Democrats and Republicans appear locked in a standoff over raising the debt limit, but there are signs that the two sides may be moving closer to a settlement.
Right now Washington is engaged in “natural gamesmanship” as each side pushes for concessions from the other.
But the odds are that President Obama and House Speaker John Boehner will agree to a deal because “the dangers are just too great if they don’t,” Larry Sabato, director of the Center for Politics at the University of Virginia, told Yahoo! News.
The Treasury Department has warned that the country will face default if Congress does not lift the $14.3 trillion debt ceiling by August 2. That could push the nation back into recession and wreak havoc on financial markets across the globe.
Adding to the urgency, administration officials contend that Congress must agree to the outline of a deal by July 22 if legislation is to be passed by the August 2 deadline.
Before talks led by Vice President Joe Biden broke down in late June over Republicans’ refusal to consider tax increases, Democratic and Republican negotiators had already agreed to cuts in discretionary spending that reportedly could amount to $1.7 trillion over 10 years. But Speaker Boehner has insisted that House Republicans won’t agree to raise the debt ceiling without a plan to cut $2.4 trillion from the deficit.
One sticking point has been Republicans’ resistance to large cuts in military spending. But last week Democratic Sen. Charles Schumer said he thought a compromise was possible in this area, Reuters reported.
Republicans in recent days have signaled a willingness to cut military spending, according to The Washington Post.
“When we say everything is on the table, that’s what we mean,” Majority Whip Kevin McCarthy, the No. 3 Republican in the House, told the Post.
And while Republicans remain adamantly opposed to tax increases, they are beginning to consider agreement on cutting tax breaks. Sen. John McCain said on Sunday that the final deal might include some “revenue raisers.”
“There’s no way imaginable Republicans will go along with increasing taxes,” said Sabato. “But closing tax loopholes — there’s plenty they could do.”
Wisconsin Republican Sen. Ron Johnson said on CBS’s “Early Show” on Tuesday that there is a growing group of House and Senate Republicans willing to increase the debt ceiling, provided there is agreement on caps on federal spending, and eventually, a balanced budget amendment.
Democrats for their part now appear to be amenable to cuts in spending for Medicare and changes that would reduce federal pensions, Yahoo! News reported, in addition to already agreed upon reductions in student aid and farm subsidies.
Democrats also are backing away from demands for an increase in income tax rates for wealthy households, Reuters reported.
Both sides are looking at changing the inflation index, which could slow the growth of benefit payments and tax exemptions, yielding savings of some $300 billion.
Another possible avenue toward a settlement could be a “mini-deal” in which Democrats and Republicans move ahead with already agreed-upon cuts, raise the ceiling on the federal debt, and continue negotiations for a more substantial agreement.
Former President Bill Clinton suggested such a solution over the weekend. And Texas Republican Sen. John Cornyn said the GOP would likely accept a mini-deal with the Obama administration.
That could put off difficult decisions until after the 2012 election cycle, Bloomberg News observed.
But during an appearance on “Fox News Sunday,” Sen. Cornyn said: “The problem with a mini-deal is that we have a maxi problem.”
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