Newfound optimism emerges for deal on debt ceiling

Updated: July 31, 2011, 10:36 AM

WASHINGTON — Congressional negotiators are "very close" to striking a deal with President Obama to cut the federal debt ceiling by $3 trillion over 10 years while extending the federal debt ceiling into 2012, Senate Minority Leader Mitch McConnell said this morning.

"I am very close to being able to recommend to my members that we have an agreement that I hope they'll support," McConnell, R-Ky., said this morning on CNN.

Appearing just after McConnell, Sen. Charles E. Schumer of New York, the third-ranking Democrat in the Senate, stressed that no final agreement had been struck.

But Schumer added: "Default is far less of a possibility than it was even a day ago."

The newfound optimism came as lawmakers and White House officials continued to huddle to work out details of a plan that aims rescue the nation from an economically crippling default deadline only two days from now.

Economists have warned that failure to raise the debt ceiling could lead to the lowering of the nation's credit rating and higher interest rates for every American, as well as missed payments for Social Security recipients and everyone else who gets checks from the government.

Now, though, the outlines of an agreement are coming clear, McConnell said.

The $3 trillion deal would include no tax increases, he said. And it would raise the debt ceiling in two stages — one immediate, and including part of the $3 trillion in spending cuts, and next year that's contingent on adoption of a second round of cuts to bring the total to $3 trillion.

Both Houses of Congress would have to take a vote on a constitutional amendment to balance the budget, although approval of that amendment would not be required for the second hike of the debt ceiling to go forward, McConnell said.

The continuing negotiations are now focusing on the "trigger" that will force the second round of budget cuts to take effect, McConnell and Schumer agreed.

McConnell said that issue is the one that has "locked us" in disagreement, and Schumer said: "Certainly the enforcement mechanism is one of the key issues being debated."

Appearing on NBC's "Meet the Press," White House adviser David Plouffe stressed that many details of the agreement are yet to be worked out.

"We don't have a deal," Plouffe said.

The progress in budget talks, coming only two days before the Treasury could start having trouble paying its bills, came after a week of stalemate.

"We wasted a week firing volleys across the Capitol," McConnell said.

The first sign of progress came when Senate Majority Leader Harry Reid, D-Nevada, took to the Senate floor shortly before 10:30 p.m. Saturday and abruptly delayed the vote on his bill to extend the federal debt limit, which had been scheduled for 1 a.m. The vote was rescheduled for this afternoon.

Talks at the White House resumed after Obama once again urged quick action. "Look, the parties are not that far apart here," Obama said in his weekly Saturday address. "We're in rough agreement on how much spending we need to cut to reduce our deficit. We agree on a process to tackle tax reform and entitlement reform. There are plenty of ways out of this mess. But there is very little time."

The White House talks, involving top congressional leaders of both parties, came as senators of both parties scrambled to come up with alternative plans to avert a debt disaster.

"I'm worried about Congress defaulting on our country," said Sen. Johnny Isakson, R-Ga., who was putting together a potential compromise of his own.

Compromise seemed far from both floors of Congress, though, throughout the day Saturday.

A day after the Senate killed House Speaker John A. Boehner's plan for a two-step increase in the debt ceiling tied to $917 billion in spending cuts over 10 years, the House did a tit-for-tat, extinguishing Reid's plan by a vote of 246-173.

Republicans derided the Reid measure as a business-as-usual grab bag of accounting tricks.

For one thing, they called Reid's $2.7 trillion increase in the debt ceiling, the largest ever, nothing but an easy way to allow Obama to skirt the debt issue until after the 2012 presidential election.

Republicans were also upset that the Reid plan's $2.2 trillion in budget savings includes nearly $1 trillion in "cuts" for lower spending on the wars in Iraq and Afghanistan — money the military doesn't plan to seek as the two wars wind down.

Rep. Tom Reed, R-Corning, missed the vote because of a family obligation back in his district, but he entered a statement into the record opposing it.

"It's full of gimmicks," Reed said of the Reid plan. "It's the same old Washington."

Many Republicans took to the House floor to lambaste Obama, noting that he has not publicly proposed a legislative solution to the debt crisis.

"The president has no plan," said Rep. Michele Bachmann, a GOP presidential candidate from Minnesota. "It's only the Republicans who have plans."

But Democrats noted that Obama backed Reid's plan, which they saw as the only true building block for compromise.

They said that because the Boehner bill includes a poison pill — a provision tying a second increase in the debt ceiling early next year to congressional approval of a balanced budget amendment that probably couldn't win the required support of two thirds of both houses.

The Reid plan "is the best of two bad options right now," said Rep. Brian Higgins, a Buffalo Democrat who said he preferred a bill that would have combined more significant budget cuts with tax reform that would increase revenues.

Given that every previous Congress has approved debt-ceiling increases as a matter of routine, Higgins accused Republicans of manufacturing the debt-limit crisis in order to hurt the economy — and Obama's re-election chances.

As far as the economy goes, "the damage may already be done," Higgins said.

Rep. Kathleen C. Hochul shared Higgins' concern about the economy, saying that concern prompted her to vote for the Reid bill even though she would have preferred a bigger deal that included revenue increases.

"I'm not going to put the global markets and the U.S. economy at risk one minute longer," said Hochul, D-Amherst. "I don't like the fact that we are leaving businesses all over this country in the same state of uncertainty."

Meanwhile in the Senate, Saturday began with some hope for the Reid plan, as Republican senators from Massachusetts, Tennessee and Alaska dropped hints that they were amenable to compromise.

That optimism evaporated when 43 Republicans came out in opposition to the Reid plan — meaning he was at least three votes short of a filibuster-proof 60-vote majority.

"The plan you have proposed would not alter the spending trajectory that is putting our economy and national security at risk," the 43 GOP senators said in their letter to Reid.

The letter meant that until Reid's late-night announcement, it appeared that the U.S. economy — and everyone who gets a paycheck from the federal government — could be at risk.

The Obama administration has not yet detailed which bills it would pay and which it would let slide if it breaches the government's $14.3 trillion debt limit as scheduled at the end of the day Tuesday.

Yet Obama has said he is uncertain that Social Security checks and other government payments would be able to go out, prompting a growing sense of worry that lawmakers can't help but notice.

"My constituents have been calling my office day after day to tell me that they can't afford higher interest rates, that they're terrified that their Medicare and Social Security benefits will be decimated and that the unfairness of asking nothing of millionaires and billionaires is unprincipled," said Rep. Louise M. Slaughter, D-Fairport. "They're right."

That fear even reached all the way to Afghanistan, where Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, was asked by troops at Camp Leatherneck if they would be paid if the nation defaulted.

"I actually don't know the answer to that question," Mullen said, quickly adding that the soldiers would have to keep fighting no matter what.

News wire services contributed to this report.