House, Senate leaders reach for deal to allow Congress to raise debt ceiling

House and Senate leaders are working on a deal to trade a “pay as you go” budgeting law for a fiscal reform commission.

The intention is to reach a deal that would allow Congress to raise the debt ceiling in February.

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The two chambers have long been at loggerheads over how to keep spending in check, reduce the $1.8 trillion budget deficit and address what many believe is a looming fiscal and budgetary catastrophe resulting from drastic gaps between future entitlement program liabilities and projected federal revenues.

House Democratic leaders, including Speaker Nancy Pelosi (D-Calif.), have pushed for a “pay as you go," or “pay-go," law, but have run into objections from key Senate Democrats.

Senate Budget Committee Chairman Kent Conrad (D-N.D.) is leading the Senate’s charge to create an independent commission to examine the long-term fiscal outlook and propose a new budgetary framework that would be subject to an un-amendable, “take it or leave it” vote in both chambers.

Leadership aides say both sides are beginning to bend, especially after a furious round of saber-rattling over raising the federal debt ceiling that led Democrats in both chambers to conclude that, in the absence of a compromise, they faced mutually assured destruction.

Speaking to The Hill on Friday, Conrad confirmed that the goal of the talks is to trade a pay-go law for a fiscal reform commission acceptable to both chambers. He said Pelosi’s willingness to consider commission proposals has brought the two sides closer, and he added that “reasonable progress” was being made on a statutory pay-go proposal that he could accept as “workable.”

Pelosi and Conrad are getting help from Vice President Joe Biden, Treasury Secretary Timothy Geithner and other administration officials.

But Conrad cautioned that an agreement is a long way off.

“We still have a fair ways to go before we can reach any kind of conclusion,” he said.

Raising the debt ceiling has become the bigger bargaining chip in the fight.

Democrats in both chambers have threatened to block a proposed debt limit increase of $1.9 trillion to the $12.1 trillion debt limit if the other body didn’t give in to their demands.

Conrad secured pledges from at least a dozen senators to reject any debt limit increase without a commission bill attached, and conservative Blue Dog Democrats warned that they would do the same without a Senate concession to accept pay-go legislation.

On their last workday of the year, the House on Wednesday passed — with Blue Dog support — a standalone $290 billion debt ceiling increase. If the Senate approves that short-term increase, it would give both chambers until mid-February to reach agreement on the other issues.

Both sides want to avoid a situation wherein the U.S. would go beyond its debt limit and face the prospect of defaulting on its debts.

Speaking to reporters on Wednesday, Pelosi hinted at the discussions and expressed a newfound openness to consider a commission — along with certain unspecified conditions.

“There is talk of putting a commission together to review entitlements, the impact on our budget. And we are open to — all of us are open to those discussions,” Pelosi said. “We will look at that and see where we can come to agreement on that.”

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Conrad said he would still push Senate Majority Leader Harry Reid (D-Nev.) to attach commission legislation to the House-passed debt ceiling increase that the Senate seems poised to take up sometime before Dec. 31.

“But it’s also possible that the key decision point will be in February,” he said.

While there are considerable logistical obstacles in front of anything other than the Senate’s quick adoption of the House’s short-term debt limit increase, Conrad and other Senate leaders still haven’t reached agreement among themselves on what specific commission proposal could garner 60 Senate votes.

Pelosi on Wednesday indicated that she intends to leverage the Senate’s own lack of consensus on a commission as much as she can.

“We will come to terms on a commission — by the way, one that can pass the Senate,” Pelosi said.

She said the current proposal can’t pass in the Senate, so discussions should center around a commission that would pass muster in both chambers.

Discussions should center around something that can win approval, rather than something that “some people think should happen but doesn’t really have the votes,” Pelosi said.