Debt Limit Talks at a Standstill
Policy + Politics

Debt Limit Talks at a Standstill

Hours before Asian financial markets were set to open Sunday evening, talks over the federal debt limit were at a standstill and House and Senate leaders were threatening to pursue two different approaches to averting a government default in a messy legislative showdown.

In a conference call with House Republicans, Speaker John A. Boehner (R-Ohio) called for the party to unify behind a plan that he declined to detail, saying he would provide more information when lawmakers return to the Capitol Monday. But aides in both parties said they expected Boehner to press ahead with a two-stage strategy that would give the Treasury only about $1 trillion in additional borrowing authority, forcing another debt-limit battle early next year when the parties are embroiled in the heat of the 2012 presidential campaign.

“If we stick together, we can win this for the American people,” Boehner told his troops, participants said.

Boehner promoted that strategy on “Fox News Sunday,” telling host Chris Wallace that “there’s going to be a two-stage process. It’s not physically possible to do all of this in one step.” In a barbed aside, he added: “I know the president’s worried about his next election. But my God, shouldn’t we be worried about the country?”

President Obama strongly opposes a short-term extension of the $14.3 trillion debt limit, arguing that prolonged uncertainty about the government’s financial capabilities would be harmful to the U.S. economy and the nation’s global standing. White House Chief of Staff William Daley said Sunday that Obama would veto a short-term extension, and Senate leaders were preparing an alternative that would extend the debt limit through 2013.

The Senate plan would add to the dizzying proliferation of debt-limit ideas, with just 10 days before the Treasury is due to run short of cash to pay the nation’s bills. But it is the simplest, by far: According to a Senate Democratic leadership aide, Majority Leader Harry M. Reid (D-Nev.) will offer to cut spending by $2.5 trillion in exchange for an equal increase in the debt limit, meeting the dollar-for-dollar test Boehner laid down in early May.

The aide, speaking on the condition of anonymity because the plan has not been publicly released, said the package would include up to $1.2 trillion in cuts to government agencies, including the Pentagon. It would not include tax increases, said the aide, who declined to comment on what else might be included.

However, a package that hits such a large debt-reduction target is likely to rely on savings from ending the wars in Iraq and Afghanistan, according to people familiar with the months-long budget negotiations — a huge chunk of potential savings that also has the political advantage of having been included in the budget blueprint House Republicans adopted this spring.

Counting money not spent on a war that the nation was already planning to end is widely viewed as an budget gimmick, and House GOP leaders have been reluctant to count it in debt-reduction plans as part of the debt-limit debate. But Democratic sources said it may look more attractive as the clock ticks down to a potential default on Aug. 2.

Obama summoned Reid and House Minority Leader Nancy Pelosi (D-Calif.) to the White House for a meeting at 6 p.m. Sunday, but there were no plans for Democrats to meet with Boehner. Aides in both chambers said the House was likely to proceed with its measure on Monday, aiming for Wednesday passage, while Senate leaders will push their proposal toward passage Friday.

With each side attempting to demonstrate that only its preferred option could win enough votes, the week threatened to devolve into a dangerous game of chicken, with each side daring the other to reject its measure and take the blame for tipping the nation into an economy-shattering default.

Meanwhile, genuine negotiations between the two parties were continuing on a third, more quiet track as aides to Reid and Senate Minority Leader Mitch McConnell (R-Ky.) worked to make Boehner’s two-stage strategy acceptable to Obama and other Democrats. By Sunday evening, they had yet to come up with a plan, but aides in both parties said talks were continuing.

Boehner and Treasury Secretary Timothy F. Geithner appeared on the political talk shows Sunday at the start of a day of crucial talks, and their comments confirmed that the gap between Republicans and the White House on the debt ceiling remains wide and deep.

Geithner warned that a debt-reduction deal that does not result in raising the nation’s legal borrowing limit through the 2012 elections remains unacceptable to the White House and cannot win enough Democratic votes in Congress to ensure passage.

Boehner, meanwhile, indicated that Republicans could push forward with a plan this week, even without Democratic support.

“I think the preferable path would be a bipartisan plan that involves all the leaders, but it’s too early to decide whether that’s possible,” he said on “Fox News Sunday.” “If a bipartisan bill is not possible, I and my Republican colleagues in the House are prepared to move on our own.”

Under proposals floated by Republicans on Saturday, Congress would cut agency spending by as much as $1 trillion over the next 10 years and raise the debt ceiling by an equal amount. That would give the government the borrowing authority to pay its bills, but only through the end of this year.

The deal would then require Congress to work to reduce the debt by as much as $3 trillion by reforming the tax code and entitlement spending.

Geithner said such a two-step process could be acceptable — but not if it requires a second vote by Congress to lift the debt ceiling in the coming months. He insisted that any deal must raise the limit long enough to remove the possibility of a default from the politically heated presidential campaign season.

“There’s nothing wrong with doing this in stages,” he said on CNN’s “State of the Union.” “But what it cannot do is leave the threat of default hanging over the economy.”

Daley had a similar message on NBC’s “Meet the Press,” saying a “short-term gimmick” won’t work and that Obama would veto any plan that did not raise the ceiling through the 2012 elections.

On ABC’s “This Week,” Geithner said a deal must be in motion in the House by Monday night to avoid missing the Aug. 2 deadline.

“They need to have a framework that they know with complete confidence will pass both houses of Congress, that is acceptable to the president, and that should happen today,” he said.

Staff writers Paul Kane, David Fahrenthold, Rosalind S. Helderman, Felicia Sonmez and Zachary A. Goldfarb contributed to this report.