side, House Speaker John Boehner–who broke off talks with Obama on Friday afternoon, citing a stalemate over taxes and changes to entitlement programs–held a Sunday afternoon conference call with House Republicans, during which he urged his conference to remain unified and warned that members would be asked to make sacrifices. Boehner is expected on Monday to present his conference with a two-part plan to raise the U.S. borrowing authority: a short-term debt-limit increase accompanied by some $1 trillion or more in spending cuts, followed by the establishment of a commission tasked with finding an additional package of savings in the coming months. “I would prefer to have a bipartisan approach to solve this problem. If that’s not possible, I and my Republican colleagues in the House are prepared to move on their own,” Boehner said Sunday on Fox News.
Whether or not a two-step plan requires twin votes will determine its viability in the Democratic-controlled Senate. With just days remaining before the government is forced to cut major services to avoid a default that could cost hundreds of thousands of jobs, send interest rates skyrocketing and nudge the markets into a tailspin, Boehner is insistent that after months of negotiations without a breakthrough, the process must now be done in two steps: short-term and long-term. “There’s going to be a two-stage process. It’s not physically possible to do all of this in one step,” he said Sunday.
But Democrats are loath to take a second vote on the issue before 2013. During the party’s Sunday summit at the White House, “the Leaders and the President reiterated our opposition to a short-term debt limit increase,” according to the White House official. A single vote, with a clawback provision that locks in the second set of cuts, is broadly acceptable to Democrats, but the parties have been unable to agree on an enforcement mechanism.
House Republicans leadership is expected to fast-track the legislation and set a Wednesday vote that gives the sclerotic Senate time to act. Meanwhile, Reid is working to marshal support for his own proposal, which will likely meet opposition from Tea Partyers like Jim DeMint, Rand Paul and Mike Lee in the upper chamber. Despite meeting GOP demands, Senate Democrats could also struggle to thread the legislation through the fractious House Republican conference, if only because of antipathy for its author. With controversial legislation proceeding on two tracks and bitter recriminations between the two parties, it will be a mad scramble to avert a fiscal meltdown in the days ahead. If there is a glimmer of hope amid the morass, it’s that after months of interminable wrangling, fruitless meetings and endless partisan sniping, lawmakers are now in the position in which they have historically thrived: facing an urgent deadline, driven forward by the threat of dire consequence.