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July 28, 2011 – 11:48 p.m.

Leaders Looking at Options for a Final Deal

By Joseph J. Schatz, CQ Staff

Any deal worked out by negotiators to increase the debt limit will have to satisfy the basic demands laid down by each side.

The final legislation will need to reduce future budget deficits by as much as it increases the borrowing limit, without raising taxes, in order to win the support of the Republican majority in the House.

And to get Democratic votes, it will have to provide a debt limit increase that will be sufficient through 2012 — leaving entitlement programs alone.

The House is divided along party lines. But senators in both parties have some ideas for how they might be able to give both sides their minimum requirements.

In many ways, the core issues are the same ones negotiators have circled for the past three months. The difference now is that the nation faces a potential government default after Aug. 2 if congressional leaders cannot agree on a package that at least gives members on both sides enough political cover to vote “yes.”

Or, if something can be worked out in the Senate, the leaders could decide to press forward with a plan that is unacceptable to many House Republicans and that relies on Democratic votes to clear the measure.

Because a package put together by House Speaker John A. Boehner, R-Ohio, would raise the debt limit in two stages, with the second increment contingent on enactment of a major spending cut package, Democrats view it as a recipe for another debt limit showdown, and thus a non-starter.

Even if Boehner manages to pass his bill, Senate Democrats are expected to table it quickly and take up a new offering from Senate Majority Leader Harry Reid, D-Nev., possibly as early as Friday.

As the weekend approaches, Senate Minority Leader Mitch McConnell, R-Ky., who has been the foremost GOP advocate of ending the debt limit debate whether or not Republicans win major spending cuts, will be a key player. McConnell publicly supports the Boehner bill, but he and other Senate Republicans have been discussing how to change the way the Speaker’s bill would trigger the second installment of the debt limit increase.

White House and Democratic officials want to replace the requirement for enactment of a deficit reduction bill, substituting a spending enforcement mechanism. One possibility is a “trigger” mechanism that would release the additional borrowing authority, but automatically cut spending by a specified amount if a deficit reduction measure had not been enacted.

They characterized the triggers under discussion as a backstop or fail-safe mechanism that would kick in if Congress failed to act on a deficit-cutting plan.

Opening Offers

Boehner’s bill (S 627) would link an immediate $900 billion increase in the debt ceiling with $917 billion in spending cuts over 10 years, mostly resulting from caps on discretionary spending. A second, $1.6 trillion increase in the debt limit would depend on enactment of $1.8 trillion in additional deficit reduction. The deficit reduction measures would be recommended by a joint congressional committee created by the bill, and the House and Senate would have to vote on the panel’s legislative product.

Leaders Looking at Options for a Final Deal

An alternative introduced by Reid earlier this week (S 1323) would immediately raise the debt ceiling by the full amount needed through 2012. It would cut spending by $2.2 trillion, according to the Congressional Budget Office — although $1.04 trillion of that savings would come from the declining costs of the war in Iraq and Afghanistan, a calculation that Republicans dismiss as budget gimmickry.

The challenge in reconciling the approaches is two-fold, said Senate Budget Chairman Kent Conrad, D-N.D. The Reid plan fails to “assure people that you actually get the savings,” he said. But the Boehner plan fails to give the economy — and Democrats, who are unwilling to reopen this heated debate again in six months — the certainty of a long-term debt ceiling increase.

“You need assurances that the debt limit actually gets extended,” Conrad said. “Those are the tensions you have to resolve.”

Rep. John Fleming of Louisiana said he and his House Republican colleagues will consider changes to the Boehner bill made by the Senate, but only if the Republicans believe taxes will not be increased and if the legislation promises deficit reduction at least as large as its debt limit hike.

“I think we’ll look at it. It just depends on what [the changes] are. They’ve got to meet our basic principles,” Fleming said.

The problem with the Reid plan from the point of view of Republicans is that the joint deficit committee’s recommendations would not have to be enacted, forfeiting the GOP’s leverage to force spending cuts in exchange for raising the debt limit.

“That’s an important optical point for our constituents,” said Rep. Lee Terry, R-Neb..

Triggers

Various trigger proposals were discussed by Boehner and Obama during their earlier and ultimately unsuccessful debt limit negotiations, including mechanisms that would force spending cuts or revenue increases, or a combination.

Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, said the key to a bipartisan agreement would be “ensuring you get the deficit savings” from the committee if it deadlocks or votes down a deficit-fighting plan. But he also wants what Democrats call a “balanced” approach to deficit reduction from any automatic procedure — spending cuts and revenue increases.

Republicans, however, seem unlikely to agree to any plan with such obvious potential to increase taxes.

Republicans have opened the door to revenue increases that result from an overhaul of the tax code that would lower rates and broaden the tax base. But House Ways and Means Chairman Dave Camp, R-Mich., said that while a joint committee would be a good venue for cuts in entitlement programs, he would not expect it to accomplish much toward a tax overhaul. “I think fundamental tax reform would be very difficult to do in that context,” he said.

In many ways, a discussion of triggers seems destined to arrive back at an impasse that has bedeviled negotiators for months: Democrats will not agree to entitlement changes unless Republicans agree to revenue increases.

Leaders Looking at Options for a Final Deal

Some lawmakers and aides suggest that any deal that can win House and Senate passage may have to weaken the mechanism in Boehner’s bill that links a debt limit increase through 2012 to enactment of a second round of cuts.

A Senate GOP aide said lawmakers have been looking at the debt limit contingency language in the House measure. One option would be to allow the debt limit to increase if Congress clears a deficit-reduction package, rather than linking the increase to the plan’s enactment. In other words, the deficit reduction would not have to be signed into law in order to allow the debt ceiling to rise.

Whether enough House Republicans would accept that option remains to be seen. In the end, Democrats suspect that Boehner — faced with a looming default — will be forced to send to the floor a bill that can only be passed with some Democratic support and over the opposition of many Republicans.

“I’m confident we’ll be part of that conversation,” Van Hollen said, “because they’ll definitely need Democratic votes on the way back.”

Paul M. Krawzak and Sam Goldfarb contributed to this story.

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