Diary, Curious News

The Cliffhanger: Will the US default and usher in a new era?

31 July 2011

image All eyes are on Washington. I have a hard time believing that in the end the debt ceiling will not be raised but to be honest, I cannot rule it out completely. And if it does not happen, we are in a new world altogether…
Update August 2: Click on more to read background analysis of public analysis that prevented Obama from negotiating a better deal

Congress closing in on a deal to avert US default By JIM ABRAMS, Associated Press

WASHINGTON—The U.S. Senate plunged on Sunday into what many lawmakers and the White House—and millions of Americans coast to coast—hoped would be an all-but-decisive last-minute effort to raise the nation’s debt ceiling and defuse a crisis that still could lead to an unprecedented government default.
As senators began debate in a rare Sunday session—just hours after Saturday night’s concluded—Democratic leader Harry Reid said he was “cautiously optimistic” agreement could be reached.


But first, in a partisan vote, the Senate rejected an effort to advance a Democratic approach to resolving the debt issue. The vote was 50-49, or 10 short of the 60 votes needed to move forward on legislation proposed by Reid that would have carried out $2.2 trillion in deficit reduction over 10 years while raising the debt ceiling by $2.4 trillion. The outcome of that vote did not directly affect the behind-the-scenes negotiations on a compromise.
Immediately afterward, Reid told fellow senators that while they were “not there yet,” a vote on a possible compromise could still happen Sunday. “We are hopeful and confident it can be done.”
Senate Republican leader Mitch McConnell, a key player in the negotiations, said as he headed back to his office that the sides were “really, really close.”
Tuesday is the deadline for averting default, the day the Treasury says it will reach the limits of its borrowing authority to pay all the nation’s bills.
McConnell, R-Ky., said earlier on the Sunday talk shows that negotiators were looking at a deal that would cut spending by some $3 trillion over the next decade while raising the debt ceiling through 2012 in a two-stage process.
A Democratic official, speaking on condition of anonymity to discuss the private talks, said Vice President Joe Biden had been on the phone with McConnell multiple times over the preceding 24 hours. Biden has remained a key negotiator for the White House following the more public role he had earlier in leading several weeks of debt talks with lawmakers.
Appearing on CNN and CBS, McConnell said he hoped to soon be able to present to his fellow Republicans an agreement “that they’ll consider supporting.” That agreement would include raising the debt ceiling, cutting spending by some $1 trillion initially and creating a joint committee of members of Congress that would look at a larger plate of cuts including tax and entitlement changes.
Sen. Chuck Schumer, D-N.Y., a member of the Democratic leadership, told CNN that while “there is no final agreement,” there was a sense of relief that the two sides were finally working on a compromise plan.
Schumer later told CBS that one of the last sticking points is the creation of a “trigger” mechanism that would hit priorities of both parties if the committee does not come up with a plan for further deficit reduction.
Among the trigger ideas being discussed are automatically reducing spending on entitlement programs such as Medicare along with closing tax loopholes or reducing defense and non-defense programs by an equal amount.
“It should be equally tough on Democrats and Republicans,” Schumer said.
McConnell said the bipartisan committee, which would be asked to come up with a plan by Thanksgiving, would have a “broad mandate” to look at all aspects of government finance, including tax reform.
McConnell said he had talked to both President Barack Obama and Biden on Saturday. “I particularly appreciate that we are back talking to the only person in American who can sign something into law, and that’s the president of the United States,” he said.
McConnell said the deal being worked on, while raising the debt ceiling in two stages, would satisfy Obama’s demand that there not be another divisive debate before next year’s election. The scenario being discussed would raise the debt ceiling unless there is a two-thirds majority in both houses of Congress to reject it.
McConnell said that there would be no tax increases in the deal, and White House National Economic Council Chairman Gene Sperling, on CNN and Fox, said there would be no revenue increases over the next year and a half.
But while keeping higher taxes out of the deal was the top priority of many Republicans, it’s still going to be a task for McConnell to sell any agreement to his caucus.
Sen. Lindsey Graham, R-S.C., said on ABC that this would be the first time that he could remember that the nation is paying for future debt increases dollar-for-dollar and that “from the Republican Party’s point of view, I think we can declare victory in a limited fashion.” But he said that even with the agreement the national debt will continue to rise and “I don’t know where I’m going to land” on a vote.
“From a big picture,” Graham said, “I’m not ready to vote for this.”
On the House side, where GOP conservatives have pushed their party toward greater cuts and linking future debt ceiling raises to passage of a balanced budget amendment, a leadership aide said that while the negotiators appeared to be heading in the right direction, no agreement will be final until members have a chance to weigh in.
Sperling said Obama has presented three principles that the final package must meet: a significant down payment on deficit reduction, major entitlement and tax reform at a later date, and an end to the uncertainty created by the threat of the nation’s defaulting on the debt. He said the nation doesn’t want to “go through this mess again around the holidays.”
Under the proposed agreement, Congress would also have to vote on a constitutional amendment requiring a balanced federal budget, a top-flight GOP goal. Unlike a bill approved Friday by the Republican-run House, none of the debt limit increase would be tied to congressional approval of that amendment.
Details of a possible accord began emerging Saturday night after Reid, D-Nev., said on the Senate floor that the two sides were trying to nail down loose ends and complete an agreement.
“I’m glad to see this move toward cooperation and compromise, and hope it bears fruit,” he said.
A Democratic official said that while bargainers were not on the cusp of a deal, one could gel quickly. A Republican said there was consensus on general concepts but cautioned there were no guarantees of a final handshake. Both spoke on condition of anonymity to reveal details of confidential talks.
Any pact would have to quickly pass both chambers of Congress after a rancorous period that has seen the two parties repeatedly belittle each other’s efforts to end the standoff.
Even so, the deal under discussion offers wins for both sides. Republicans and their tea party supporters would get spending cuts at least as large as the amount the debt ceiling would grow and avoid any tax increases. For Obama and Democrats, there would be no renewed battle over extending the borrowing limit until after next year’s elections.
Under the possible compromise, the debt limit would rise by an initial $1 trillion.
A second, $1.4 trillion increase would be tied to a specially created congressional committee that would have to suggest deficit cuts of a slightly larger amount. If that panel did not act — or if Congress rejected their recommendations — automatic spending cuts would be triggered that could affect Medicare and defense spending, two of the most politically sacrosanct programs.
The government has exhausted its $14.3 trillion borrowing limit and has paid its bills since May with money freed up by accounting maneuvers.
McConnell and Schumer appeared on CNN’s “State of the Union” and CBS’ “Face the Nation” while Graham spoke on ABC’s “This Week.” Sperling appeared on “State of the Union” and “Fox News Sunday.”

Crisis averted

1. August 2011
House Passes Deal to Avert Debt Crisis
WASHINGTON—After months of partisan impasse, the House on Monday approved a budget agreement intended to head off a potential government default, pushing Congress a big step closer to the conclusion of a bitter fight that has left both parties bruised and exhausted.

Despite the tension and uncertainty that has surrounded efforts to raise the debt ceiling, the vote of 269 to 161 was relatively strong in support of the plan, which would cut more than $2.1 trillion in government spending over 10 years while extending the borrowing authority of the Treasury Department. It would also create a powerful new joint Congressional committee to recommend broad changes in spending—and possibly in tax policy—to reduce the deficit.

Scores of Democrats initially held back from voting, to force Republicans to register their positions first. Then, as the time for voting wound down, Representative Gabrielle Giffords, Democrat of Arizona, returned to the floor for the first time since being shot in January and voted for the bill to jubilant applause and embraces from her colleagues. It provided an unexpected, unifying ending to a fierce standoff in the House.

The Senate, where approval is considered likely, is scheduled to vote at noon on Tuesday and then send the measure to Mr. Obama less than 12 hours before the time when the Treasury Department has said it could become unable to meet all of its financial obligations.

The deal sets in motion a substantial shift in fiscal policy at a moment when the economic recovery appears especially fragile. Although the actual spending cuts in the next year or two would be relatively modest in the context of a $3.7 trillion federal budget, they would represent the beginning of a new era of restraint at a time when unemployment remains above 9 percent, growth is slowing and there are few good policy options for giving the economy a stimulative kick.

The precise impact on the economy is a matter of debate. Proponents of spending restraint say that the economy will benefit in the long run from getting the deficit and the accumulated national debt under control, and that failure to act now would risk long-term decline in the nation’s economic might. Others say that by foreclosing the option of using government spending to counteract economic weakness, the country is increasing the risk of persistently high unemployment and even another recession.

The negotiations exposed deep fissures within both parties. In the end, 174 Republicans and 95 Democrats backed the deal, and 66 Republicans and 95 Democrats voted against it. But Republicans and Democrats alike made clear they were not happy swallowing the agreement, which was struck late Sunday between the bipartisan leadership of Congress and President Obama.

Top lawmakers characterized the bill as a must-pass measure needed to prevent a potentially crippling blow to the struggling economy.

“The default of the United States is not an option,” said Representative Steny H. Hoyer of Maryland, the No. 2 Democrat.

Mr. Hoyer urged lawmakers to vote not as members of either party, but as “Americans concerned about the fiscal posture of their country, about the confidence that people around the world have in the American dollar.”

Republicans, while expressing dissatisfaction that the measure did not provide more savings, said it was a modest but useful first step in reversing the government’s spending course and claimed they had prevailed by keeping the agreement free of new revenue and offsetting the increase in the debt limit with spending cuts.

“I would like to say this bill solves our problems,” said Representative Jeb Hensarling of Texas, a prominent fiscal hawk in the Republican leadership. “It doesn’t. It is a solid first step.”

Worried about defections by conservatives and liberals alike, leaders of both parties gathered their members for briefings to explain the proposal. Speaker John A. Boehner met specially with Republicans on the House Armed Services Committee, an important voting bloc whose members were raising alarms about potential spending cuts for the Pentagon.

Democrats, many disgruntled over what they saw as a White House-negotiated giveaway to Republicans, heard from Vice President Joseph R. Biden Jr., who told House and Senate members in separate meetings that the administration had to cut the deal with uncompromising Republicans to avoid a default.

Mr. Biden spent hours behind closed doors in the Capitol. According to participants in the meetings, he mixed listening and gentle persuasion, urging Democrats to back the plan.

Administration officials fanned out to make a case that the deal’s structure—with a trigger that could force deep cuts in military spending as well as in domestic programs if the two parties cannot agree on how to reduce the deficit further—provided Democrats with more leverage to push for higher tax revenue as part of the solution rather than relying totally on spending cuts.

But many Democrats said they saw it as a deal negotiated on the backs of poor and working-class Americans, with no sacrifice by the rich in the form of tax increases.

“I wouldn’t call it anger, but we are perplexed that it has turned out like it has,” said Representative G. K. Butterfield, Democrat of North Carolina, grimacing as he left the Biden meeting. “But we’ve run out of options and we know the consequences. I’ve heard horror stories from the Great Depression. I don’t want my fingerprints on that.”

In the Senate, some Democrats attacked the plan and joined their House colleagues in complaining that the White House had bent to the will of an ideologically rigid majority in the House.

“This is capitulation to a radical fringe of the Republican Party that will not bend until they break this economy or get their own way,” said Senator Robert Menendez, Democrat of New Jersey. “This deal is not fair, and I will not support it.”

Senator Harry Reid, the majority leader, acknowledged the unrest as the Senate prepared to follow the House in voting.

“Neither side got what they wanted, but it is the essence of compromise,” said Mr. Reid, who said most senators “realize the situation we’re in and the alternative.”

House and Senate Republicans, too, raised objections, saying the proposal fell short of what was needed and invested too much power in a new special joint committee that would be charged with finding $1.5 trillion or more in future cuts by Thanksgiving after a first round of $1 trillion called for in the legislation. 

“This agreement falls short of addressing our historic economic challenges and does not alleviate the threat of a crippling downgrade in America’s credit rating,” said Representative Steve Southerland, a freshman Republican from Florida.

But Mr. Boehner, who negotiated the deal with the White House along with Senator Mitch McConnell, the minority leader, received two standing ovations in the private party meeting, and the House Republicans rallied around him in the final vote that he said represented a culture change in the nation’s capital.

“We are cutting spending,” Mr. Boehner told reporters. “We are spending less money next year in discretionary spending than we spent last year. You haven’t heard that kind of a statement before around this town.”

Several senators said they were struggling with what they would do, but suggested that if it became a matter of their yes vote or default, they would back the measure.

Senator Joseph I. Lieberman, an independent from Connecticut, said that because Republicans would not budge on new revenue and Democrats sought to protect entitlement programs, federal agencies would bear the brunt of the Congressional drive for deficit reduction.

“They are getting whacked,” Mr. Lieberman said.

He said he remained worried about the impact on the military if the new committee failed to produce deficit-reduction legislation later this year, triggering an across-the-board slice of more than $1 trillion. Half of those savings would come from security-related spending.

Despite such misgivings, members of both parties welcomed the end of the debt-limit clash after months of intrigue, partisan rancor and stop-and-go negotiations that ultimately left Congress voting just hours before a deadline to avoid default.

“On to the next fight,” said Senator John Cornyn, Republican of Texas.

Lawmakers and aides were already speculating about who might be picked or passed over for the 12-member Joint Select Committee on Deficit Reduction and were arguing over whether the panel truly had the ability to seek new tax revenue.

But given the energy that had been expended in the fight, most members of Congress simply seemed ready to head home for the summer. The House dispatched lawmakers until Sept. 7. Senators were eager to follow.

“I have a home in Nevada that I haven’t seen in months,” Mr. Reid said wistfully on the floor. “My pomegranate trees are, I’m told, blossoming.”

Jeff Zeleny and Jennifer Steinhauer contributed reporting.

Background Analysis in the Economist

Debt-ceiling deal
Budget brinkmanship in a conservative America
Aug 1st 2011, 22:01 by W.W. | IOWA CITY

JARED BERNSTEIN, a progressive economist who until recently worked for the vice-president, tells it straight:

If your conclusion is that Democrats got rolled because the President is a lousy negotiator, I disagree.  Not on his negotiating skills…as someone said in comments, I wouldn’t want him in the auto showroom with me when I’m bargaining for a better price.  I disagree that better negotiating skills would have made a big difference. The problem goes much deeper. ...
The problem for progressives is that not very many Americans are progressive. As Mr Bernstein put it:

Those of us who do care about [progressive programmes] will not defeat those who strive to get rid of it all by becoming better tacticians. We will only find success when a majority of Americans agrees with us that government is something worth fighting for.
There you have it.

Kevin Drum bravely points his finger at the mirror:

... I blame the broad liberal community for our failures, not just President Obama. My biggest beef with Obama is the same one I had three years ago, namely that he’s never really even tried to move public opinion in a specifically progressive direction. But that hardly even matters unless all the rest of us have laid the groundwork. And we haven’t. Wonks, hacks, activists, all of us. We just haven’t persuaded the public to support our vision of government. Until we do, the tea party tendency will always be more powerful than we are.
This morning, Matthew Yglesias noticed a new Pew poll that shows 41% of Americans identifying as “conservative” or “very conservative” and a paltry 21% identifying as “liberal” or “very liberal”. It’s not a pretty picture for the left:

“Liberals just aren’t the ‘base’ of the Democratic Party in the same way that conservatives are the base of the GOP”, Mr Yglesias observes. The major parties, he notes, “are very asymmetrical in their structure and composition”. Quite right.

Putting all this together, I’m not at all ready to concede that the president is a lousy negotiator. “s this the best the nuclear option can get you?” Tyler Cowen asks the tea-party movement. “I’d say rethink your theory of public opinion.”

Opinion Poll Full Data

Promise, False Starts Paved Road to a Deal
‘Grand Bargain’ Seemed Close at Times, Only to Slip Away

WASHINGTON—On May 17, early in the hunt for a deal to cut federal deficits, White House negotiators gathered in the West Wing office of Vice President Joe Biden and contemplated ideas that once would have been considered heretical for a Democratic administration.

They talked about raising the Medicare eligibility age and reducing the annual cost-of-living adjustments in Social Security to save money—both earth-shaking propositions in the party. They decided those ideas could be put on the table in deficit talks.

“If you think big, the numbers add up quickly,” said White House budget director Jack Lew.

But White House officials also agreed on something else that day: They could offer up such cuts only if Republicans agreed to significant tax increases.

Over the next 10 weeks, the quest for a deficit-reduction deal would collapse three times because of the inability to connect spending cuts with tax increases. Democrats said they were willing to trim Social Security and Medicare, but only in return for tax increases. Republicans rejected the trade-off.

Ultimately, the two parties came up with a $2.4 trillion deficit-cutting deal Sunday that has significant spending cuts but no new taxes—and doesn’t do much, at least for now, to take on spending on big entitlement programs.

The story of the months-long process of arriving at that deal shows how the capital’s emerging consensus on the need for significant spending cuts hasn’t been matched by a bipartisan vision on what to do about taxes. But, even on that issue, a deal wasn’t always out of reach.

The Biden Talks
From the start, House Republicans insisted on deep spending cuts if they were to raise the government’s debt ceiling and avoid a possible default. Negotiations began in early May with a group of six lawmakers led by Mr. Biden.

Few gave the Biden group, dominated by partisan lawmakers, much chance of success. Yet Mr. Biden persuaded participants to check their talking points at the door and focus on what they could agree on. The vice president and House Majority Leader Eric Cantor, political opposites in age and ideology, developed a good rapport.


Within weeks, the group believed it could recommend at least $1 trillion in spending cuts in discretionary programs. The group found other areas of agreement, too, such as cuts to agriculture subsidies and federal worker pensions. Together, Mr. Cantor felt the group was close to $2.4 trillion—enough to meet House Speaker John Boehner’s demand for a dollar in spending cuts for each dollar of new debt ceiling.

WSJ’s Alan Murray and Joe White join the News Hub panel to discuss Monday evening’s House vote to raise the debt ceiling by $2.4 trillion, and look ahead to Tuesday’s vote in the Senate. WSJ Photo.

The group took on a spirit of compromise. When the topic of food stamps came up, Rep. Cantor backed off his preference for converting the program to a block grant, which he knew Democrats would oppose. Rep. James Clyburn (D., S.C.), a liberal Democrat, also showed openness. “I’m never going to agree to a block grant but I’m willing to listen to these other changes,” he said. Soon, the group coalesced around cuts to a food stamp job training program and another that connects food stamps and energy assistance.

Mr. Biden eventually put taxes on the table. Mr. Cantor resisted. He told Mr. Biden privately that he could accept some tax increases, as long as they were offset by other tax cuts, making the overall package “revenue neutral.” The two men even discussed $200 billion to $300 billion of offsetting tax increases, such as closing business tax loopholes, to produce that kind of package.

But in a late-June meeting, Mr. Cantor felt the Democrats in the room were “ganging up” on him, demanding to go further on taxes. He refused. Democratic officials in the room say Democrats were upping the pressure on taxes, but they say nothing in the conversation led them to believe Mr. Cantor was about to walk away. But he did. The Biden track hit a dead end.

The Back Channel
Meantime, secret talks had opened on a separate track between the White House and Mr. Boehner.

President Barack Obama has little interest in schmoozing lawmakers. But after last year’s midterm elections, he made a decision to court the new speaker, according to one Democrat close to the president. In June, he invited Mr. Boehner to golf.

At Andrews Air Force Base on June 18, the pair played as a team and defeated Mr. Biden and Ohio’s Republican governor, John Kasich. Afterward, the foursome retired to the clubhouse where, over cold drinks, Mr. Boehner suggested they work together to tackle the deficit in a big way. The two began a series of talks about what each wanted.

Mr. Obama said he would need tax increases to make structural changes to entitlement spending. Mr. Boehner opposed “tax hikes” but said he would support a tax overhaul that lowered rates and broadened the tax base by closing loopholes and eliminating deductions. That could produce more tax revenue but let Mr. Boehner say there wasn’t a tax increase.

Mr. Boehner and Mr. Obama met secretly at the White House a few days later. That meeting was followed by several more. The talks turned public about two weeks later. The president convened a meeting of the top eight congressional leaders to gauge support for a what become known as a “grand bargain.”

In the meeting, Mr. Obama made his case for a $4 trillion deal. “There’s no sense dying on a small cross,” he said, using one of Mr. Biden’s favorite expressions. Central planks of his proposal included raising the Medicare eligibility age and slowing the growth of benefits in Social Security and other programs. In exchange, tax revenue would go up by some $1 trillion.

Aside from attacking spiraling deficits, a bipartisan accomplishment of this magnitude would give Mr. Obama a huge boost in his own 2012 re-election race, appealing to independent voters who more than any particular issue want Washington’s leaders to work together to solve problems.

Outside the meeting room, though, both parties were hardening their positions. Democrats were getting nervous about how much ground their leaders seemed to be ceding. House Republicans rejected anything that looked like a tax increase. At a closed-door meeting of House Republicans, Mr. Boehner sought to distinguish between revenue increases and tax hikes, but GOP lawmakers didn’t buy it.

The next day, a Friday, a small group of Boehner confidantes warned the speaker about the political risks of working with the president. “The danger to him is making a deal with no one standing behind him,” said one. “We wanted to be sure he understood that, and was going into it with his eyes open.”

Meantime, the two sides couldn’t agree on a key principle for how the tax code should be structured. The White House wanted to state up front that the code would at least maintain existing “progressivity,” meaning the wealthy would bear the same share of the tax burden as they do now. Mr. Boehner’s team balked, saying too many middle-class Americans pay no income taxes at all now.

Over the weekend, the grand bargain fell apart. On Saturday night, July 9, Mr. Boehner called the president to tell him he was through.

Back to the Table
At a news conference the next Monday, the president said it was time for both sides to make concessions and get control of the deficit: “If not now, when?”

Mr. Boehner said he, too, was frustrated. In a closed-door meeting, he told his colleagues he had walked away because Mr. Obama had made it clear he would overhaul safety-net programs only if taxes were raised.

The Fiscal Maze Ahead

Carrying Out the Final Agreement Step by Step

1) House and Senate must both approve and president must sign Budget Control Act of 2011: debt ceiling lifted by $900 billion initially; annual appropriations capped for 10 years at $917 billion below level needed to keep up with inflation; and appropriations committees, with some restrictions, decide what gets cut.
2) A Joint Select Committee on Deficit Reduction (12 members of Congress, six from each party) is formed to find $1.5 trillion more in deficit reduction over next decade. ROUTE A: A simple majority of committee, by Nov. 23, votes on detailed package of $1.5 trillion in spending cuts and, potentially, tax increases, and provides legislative language by Dec. 2. Congress has to vote the proposal up or down by Dec. 23 without amendment. If it passes and president signs, debt ceiling lifted by $1.5 trillion. ROUTE B: Committee fails to garner a majority, or Congress fails to approve its proposal. That triggers $1.2 trillion in cuts to defense and domestic spending (excluding Social Security, Medicaid, Medicare beneficiaries), but no tax increases, effective January 2013. Debt ceiling rises by $1.2 trillion.
3) Bush tax cuts. The deal doesn’t include an agreement to renew them when they expire at end of 2012. Joint panel could propose to renew or replace with other tax provisions. President could veto any extension of upper-income tax cuts.
4) Balanced Budget Amendment. House and Senate to vote on constitutional amendment before Dec. 31.
“I haven’t spent 20 years here fighting tax increases just to throw it all away in one moment,” Mr. Boehner said.

Further wrangling left Mr. Boehner convinced neither a small nor a medium-size budget deal would work. A medium-size deal required at least some new revenue. And a small deal would have no tax increases but have only about $1 trillion in cuts. He figured only a big deal could offer enough payoff—and pain—for both sides to allow for the inclusion of tax increases.

The next day, he called Mr. Cantor and asked him to meet with White House Chief of Staff Bill Daley and Treasury Secretary Tim Geithner at the Capitol on a Friday. They reconvened two days later in Mr. Daley’s West Wing office. Mr. Obama dropped by, and talks moved to the Oval Office.

Over the next couple of days, the parties reached a rough consensus for how a big deal could happen. It would include about $1.2 trillion in immediate spending cuts, and structural changes to Social Security and Medicare. Mr. Boehner tentatively agreed that a tax overhaul would generate $800 billion of additional revenue.

Then, the Senate’s “Gang of Six,” a bipartisan group looking for a deficit deal but left for dead in the spring, came back to life and proposed a nearly $4 trillion deficit-cutting package of its own.

The Gang of Six idea seemed to be a sign that momentum toward a big deal was growing. But, in fact, it complicated the fragile Obama-Boehner negotiations by calling for more than twice as much in higher tax collections as the Obama and Boehner camps had agreed to. Mr. Obama felt he had to ask for more.

The White House asked for an additional $400 billion in tax revenue, saying it was needed to get enough Democratic votes. White House officials say they got no signals the request would be a deal-breaker. But by week’s end, the deal was dead.

On a Friday night, July 22, the president and Mr. Boehner held dueling news conferences, each blaming the other for the breakdown. The next day, the president called Mr. Boehner and offered to return to the $800 billion target, trying to save the deal. Mr. Boehner declined.

Within a few days, the White House would realize that taxes wouldn’t be part of any agreement.

The Final Round
With little more than a week left before the Aug. 2 deadline, Mr. Boehner promised that Congress would come up with a solution. He couldn’t strike a deal with Senate Democrats, so he pushed forward a GOP plan that was sure to die in the Senate. He barely got it through the House.


Meantime, Senate Majority Leader Harry Reid prepared a Democratic bill he knew would never pass the House. But both his plan and Mr. Boehner’s contained the key idea: one round of spending cuts now, and a committee to recommend more later.

White House and congressional negotiators could see the two plans weren’t that far apart. The question was what would happen if Congress failed to agree.

Under the House plan, the government would hit the debt ceiling again in a few months if the committee’s ideas weren’t passed by Congress—a prospect the White House was unwilling to entertain.

Senate Minority Leader Mitch McConnell and Mr. Biden led talks on how to write “triggers” into the legislation—painful, automatic cuts should Congress fail to enact more deficit reductions.

Final wrangling over defense spending almost sank the deal, but on Sunday afternoon, officials reached a compromise. At 8:15 p.m., Mr. Obama called Mr. Boehner to ask, “Do we have a deal?” There was a pause, then the president said, “Congratulations to you, too, John.” White House aides listening in exhaled.

Over the final stretch, Republicans made clear that tax increases couldn’t be in the mix for the initial cuts or triggers. And Democrats insisted that cuts to Social Security and Medicare benefits would have to be left out as well. The committee can look at those issues later.

Moments before Mr. Obama announced the long-awaited debt deal, Mr. Boehner began to sell it to his restive troops. “The White House bid to raise taxes has been shut down,” he said.




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