Debt-limit talks hit wall again as separate strategies take shape in House, Senate

House and Senate leaders were preparing separate backup plans Sunday to raise the federal debt limit after another day of intense negotiations failed to break a partisan impasse that threatens to throw the government into default next week.

The rival strategies left Congress poised to start this week locked in bitter and messy legislative warfare, even as financial markets were reopening for the first time since House Speaker John A. Boehner (R-Ohio) abruptly abandoned debt-limit talks with the White House on Friday.

Over the weekend, congressional negotiators focused their attention on Boehner’s proposal to raise the debt limit in two stages. Their goal was to make it more palatable to Democrats — particularly President Obama. On Sunday afternoon, they thought they were close.

But after a 6 p.m. powwow at the White House, Obama, Senate Majority Leader Harry M. Reid (D-Nev.) and House Minority Leader Nancy Pelosi (D-Calif.) rejected the emerging compromise, saying it would leave the door open to another wrenching debt-limit battle in just a few months.

“Tonight, talks broke down over Republicans’ continued insistence on a short-term raise of the debt ceiling, which is something that President Obama, Leader Pelosi and I have been clear we would not support,” Reid said in a written statement. “Speaker Boehner’s plan, no matter how he tries to dress it up, is simply a short-term plan, and is therefore a non-starter in the Senate and with the President.”

Reid said he would turn instead to an entirely new approach “that meets Republicans’ two major criteria,” which are spending cuts designed to meet or exceed the amount of the debt-limit increase and no new taxes. Under Boehner’s rules, Reid said, the $2.7 trillion debt-reduction package he plans to unveil Monday should buy the Treasury sufficient borrowing authority to pay the nation’s bills through the end of next year.

“We hope Speaker Boehner will abandon his ‘my way or the highway’ approach, and join us in forging a bipartisan compromise along these lines,” Reid said.

Reid offered no further details about the plan. A Senate Democratic leadership aide, speaking on the condition of anonymity because the plan has not been publicly released, said the package would include cuts of up to $1.2 trillion over the next decade to government agencies, including the Pentagon. Democrats had previously offered to accept those savings, as well as about $200 billion in cuts to non-health direct-payment programs, such as farm subsidies.

The aide declined to say what else the package might contain. But people familiar with the months-long search for a debt-reduction compromise said that hitting such a large target without raising taxes or cutting entitlement programs would probably require Reid to rely heavily on savings from ending the wars in Iraq and Afghanistan — a figure budget analysts said could easily amount to more than $1 trillion over the next decade.

Counting money not spent on wars that the nation is already planning to end is widely viewed as a budget gimmick, and House GOP leaders have been reluctant to include it as savings. But it has a political advantage because it was included in the budget blueprint House Republicans adopted this spring. And Democratic sources said the option may look more attractive as the clock ticks down to Aug. 2, when Treasury officials say they will run out of money to pay all of the government’s bills.

Boehner had no immediate response to Reid’s proposal. But senior GOP aides in the House said the speaker was expected to forge ahead Monday with his own debt-limit legislation based on the two-stage framework that has been the focus of talks all weekend.

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 that is fast becoming a standard Republican talking point, Boehner suggested that Obama is trying to avoid a debt-limit fight in 2012 primarily because it would focus the nation’s attention again on budget matters just as the presidential campaign is kicking into high gear.

“I know the president’s worried about his next election. But my God, shouldn’t we be worried about the country?” Boehner said.

That strategy calls for Congress to act first on a short-term extension of the debt limit that would give the Treasury about $900 billion in additional borrowing authority — enough to pay the nation’s bills only through early next year. That would be paired with about $1.2 trillion in cuts to government agencies, including the Pentagon, over the next decade.

Under the plan, Congress would also create a 12-member committee staffed with lawmakers from both the House and Senate and tasked with identifying at least $1.6 trillion in additional savings by a deadline set for later this year. Those savings would be paired with a second debt-limit increase, meeting Boehner’s dollar-for-dollar condition.

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 M. Daley said Sunday that Obama would veto a short-term extension. All weekend, negotiators representing Reid, Boehner and Senate Minority Leader Mitch McConnell (R-Ky.) worked to find a compromise.

By Sunday afternoon, they were focused on a range of options aimed at guaranteeing
that Congress would approve $1.6 trillion in fresh savings and fresh borrowing authority by the end of the year. Possibilities included making it easy for Congress to push through the committee’s recommendations.

Negotiators also discussed tying an automatic debt-limit increase to the committee’s recommendations, as well as creating a trigger that would cut spending and raise the debt limit if the committee failed to act.

Boehner seemed to leave the door open to such changes in an afternoon conference call with House Republicans, telling them that the path forward would require them “to pull together as a team behind a new measure that has a shot at getting to the president’s desk.”

Boehner warned that it would not be the “cut, cap and balance” bill that passed the House but failed in the Senate last week. That measure calls for sharp spending cuts and ties a debt-limit increase to a constitutional amendment requiring a balanced budget.

But Boehner told his troops that he could see another a path emerging, according to participants on the call. He added, “If we stick together, I think we can win this for the American people.”

Less than two hours later, Reid carried the plan to the White House, where it appeared to meet with the president’s disapproval. Afterward, a White House official said the president “received an update on the state of negotiations on the Hill from Leader Pelosi and Leader Reid, and the Leaders and the president reiterated our opposition to a short-term debt limit increase.”

But a Republican aide close to the talks said Boehner, Reid and McConnell “all agreed on the general framework of a two-part plan.” When Reid took the bipartisan plan to the White House, the aide said, “the president said no.”

A spokesman said Reid was open to the two-step framework but never endorsed the emerging compromise. As talks broke down, aides in both chambers said the House was likely to proceed with its measure on Monday, aiming for Wednesday passage. Senate leaders, meanwhile, were laying plans to push their proposal toward final passage Friday.

Unless a compromise emerges, the legislative maneuvering threatens 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.

Staff writer Paul Kane contributed to this report.

For more coverage of the U.S. debt-ceiling debate, visit Post Business.

Lori Montgomery covers U.S. economic policy and the federal budget, focusing on efforts to tame the national debt.
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