Really close' to debt deal as deadline nears

Racing to avoid a government default, President Barack Obama and Republican congressional leaders reached urgently for a compromise Sunday to permit vital borrowing by the Treasury in exchange for more than $2 trillion in long-term spending cuts. Senate Republican Leader Mitch McConnell said the two sides were "really, really close" to a deal after months of partisan fighting. Yet he and others stressed that no compromise had been sealed, just two days before a deadline to raise the federal debt limit and enable the government to keep paying its bills.

As contemplated under a deal that McConnell and Vice President Joe Biden were negotiating, the federal debt limit would rise in two stages by at least $2.2 trillion, enough to tide the Treasury over until after the 2012 elections.

Big cuts in government spending would be phased in over a decade. Thousands of programs — the Park Service, Internal Revenue Service and Labor Department accounts among them — could be trimmed to levels last seen years ago.

No Social Security or Medicare benefits would be cut, but the programs could be scoured for other savings. Taxes would be unlikely to rise.

Any agreement would have to be passed by the Democratic-controlled Senate and Republican-controlled House before going to the White House for Obama's signature. With precious little time remaining, both houses were on standby throughout the day, and Speaker John Boehner was in his office.

Without legislation in place by Tuesday, the Treasury will not be able to pay all its bills, raising the threat of a default that administration officials say could inflict catastrophic damage on the economy.

If approved, though, a compromise would presumably preserve America's sterling credit rating, reassure investors in financial markets across the globe and possibly reverse the losses that spread across Wall Street in recent days as the threat of a default grew.

Senate Majority Leader Harry Reid, D-Nev., said he was "hopeful and confident" a deal would come together. But in a possible hint of dissatisfaction, he pointedly made no mention of congressional Democrats when he said negotiations were between McConnell and the White House and unnamed others.

Officials familiar with the negotiations said that McConnell had been in frequent contact with Vice President Joe Biden, who has played an influential role across months of negotiations.
The talks were proceeding toward a two-step system for raising the debt limit and cutting spending.
The first step would take place immediately, raising the debt limit by nearly $1 trillion and cutting spending by a slightly larger amount over a decade.

That would be followed by creation of a new congressional committee that would have until the end of November to recommend $1.8 trillion or more in deficit cuts, targeting benefit programs such as Medicare, Medicaid and Social Security, or overhauling the tax code. Those deficit cuts would allow a second increase in the debt limit, which would be needed by early next year.

If the committee failed to reach its $1.8 trillion target, or Congress failed to approve its recommendations by the end of 2011, lawmakers would then have to vote on a proposed constitutional balanced-budget amendment.
If that failed to pass, automatic spending cuts totaling $1.2 trillion would automatically take effect, and the debt limit would rise by an identical amount.

Social Security, Medicaid and food stamps would be exempt from the automatic cuts, but payments to doctors, nursing homes and other Medicare providers could be trimmed, as could subsidies to insurance companies that offer an alternative to government-run Medicare.

Officials describing those steps spoke on condition of anonymity, citing both the sensitivity of the talks and the potential that details could change.

The emerging deal could mark a classic compromise, a triumph of divided government that would let both Obama and Republicans claim they had achieved their objectives.

As the president demanded, the deal would allow the debt limit to rise by enough to tide the Treasury over until after the 2012 elections.

But barring a change, it appeared Obama's proposal to extend the current payroll tax holiday beyond the end of 2011 would not be included, nor his call for extended unemployment benefits for victims of the recession.

Republicans would win spending cuts of slightly more than the increase in the debt limit, as they have demanded. Additionally, tax increases would be off-limits unless recommended by the bipartisan committee that is expected to include six Republicans and six Democrats. The conservative campaign to force Congress to approve a balanced-budget amendment to the Constitution would be jettisoned.

Congressional Democrats have long insisted that Medicare and Social Security benefits not be cut, a victory for them in the proposal under discussion. Yet they would have to absorb even deeper cuts in hundreds of federal programs than were included in Reid's bill, which many Democrats supported in a symbolic vote on the House floor on Saturday.

As details began to emerge, one liberal organization, Progressive Change Campaign Committee, issued a statement that was harshly critical.More...