Tick, tick: Time's up on debt limit

The can cannot be kicked down the road again. The deadline cannot be delayed. It’s now or ... well, no one wants to contemplate what happens if there’s no sign of a debt-reduction deal by July 4. The dollar or capital markets, or both, could explode.

As Vice President Joe Biden’s group of negotiators returns to the bargaining table this week, there’s at least one thing that unites Republicans and Democrats working to bridge a partisan chasm on fiscal policy: They know that time is running out to agree to lift the $14.3 trillion debt limit and end fears of a first-ever default by the U.S. government.

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While the Treasury Department has set an Aug. 2 deadline for Congress to approve an increase, negotiators are pushing to have a framework in place by Independence Day, according to people briefed on the talks.

That could forestall an even deeper dive by the swooning financial markets and provide congressional leaders with space for their toughest sell of all: Convincing Democrats to agree to slash spending in a weak economy and persuading Republicans to authorize trillions of dollars in new borrowing.

“We recognize it’s important to pick up the pace,” Rep. Chris Van Hollen (D-Md.), one of the negotiators, said in an interview.

To that end, the Biden group will meet on three consecutive days this week, beginning Tuesday, and it is expected to keep up that pace until it hashes out a deal.

“We’ve got a long way to go,” Rep. James Clyburn (S.C.), who is representing House Democrats along with Van Hollen, told The Hill.

Biden and House Majority Leader Eric Cantor (R-Va.) have said the group has reached consensus on more than $1 trillion in deficit reductions, but it is only now broaching the stickiest issues of taxes and spending caps.

Biden and Treasury Secretary Tim Geithner presented various options for increasing revenue, such as eliminating subsidies for the oil and gas industry, at a two-and-a-half hour meeting last Thursday, and the group plans to discuss discretionary spending and proposals for spending caps this week.

Cantor has ruled out tax increases and reiterated his stance at the Thursday meeting, arguing that they would hurt job creation, especially given recent data indicating economic growth is slowing.

But it remains an open question whether Republicans would accept tax changes such as eliminating corporate subsidies or individual deductions that would add revenue while not increasing overall tax rates. Democrats are nearly as dug in.

“I’ve been very clear that you have to have a revenue component,” Van Hollen said.

The talks thus far have followed a predictable Capitol Hill pattern, intensifying as a deadline approaches and showing every indication they will go down to the wire.

For all of their meetings, Clyburn said the group has yet to get into the “nuts and bolts” of specific policies and that key questions remain undecided, most notably whether an agreement will encompass both short-term and long-term spending.

Clyburn said the group has been looking at four deficit reduction plans side-by-side: the House GOP budget authored by Rep. Paul Ryan (R-Wis.), President Obama’s budget, the Simpson-Bowles commission plan and the proposal drafted by Alice Rivlin, a former budget director under President Clinton, and former Sen. Pete Domenici (R-N.M.).

Clyburn, the assistant Democratic leader, has repeatedly pointed to July 4 as a goal for reaching an agreement within the committee.

Senate Minority Whip Jon Kyl (Ariz.), representing Senate Republicans in the talks, has raised the possibility of a short-term increase in the debt ceiling if negotiators cannot find enough cuts to offset an increase through the 2012 elections, which the Treasury has estimated would take $2.4 trillion.

Both sides appear to recognize that the biggest hurdle will be persuading each party’s rank-and-file to accept whatever agreement the negotiators reach. Some conservatives adamantly oppose any increase in the debt limit, and those that are open to a deal have a long list of demands.

In a letter sent to Republican leaders last week, 103 members of the conservative Republican Study Committee (RSC) pushed for concessions far beyond what is likely to be in a deal on which Democrats could shake hands. They include spending cuts to slice the deficit in half by next year, an enforceable cap on federal spending at 18 percent of the gross domestic product, and House passage of a constitutional amendment mandating balanced federal budgets.

RSC Chairman Jim Jordan (Ohio) stopped short of saying those items were prerequisites for his vote, but he said conservatives hope to replicate their victory in the battle over spending earlier this year, when they forced the House leadership to deepen cuts proposed for 2011 by more than $10 billion.

“It’s the same kind of process we’re going through now,” Jordan said. He called the more than $1 trillion in cuts that the Biden group has discussed “a good start.” But it was far from satisfactory, he added.

Clyburn and Van Hollen may have no easier time convincing House Democrats to accept a deal that does not include sufficient revenue increases.

“This is going to be vetted with the caucuses, and not just on the Republican side,” Van Hollen said.

As the clock ticks into summer, more and more lawmakers are predicting a last-minute deal. “Look, we’ve been around this business enough to know that typically these things do come down to the deadline. That won’t surprise me if it’s Aug. 2,” Jordan said.

That outcome is exactly what worries GOP freshmen such as Rep. James Lankford (Okla.). “If the plan is, let’s form a plan with a few people in Washington and then quickly pass it before the American people know what it is, I don’t like that plan at all,” he said. “If the deal comes out at the last minute, I think people are just going to vote it down.”

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