Democrats, Republicans Pursue Separate Debt Ceiling Plans After Weekend Standoff

Jul 24, 2011 11:35pm

ABC News’ Jonathan Karl (@jonkarl)

After a weekend of fitful, hurried back-and-forth between House Republicans, President Obama and Congressional Democrats, Democrats and Republicans are now pursuing separate plans to raise the debt ceiling.

But for all the sound and fury – and there will be even more when it comes time to actually vote on all this – the bottom line is that both sides have now moved decisively in a direction that should avoid default.

The two plans differ in important ways, but both have these things in common:

-       Significant spending cuts

-       No tax increases

-       Avoiding default

Neither plan has yet been provided to the public, but here’s what knowledgeable sources say they are:

The Democratic Plan

Now being drafted by Harry Reid and his staff, the plan would have $2.7 trillion in cuts over the next 10 years, no tax increases and a debt ceiling increase (of $2.4 billion) that would last until 2013.  Republicans still won’t like this because the $2.4 trillion in “cuts” will likely include more than $1 trillion in “savings”  because the US won’t be fighting a war in Iraq anymore and will be reducing troop levels in Afghanistan.  Republicans say that isn’t really a spending cut (although the budget written by Rep. Paul Ryan, R-Wisc., and passed through the House, also includes these savings).

The Republican Plan

This is a two-step plan:  $1.2 trillion in cuts now and a debt ceiling increase of about a trillion (enough to last until about February 2012).  For the second step, a bi-partisan committee would be created to identify another $1.8 trillion in cuts.  Once those cuts are approved, the debt ceiling would then be extended until 2013. 

There is still plenty of uncertainty ahead about which plan can pass and whether it can all be done by August 2nd, but we can now at least envision how this all ends. 

In a written statement late Sunday, Reid said bipartisan talks broke down this weekend “over Republicans’ continued insistence on a short-term raise of the debt ceiling,” something he, House Minority Leader Nancy Pelosi and the president have strongly opposed.  “A short-term extension would not provide the certainty the markets are looking for, and risks many of the same dire economic consequences that would be triggered by default itself. 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, D-Nev., said. 

Pelosi praised Reid “for putting forward an approach to reduce the deficit that protects Social Security, Medicare and Medicaid beneficiaries.”

“The major features of Senator Reid’s proposal have already been supported by Republicans in the past months,” Pelosi said. “Our efforts to reduce the deficit are not over and we must work in a bipartisan way to address tax simplifications and reform, and ensure that taxpayer dollars are spent wisely.”
 

A senior GOP aide close to the failed bipartisan negotiations said Sunday that Reid was in communication with Boehner and Senate Minority Leader Mitch McConnell and the two Senate leaders had directed staff members to collaborate on draft bipartisan legislation similar to the plan now being pursued by Congressional Republicans. The GOP aide said Reid even took the idea down to the White House Sunday evening but the president said no.

President Obama has opposed the idea of a short-term debt ceiling increase – any more than days or weeks – because it would force another vote on the issue, with its potentially dire economic implications, in the midst of the presidential election.

 “The Speaker, Sen. Reid and Sen. McConnell all agreed on the general framework of a two-part plan. A short-term increase (with cuts greater than the increase), combined with a committee to find long-term savings before the rest of the increase would be considered,” the aide said. “Sen. Reid. took the bipartisan plan to the White House and the president said no.”
The deadline for the U.S. government to raise the debt ceiling without defaulting on any obligations in Aug. 2, but the urgency of finding a solution and breaking the standoff was clear as Asian markets were off by about 0.7 percent in early trading, gold is trading at a record price ($1,613 per troy oz) and the dollar is dropping against other currencies as investors warily eyed the situation in Washington.
Futures contracts  indicated a 1% drop in US markets at the 9:30am ET open Monday.
With contributions from ABC’s John Parkinson (@jrpabcdc), Dan Arnall (@abcmoneyguy) and Z. Byron Wolf (@zbyronwolf)
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