WASHINGTON, (Reuters) – With time running short in U.S. debt talks, Republican and Demo-cratic senators sought yesterday to craft a plan that could avert an unprecedented government debt default while making modest cuts in the deficit.
Aides to President Barack Obama said he still holds out hope for a “grand bargain” that would combine a deal for up to $4 trillion in deficit reduction with an agreement to raise the country’s borrowing limit.
But there were few signs of progress as the Aug. 2 deadline to avoid a default drew dangerously close.
Behind the scenes, Senate Republican leader Mitch McConnell and Senate Democratic leader Harry Reid were negotiating over a fallback plan proposed by McConnell that would allow Obama to raise the debt limit while sparing Republicans from having to vote in favor of it.
Senior Democratic aides said the U.S. Senate will likely begin considering the compromise measure this week. They predicted the Democratic-led Senate would pass the legislation, but winning over the Republican-led House of Representatives would pose a bigger challenge.
“Barring a breakthrough, this is going to be the plan,” one congressional aide said. “We are working under the assumption that there won’t be a (deficit) plan.”
Making the rounds on the Sunday morning talk shows, White House budget director Jack Lew told CNN’s “State of the Union” program he believed that all of the leaders in Congress “understand it would be irresponsible to get to Aug. 2 and not extend the ability of the United States to pay its obligations.”
If Congress does not raise the $14.3 trillion limit on U.S. borrowing by then, the government will run out of money to meet all it’s payments. Economists and administration officials have warned this would trigger a crisis in global financial markets and plunge the United States into another recession.
Obama’s quest for a debt-limit increase and a $4 trillion deficit reduction deal hit a major obstacle a week ago when Republicans in Congress rejected his demand that tax increases on the wealthy be part of the plan.
Lew told NBC’s “Meet the Press” that there was still time to get a big deal done. “The president has made it clear he wants to do something substantial,” he said.
But a growing number of private-sector experts believe the solution to the debt standoff might lie in the “Plan B” sketched out by McConnell.
That proposal would involve a convoluted legislative maneuver to raise the debt limit in three stages. It would put the burden on Obama’s Democrats to approve the increase, but, in its initial form, it would not require spending cuts.