President Obama and Congressional leaders, despite having met for the fourth consecutive day with the deadline fast approaching, do not yet seem any closer to striking a deal to avoid a U.S. default. Discussions are centered around a deal that would increase the debt ceiling somewhere in the range of $2.5 trillion to ensure that the issue will not resurface any time before the 2012 elections. A corresponding deficit reduction package of the same dollar value would accompany the increase in the debt ceiling.
Before the President took over negotiations directly, Vice President Biden’s meetings with Congressional leaders had identified somewhere in the range of $1.5-1.7 trillion in deficit reduction that both parties were willing to support. However, how to bridge the gap from there to $2.5 trillion has been the subject of the latest impasse. Democrats are insisting that revenue enhancements must make up the majority of the gap, but Republicans are resisting and pushing for additional spending or entitlement cuts instead. According to news reports, House Majority Leader Eric Cantor (R-VA) told the President yesterday that the two sides were too far apart to make a deal and that a short-term increase in the debt limit might be needed. President Obama has already threatened to veto a short-term increase, and after Cantor’s suggestion he reportedly abruptly ended yesterday’s meeting.
If the President and Congressional leaders cannot bridge the gap to $2.5 trillion, a number of other approaches are possible, including a proposal by Senate Minority Leader Mitch McConnell (R-KY) to make the $2.5 trillion available in three separate increments with each requiring the President to identify corresponding savings that would be subject to a resolution of disapproval in Congress. Some have also suggested that the President could use his powers under the 14th Amendment to unilaterally increase the debt ceiling, but the White House has downplayed this suggestion and a recent report by the Congressional Research Service doubts its legality.
Meanwhile, as the clock ticks on, the credit rating agency Moody’s Investors Service yesterday announced that it was putting the U.S. government’s AAA bond rating “under review,” citing the potential for a default if the government does not take action soon. Obama has pushed for a deal by the end of the week but the prospects for that happening currently look bleak.