According to President Obama, Congress has become mired in negotiations to raise the debt ceiling and trim federal deficits. The way ahead is unclear — every path has hurdles, if not roadblocks, obstructing the way. As Congress rapidly approaches the Aug. 2 deadline to raise the debt ceiling and avoid a government default on its credit obligations, there are six possible paths forward:
1. The House bill passes: House Speaker John Boehner declared on Monday that there is “no stalemate in Congress.” His way forward is through a bill that, until Sunday, he was drafting with Democratic congressional leaders. The bill would enact $1.2 trillion in immediate cuts and then empower a commission — a variation of an idea put forth by Senate majority leader Harry Reid — to scour entitlements and other spending to find another $1.8 trillion in cuts over the next six months. Congress would then hold a second vote on those cuts and whether to raise the debt ceiling through December 2012. Democrats object to holding two votes — if raising the debt ceiling is hard now, imagine doing it in the middle of the 2012 primary season (the Iowa caucuses are on Feb. 6). They also don’t like the prospect of cutting entitlements.
Even Boehner’s own conference is not enamored with the plan. A coalition of several dozen right-wing members who support a more stringent House plan, known as Cut, Cap and Balance, which failed to pass the Senate, panned Boehner’s proposal on Monday. And when asked if he could get even a majority of Republicans to vote for his plan, given the GOP criticism, Boehner in a press conference deferred to House majority whip Kevin McCarthy, who said they hoped to get Democratic support given that five Dems voted for the Cut, Cap and Balance bill. “We ask all Democrats that want to join with us to put this House on the right path that they could join with us on this bill,” McCarthy said. Unfortunately for them, they are going to need a lot more than five Democratic votes, which is unlikely. Without strong support in the House and tepid Republican support in the Senate, Boehner’s plan faces many obstacles to becoming law.
2. The Senate bill passes: Reid walked away from talks with Boehner on Sunday in opposition to the idea that the U.S. should or could handle two debt votes in the next year. Instead, he is proposing a debt-ceiling increase offset by $2.7 trillion worth of cuts. The plan is potentially appealing on paper as it meets House GOP criteria that 1) the debt-ceiling increase through the 2012 elections must be offset by an equal or greater amount of cuts — $2.4 trillion, according to the Treasury — and 2) it must not include any new revenue increases. This, Democrats say, is a major concession: they are willing to give trillions of dollars in cuts without any shared pain from the GOP in the form of tax increases. Republicans argue that Reid’s bill is full of gimmickry. For example, more than $1 trillion of the “cuts” are savings from accelerated troop drawdowns in Iraq and Afghanistan. But Republicans counted savings the same way in the $6.2 trillion budget introduced by Paul Ryan. The plan also includes a commission, though this one would not look at entitlements and the second vote would lack the teeth of an accompanying debt-ceiling increase. Obama and Democrats feel this is the best way forward, but it remains to be seen if Reid’s plan — or anything for that matter — can pass the House.
3. The Senate and House bills are combined: There’s only a week left till the deadline, but — theoretically — if both chambers end their game of chicken and pass their own bill by the end of the week, House and Senate leaders could go through a quick conference process to reconcile their differences. There are many similarities between the two bills, and the two chambers could bang out a compromise over the weekend and ram it through both chambers before the deadline. The likelihood that the bills will pass, the leaders will get along and both chambers will pass a new version in time is not good. But it’s still a distant possibility.
4. The grand bargain comes back: Sure, Obama and Boehner twice tried to take the political leap on a grand bargain of $4 trillion–plus in cuts. And they got really, really close. Boehner said on Fox News on Sunday that his final offer remains on the table. And frankly, the calculus that got both of them interested in a grand bargain remains the same: the political cost of doing something small is similar to the cost of doing something big, so they might as well go big. If Boehner’s bill fails to launch in the House, he has all the more reason to go back to the negotiating table with the President, rather than swallow the Senate bill. And the President has said that the only circumstances under which he’d accept a short-term extension is if they hammer out the details of a big deal. But as Boehner also said on Fox, it is “hard to put Humpty Dumpty back together again.” And after the grand bargain shattered twice — or three times, if you count when House majority leader Eric Cantor abandoned Vice President Joe Biden’s deficit negotiations — there’s not a lot of trust left.
5. No deal is reached: The markets don’t seem to think this is a possibility — and for my 401(k)’s sake, I certainly wish it were not one. But the two parties were never further apart on a deal than they were on Tuesday. It’s hard to imagine who will finally give in. And so it’s not irrational to predict that the Treasury Department might have to take radical action in suspending government services to avoid a default after Aug. 2. Despite the confidence among congressional leaders that a deal will be struck, no one has a path to prevent a failure. That’s terrifying.
6. Some combination of all of the above: With so few viable options, it’s not hard to imagine the deadline being missed and the ensuing panic forcing Congress to enact some combination of these paths. Or they could go right up to the brink, and then some combination of these paths happens. As Doc Brown from Back to the Future said, “Road? Where we’re going, there are no roads.”