President Barack Obama and congressional leaders began a fresh attempt to reach agreement on raising the U.S. debt cap, with a potential framework for a deal emerging two days before a default deadline.
The White House and congressional Republicans have sketched out the contours of an agreement to increase the nation’s $14.3 trillion debt ceiling that would raise borrowing authority through the next presidential election, a person familiar with the talks said late last night.
David Plouffe, a special adviser to Obama, cautioned that no final agreement has been reached and negotiations were continuing. Senator Richard Durbin of Illinois, the Senate’s second-ranking Democrat, said on “Fox News Sunday” today that “key elements” were still being resolved.
The tentative framework includes immediate spending cuts of $1 trillion and creation of a special committee to recommend additional savings of up to $1.8 trillion later this year. The new panel would have to act before the Thanksgiving congressional recess in late November and Congress would have to approve its recommendations by late December or government departments and programs, including defense and Medicare, would face automatic across-the-board cuts, the person said.
No more than 4 percent of Medicare would be subject to cuts, and beneficiaries would be unaffected as reductions would apply to providers, the person said. Social Security would be untouched.
The framework also calls for Congress to vote on a balanced budget amendment to the Constitution, the person said. Amendments require two-thirds majorities to pass, and if enough Democrats oppose the measure it would have little chance of winning approval.
The prospective agreement wouldn’t include increased net revenue, a sticking point for Republicans who have been adamant that any deal with tax increases couldn’t pass the Republican- run House.
Democrats, including those who run the Senate, have been insistent that any deal must be a “balanced approach” that includes revenue, raising questions about whether Obama would find substantial support from his party for the plan.
“You’re going to have to have closing of tax loopholes. You’re going to have to have revenue produced to close the deficit,” Plouffe said on ABC’s “This Week.”
Senator Chuck Schumer of New York, speaking on CNN’s “State of the Union,” said both sides need to have a “sword” hanging over their heads to enforce the cuts.
For the Democrats, that would be the cuts, he said. For Republicans the preference would be “some kind of revenues,” he said.
Another option being discussed would be “defense cuts of equal sharpness and magnitude to domestic cuts,” he said.
Obama and congressional leaders yesterday kick-started the new push to prevent a U.S. government default on its debt after several previous efforts in recent weeks had fallen short. As the day progressed, Republicans and Democrats expressed greater optimism that a deal may be within reach before Aug. 2, the date Treasury Department officials have said they will run out of options for avoiding default without a debt limit increase.
Financial markets were restrained in reacting to the impasse on a debt deal through July 29.
Treasuries rallied, sending yields on 10-year notes to the lowest level since November. The yield on 10-year Treasury notes declined 15 basis points to 2.79 percent in New York.
Stocks fell as economic growth trailed forecasts. The Standard & Poor’s 500 Index slipped 0.7 percent and tumbled 3.9 percent this week for its worst slide in a year.
‘Distance to Go’
Senate Majority Leader Harry Reid last night said he was “confident that reasonable people from both parties should be able to reach an agreement.”
Reid, in remarks on the Senate floor before details of the framework emerged, cautioned that “there are many elements to be finalized and there is still a distance to go before any arrangement can be completed.” Still, the Nevada Democrat said, “I am glad to see this move toward cooperation and compromise.”
Senate Minority Leader Mitch McConnell, a Kentucky Republican, said today that the talks were near the point at which he could recommend the deal to members of his party. An agreement is “within our reach,” he said on CBS’s “Face the Nation.” House Speaker John Boehner, an Ohio Republican, also voiced confidence yesterday that an agreement could be reached.
Obama has been demanding an increase in the $14.3 trillion debt limit that lasts through the 2012 election, when he is seeking another term.
Reid moved last night to give the negotiations more breathing room, pushing by 12 hours a planned test vote today on a pending measure he has to raise the debt ceiling and cut government spending. The planned 1 a.m. vote was rescheduled for 1 p.m. at the Capitol.
The House earlier yesterday held a symbolic vote rejecting the Reid plan, 246-173. The vote was scheduled after the Senate voted down on July 29 a Boehner debt ceiling plan that had passed the House earlier in the day.
Since direct talks between Obama and Boehner on a so-called “grand bargain” that would revamp the government’s finance as part of a debt ceiling increase broke down on July 22, Obama had kept a lower profile, looking to congressional leaders to hammer out a deal he can sign into law.
The president has warned of potential disruptions if the borrowing authority isn’t upped by Aug. 2, including missed checks to Social Security recipients and a downgrade of the U.S. credit rating if Congress allows the government to crash into the debt ceiling.
Yesterday he summoned Pelosi and Reid to the White House. Pelosi said they talked about “what our priorities are.” He spoke by phone with McConnell after a similar conversation with Boehner the day prior. McConnell also spoke multiple times yesterday with Vice President Joe Biden as part of the search for a deal, said John Ashbrook, a spokesman for McConnell.
Republicans had been putting the onus on Obama to take the lead in the closing hours of the standoff. “The only way we’re going to get an agreement before Tuesday is to have an agreement with the president of the United States,” said McConnell.
A compromise has appeared to hinge on guaranteeing a second round of spending cuts beyond the roughly $1 trillion in overlapping savings in Reid’s plan and one by Boehner that the House, solely with Republican support, passed July 29. The second round of cuts most likely involve rewriting U.S. laws on entitlements and taxes, something the tentative framework would assign to the new joint congressional committee.
Such a mechanism is called a “trigger,” and it would force the across-the-board spending cuts if Congress failed to approve the committee’s recommendations.
Senator Olympia Snowe, a Maine Republican, said the trigger is essential to a deal. “You have to have it,” she said. “That does tie to whether or not Treasury securities are downgraded by the ratings agencies,” she said.
Boehner’s measure would have required congressional approval of a constitutional amendment to balance the budget and forced another debt-limit vote by lawmakers in about six months to continue the nation’s borrowing authority beyond early 2012.
Reid said his plan aims to attract bipartisan support because it includes no tax increases and would cut spending by the same amount as the debt-limit boost.
Republicans have said the Democrats’ plan is unacceptable in part because it doesn’t ensure long-term deficit reduction, including cuts to entitlement programs. They also said it relies on a budget “gimmick” by counting as deficit reduction plans to bring troops home from Iraq and Afghanistan.
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