Senate Majority Leader Harry Reid announced Saturday night that he was delaying a vote on his deficit-cutting bill until 1 p.m. Sunday in order to give negotiators more time to reach an accord on raising the debt limit.
Elements of a possible deal began to emerge near midnight.
Numerous reports, all citing anonymous sources, said the White House and Republicans were discussing a plan to raise the debt ceiling by up to $2.8 trillion and making cuts of about that in two separate chunks. The Associated Press and The Washington Post reported a lower figure for the increase in the debt ceiling of $2.4 trillion.
Reuters laid out these elements:
* $2.8 trillion deal. It would raise the debt ceiling by that amount through 2012 and make equal spending cuts.
* $1 trillion in cuts would be agreed now.
* Special committee appointed by Congress would recommend a second installment of savings of about $1.8 trillion.
* If Congress cannot agree on how to implement the cuts recommended by the committee, automatic cuts would be triggered, including reductions in military spending and cost savings to the Medicare health care program for the elderly. Benefit cuts would not be triggered though.
* No cuts in Social Security.
It was unclear whether tax increases could contribute to the additional budget savings under the trigger. The AP and ABC News said the deal would include a vote on a balanced budget amendment, although it was unclear what form such a vote would take.
“There are many elements to be finalized and there is still a distance to go before any arrangement can be completed, but I believe we should give everyone as much room as possible to do their work,” Reid said on the Senate floor.
Reid said that he'd spoken to White House officials several times Saturday night and that they agreed that a delay was necessary “to give them more time to talk” — seeming to imply that the bargaining at this point was between Republicans and President Barack Obama.
“I’m glad to see this move toward cooperation and compromise. I hope it bears fruit,” Reid said.
As of Saturday evening, Reid apparently lacked the 60 votes he needs, under Senate rules, to end debate on his bill and proceed to a final vote.
But the center of the drama appeared to have shifted to Republican Leader Mitch McConnell's office as he continued telephone conversations with Obama and Vice President Joe Biden in an attempt to design a deal that enough members in each party could support.
GOP leader 'confident and optimistic'
McConnell said Saturday afternoon he was “confident and optimistic” that he and GOP leaders will reach an accord “in the very near future” with Obama. But a few hours later, Reid took to the Senate floor to dispute McConnell's assessment, saying that "the process has not been moved forward during this day."
McConnell responded by telling the Senate, "I'm more optimistic than my friend, the majority leader. We both talked to the president today, talked to the vice president several times. I think we've got a chance of getting there.... I actually cut short a conversation with the vice president to come out here" to the Senate floor.
At that point, McConnell proposed to move, after an interval of a few minutes, to a vote on ending debate on Reid's bill.
But Reid immediately blocked McConnell's proposal, leaving the vote on cloture, or ending debate, the most likely next move.
Forty-three Republican senators said they opposed the Reid bill. In a letter to Reid, they wrote that the bill "fails to address our current fiscal imbalance and lacks any serious effort to ensure that any subsequent spending cuts are enacted."
On Saturday the House voted down the Reid proposal by a vote of 246 to 173. Eleven Democrats, mostly from Republican-leaning districts, voted with 235 Republicans to defeat the bill.
Assessing Reid's proposal
The non-partisan Congressional Budget Office has estimated that the Reid proposal would reduce deficits by about $2.2 trillion over ten years, which would be about a 16 percent reduction in future deficits, using the CBO's most plausible budget scenario.
But Republicans contend that $1 trillion of those savings are illusory since they're based on the anticipated cost of troop deployments in Iraq and Afghanistan until 2021. Obama and Congress have already decided to end those deployments well before 2021.
Without those savings from Iraq, Afghanistan and other "overseas contingency operations," Reid's proposal would cut deficits by a total of $1.1 trillion, compared to $917 billion in deficit cutting in House Speaker John Boehner's plan, which the House approved but the Senate rejected Friday.
Earlier Saturday McConnell told reporters that he and Boehner “are now fully engaged... with the one person in America, out of 307 million people, who can sign a bill into law..... We now have, I think, a level of seriousness with the right people at the table. We’re going to get a result.”
He added, “We all know that if the president decides to reach an agreement with us, the Democrats, most of them, will fall in line. He is the leader of the Democratic Party; he is the president of the United States. He needs to indicate what he will sign. And we are in those discussions now.”
Why so optimistic?
The House and the Senate, where the Democrats have a majority of 53, had each other essentially in legislative check Saturday, with neither Reid's deficit reduction bill nor Boehner's having enough support in the other body to move ahead.
There appears to be general agreement between Democratic and Republican leaders on an initial round of cuts in discretionary spending. That first round of cuts would not apply to entitlement programs such as Medicare and Social Security.
A crucial point blocking a final agreement is the question of “triggers” — mandatory actions that would occur if Congress did not approve a second round of spending cuts.
Given this discord, it was not clear what new development, if any, had made McConnell and Boehner sound so confident of a deal.
Boehner, standing with McConnell at the press conference Saturday, said he too was confident that an accord will be reached soon. Referring to Obama and his aides, Boehner said “We’re dealing with reasonable, responsible people who want this crisis to end as quickly as possible.”
McConnell also declared to reporters Saturday that a default on government debt “is not going to happen,” even though the government is only two days from reaching the date the Treasury Department had identified as the point at which the government will exhaust its legal ability to issue new bonds.
If the borrowing limit is reached, Treasury Secretary Tim Geithner has said, the government will be forced to make a 40 percent cut in outlays.
Geithner has been unwilling to discuss in public how the Treasury would manage its cash if it exhausts its borrowing ability.
But Bloomberg News reported Friday that the Treasury would give priority to making interest payments to holders of Treasury bonds if lawmakers fail to reach an agreement to raise the debt ceiling.
The prolonged standoff over raising the $14.3 trillion debt limit comes at a time when data are pointing to persistent economic weakness and when business leaders are voicing worry that a disruption of bond markets would only make matters worse.
Vulnerable to a shock
The government reported Friday that in the first quarter of the year the economy grew by only 0.4 percent.
The government also revised its previous output figures for 2008 and 2009, revealing that the recession was worse than previously thought, with the economy shrinking by 0.3 percent in 2009 and by 3.5 percent in 2008.
With more than 14 million people still officially categorized as unemployed, and with millions more having given up looking for jobs, the economy remains in a fragile state.
David Beers, the global head of sovereign ratings at the bond rating firm Standard & Poor’s, said last week that reaching the debt limit “would not be default so long as the government is continuing to pay its debt as it matures and its interest payments.”
But the government being unable to borrow, and the resulting cut in outlays, would be, Beers said, “a very sudden fiscal shock that, the longer it lasted, would filter powerfully through the system… Potentially that would be deeply disruptive to the economy.”