Dwindling Options Left for Debt Limit Talks

Friday, 22 Jul 2011 09:55 PM

 

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WASHINGTON - Talks between President Barack Obama and Republicans to raise the U.S. debt limit collapsed on Friday after John Boehner, the top Republican in Congress, walked out of negotiations.

With just 11 days before an August 2 deadline, when the Treasury Department says the United States will run out of ways to service government debt without an increase in the borrowing cap, options to avert a devastating default are narrowing.

Obama and Boehner both said on Friday night they are confident the United States will not default. Here are some scenarios for raising the limit by the August deadline.

MCCONNELL "FALLBACK" PLAN

A backup "failsafe" plan first proposed by Mitch McConnell, the top Senate Republican, has reemerged as perhaps the most realistic option that will allow the debt limit to be raised in time.

Through a complex back-and-forth between the White House and Congress, it would allow Obama to raise the debt limit by $2.4 trillion in three installments through November 2012, when Obama and most lawmakers are up for re-election.

The Obama administration says the borrowing cap needs to be extended by $2.4 trillion to let the U.S. government meet its obligations through that time period.

Under the McConnell plan, Republicans would not have to vote to raise the debt limit.

Obama said on Friday that "at a minimum" the debt has to be raised and that he will take responsibility for that if the McConnell plan passes Congress.

AN ALL SPENDING CUTS, NO REVENUES PLAN

The great sticking point in the debt talks has been the question of taxes. Obama has wanted a "balanced" approach to deficit reduction -- a combination of spending cuts and revenue increases. Obama said on Friday he had been seeking $1.2 trillion in revenues by closing tax loopholes, but not hiking tax rates.

The House Republican leadership has insisted that any deal that involves revenue increases will not have the votes to pass the chamber, and it was the issue of revenues that led to the collapse of talks on Friday.

One package that could pass the House is a deal that contains just spending cuts. Yet whether that could pass the Democratic-controlled Senate is far from clear.

TALKS RESUME

Friday night saw Obama and Boehner both hold press conferences. Boehner blamed Obama's demands for more revenues on the impasse. Obama blamed House Republican intransigence.

It offered both the chance to claim how far they had been willing to go to reach a deal. It is not inconceivable that after the drama of Friday night -- and the shock of negotiations breaking down -- the air could be cleared and Obama-Boehner talks could resume.

Remarkably, it emerged on Friday night -- after insisting for weeks that revenue increases were out of the question -- that Boehner had been looking at $800 billion in revenue increases through tax loophole closures before the talks collapsed, suggesting a deal was closer at hand than thought.

Boehner said he had accepted an invitation to return to the White House on Saturday for more talks with Obama, along with the top Democrats in the House and Senate and the top Senate Republican.

OBAMA INVOKES THE CONSTITUTION

Some have argued that Obama could ignore Congress and order continued borrowing, by relying on the 14th Amendment of the U.S. Constitution, if it fails to raise the debt limit.

The fourth section of the 14th Amendment states the United States' public debt "shall not be questioned".

Former Democratic president Bill Clinton said this week that if it came to averting default, he would invoke the 14th Amendment, raise the debt ceiling and "force the courts to stop me".

Obama said on Friday White House lawyers had explored the option and they are "not persuaded" that it is a winning argument. But he did not rule it out.

© 2014 Thomson/Reuters. All rights reserved.

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