Democrats Set Drop-Dead Date For Debt Ceiling Backup Plan

July 22, 2011 2:00 a.m.

President Obama’s quest to reach a historic budget agreement with House Speaker John Boehner (R-OH) fell into deep doubt Thursday, after a noisy rebellion by Senate Democrats over reports that Obama might hand Republicans the farm on discretionary and entitlement spending, with few or no guarantees that the GOP will accept any new tax revenues.

[TPM SLIDESHOW: Debt Ceiling Negotiations At The White House]

If the initial leak was meant to serve as a trial balloon, Senate Majority Leader Harry Reid (D-NV) shot it out of the sky the same day, after a contentious meeting with White House budget director Jack Lew. A Senate leadership aide told me that Reid will set the wheels in motion to pass a backup plan no later than Sunday unless a deal that can pass both chambers is agreed to before then. And the administration, clearly in damage control mode, summoned Democratic leaders up Pennsylvania Ave late in the day to clear the air, nurse wounds, and lay out a possible framework for a grand bargain to the skeptical crowd.The administration and Boehner both denied the initial reports. White House spokesman Jay Carney claimed emphatically that Obama still views new tax revenues as essential to any budget deal. And Boehner reiterated that the Republicans’ top priority at the moment is to see their push for a Balanced Budget Amendment through to its natural demise in the Senate, where it will fail on a partisan vote Friday.

But Democratic lawmakers weren’t buying the denials, for two reasons. First because Republicans can’t acknowledge progress toward a compromise with Obama just yet. As two GOP sources noted, Boehner won’t shake hands on anything until after the GOP’s so-called Cut, Cap, and Balance plan has its day in the Senate — conservatives won’t abide by him pre-empting it with a compromise, even if everyone knows Cut, Cap, and Balance is hopeless in reality.

The White House, by contrast, is pushing hard for a compromise. And Democrats are worried that in his zeal to accomplish something historic, Obama will agree to a debt plan that omits, or complicates, a key Democratic demand: new, concrete sources of tax revenue.

How that might happen is still unclear. But what is clear is that the latest fracas between the White House and Senate Dems dates back several weeks, to when Boehner first balked at the idea of a grand bargain. The issue, then as always, was tax revenue. Lacking the time and consensus to pass broad tax reforms as part of the debt deal, Obama and Boehner discussed moving forward, but with a placeholder for revenue: let Congress deal with tax reform in the months ahead, but include a trigger mechanism of some sort to ensure that queasy legislators don’t cop out on tax reform as election-time nears.

Democrats favored one proposal: if Congress failed to pass tax reform by date-certain, then the top-bracket Bush tax cuts would expire — a hefty stick that would encourage Republicans to cut a deal. Boehner never agreed to that — and now that the grand bargain has been revived, Democrats are worried that Obama has abandoned that trigger, and perhaps his insistence on a trigger of any kind.

Multiple reports surfaced late Thursday that a trade-off might be in the works: Republicans would agree to the tax trigger if Obama and Dems would agree to nix the health care law’s individual mandate — an unpopular, but crucial component of the reforms Obama signed last year. This is precisely the sort of swap House Majority Leader Eric Cantor (R-VA) has argued for recently.

Referring to negotiations with Democrats, Cantor last week told reporters, “Every time the discussion started about, well, Republicans need to raise taxes, I would proffer back, then you put ObamaCare repeal on the table.”

By multiple accounts, Democrats left Thursday’s White House meeting unhappy.

That leaves us at crunch time. After Friday’s symbolic vote on Cut, Cap, and Balance, the President and Congressional leaders will have about 48 hours to announce a deal that can pass both Houses. If that doesn’t happen, Reid will file cloture on a fallback plan — Plan Z — he’s negotiated with Mitch McConnell to avert catastrophe. According to top Senate Democratic and Republican aides, that plan’s largely written, sitting on a shelf, and ready to go if the prospects for a bigger deal diminish.

If Senate conservatives do all they can to delay Plan Z, it could take the Senate until Friday to pass it. And if the House adheres to its own rules, which requires legislation to be publicly available for 72 hours before a final vote — the debt limit bill won’t be ready for the President to sign until a week from Monday, one day before Treasury’s drop-dead date August 2.

Reid would be able to pause that plan if a bigger deal manifests between now and the middle of next week. At that point legislators could pass a days-long extension of the country’s borrowing authority while the grand bargain was drafted, scored, and put to a vote. But he has to set things in motion imminently, or the government will reach August 2 empty handed.

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