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CQ TODAY ONLINE NEWS
July 14, 2011 – 9:53 p.m.

Backup Debt Plan in the Works

By Paul M. Krawzak, CQ Staff

Driven together by fear of a default, Republican and Democratic Senate leaders are working behind closed doors on a debt limit deal that could muster enough House votes to pass.

Putting the package together will be a political balancing act. Working off of a contingency plan floated by Minority Leader Mitch McConnell that was praised by few when it was first offered, the senators still will need to include enough spending reductions to satisfy some Republicans in both chambers.

But those cutbacks cannot be so deep that they drive away Democrats, particularly in the House, where Democratic votes are expected to be crucial to clearing any final package.

At a White House negotiating session Thursday, President Obama said he “wanted all the leaders to indicate a path forward that can pass both the House and Senate,” according to a GOP aide.

By moving to work with McConnell, Senate Democrats seem to sense a political opportunity, along with a solution to the debt standoff.

Embracing some spending cuts, and potentially dropping their demands for tax increases, could allow Democrats to dare House Republicans to reject what they consider a sound compromise.

Senate Majority Leader Harry Reid, D-Nev., and McConnell, R-Ky., still have faint hopes for a major deficit reduction deal, which would ease the passage of an increase in the $14.3 trillion debt ceiling. But it seems increasingly likely that they will have to settle for something narrower.

“Hopefully we can come up with this big, robust deal we’ve been trying to get,” Reid told reporters Thursday, referring to the grand $4 trillion deficit reduction deal that Obama has identified as his first choice. “But until we do that, we’re going to have to look at other alternatives.”

Even though any Senate-written plan probably would fall well short of earlier Republican ambitions for deep spending rollbacks, House Speaker John A. Boehner opened the door to supporting the McConnell contingency plan.

“What may look like something less than optimal today — if we’re unable to reach an agreement, it might look pretty good a couple of weeks from now,” Boehner, R-Ohio, said.

Almost on Borrowed Time

With little more than two weeks before the Aug. 2 deadline that Treasury Secretary Timothy F. Geithner has given as the date the nation defaults on its financial obligations, Obama told congressional leaders that he wants a way out of the current stalemate within the next day and a half.

“I want to do the largest deal possible,” the president said at the meeting, according to a Democratic official familiar with the talks. “A short-term solution is not something I will sign. It’s decision time. We need concrete plans to move this forward.”

Backup Debt Plan in the Works

Aides said negotiators could reconvene at the White House over the weekend if no deal framework appears by then.

Reid and McConnell are looking at marrying discretionary spending cuts to a proposal that would give Obama the authority to raise the debt limit in three successive steps as long as the president submitted offsetting spending cuts.

Those spending reductions would not have to be approved as a condition to raise the debt limit, at least in early formulations of the plan.

The plan would provide for new borrowing authority to cover the expected $2.4 trillion increase in the debt cap to cover the nation’s needs through 2012, a key White House goal.

As part of their negotiations, the Senate leaders are looking at ways to make some of those spending cuts binding. Senators also are discussing adding language to the proposal to create a committee that would recommend budget cuts — and set up an expedited process to force Congress to vote on them.

McConnell offered further details Thursday, saying the committee would develop recommendations to overhaul entitlement programs by the end of the year.

“And then [the legislation] will go over to the House, and we hope that some kind of spending reduction package without tax increases will be agreed to between the House Republican majority and the president and that it will be added to the package,” McConnell told radio show host Hugh Hewitt.

In the radio interview, McConnell said the legislative committee would be made up of Republicans and Democrats from both chambers and that neither party would have an advantage. He said no outsiders or members of the administration would sit on the committee.

White House Press Secretary Jay Carney said Thursday that Obama is still pressing for a multitrillion-dollar deficit reduction package. Obama sees $1.5 trillion that all sides can agree on, Carney said, plus $200 billion that probably could be agreed to.

But Senate Majority Whip Richard J. Durbin, D-Ill., said leaders will have to turn to a Plan B if no deal is imminent. “We’ll have no choice at that point but to turn to some other option,” Durbin said.

Although the grand bargain sought by Obama and preferred by GOP leaders appears to be beyond their grasp because of deep disagreements over the role of taxes, a smaller agreement that is composed primarily of discretionary spending cuts seems within reach.

“We believe we have to avoid default, obviously, but we also have to reduce the deficit and lower the debt,” Sen. Charles E. Schumer, D-N.Y., said Thursday. “We would like to see, even if we can’t get a grand deal, some real cuts be added to Sen. McConnell’s proposal.”

Schumer said that his party’s preference would be a package negotiated by the White House but that a modified version of McConnell’s proposal would be the second-best scenario. “Best: a large deal,” Schumer said. “Second: avoid default with some cuts, not as great as they would be in a large deal. That’s what Sens. Reid and McConnell are talking about now.”

Backup Debt Plan in the Works

In the House, though, GOP leaders face a potential uprising among conservatives if they are perceived as backing down from their vow to require significant, real spending cuts and budget control mechanisms in exchange for a debt limit increase.

Remaining Opposition

Many House Republicans have disparaged at least the initial outline of the McConnell proposal, which they say allows a debt limit increase without spending cuts.

“I think it’s a terrible idea,” said Tom Price, R-Ga. Price prefers not raising the debt limit to the McConnell proposal. And along with some other Republicans, he contends that default is not inevitable.

“You don’t default, because you can always pay your creditors,” he said. “But we go into arrears on significant liabilities, and then the president has to decide what checks he’s going to write.”

While White House and congressional negotiators have been working off spending cuts and revenue increase proposals identified by a small group of lawmakers led by Vice President Joseph R. Biden Jr., another bipartisan group of senators called the Gang of Six has been on the verge of releasing its own proposal to cut the deficit by about $4 trillion over a decade.

Providing the most detailed description of the group’s work to date, Senate Budget Chairman Kent Conrad, D-N.D., said the plan “is in the range of $3.6 trillion to $3.7 trillion, real. No phony baselines, no gimmicks.” Conrad said that it would end the alternative minimum tax and that the Congressional Budget Office would score the overall plan as a $1.5 trillion tax cut.

Brian Friel, Sam Goldfarb and Joseph J. Schatz contributed to this story.

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