Debt ceiling negotiations update, July 31, 2011, 2:45 PM, Senate Minority Leader Mitch McConnell, Avoid default

From the Wall Street Journal July 31, 2011.

“With the risk of a government default less than three days away, congressional leaders on Sunday said they were getting closer to a deal that raises the government’s borrowing limit, resolving the federal debt crisis.

“I can pretty confidently say this debt-ceiling increase will avoid default,” Senate Minority Leader Mitch McConnell (R., Ky.) said on CNN.

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.Sen. Charles Schumer, a top Democrat from New York, also speaking on CNN, said there was no “final agreement” but that default was “far less of a possibility now than it was even a day ago.” He added, “If there’s a word right here that would sum up the mood, it’s ‘relief.’ ”

Sens. McConnell and Schumer spoke before the Senate voted not to consider a debt plan by Senate Majority Leader Harry Reid (D., Nev.) to raise the debt ceiling and reduce the deficit by $2.2 trillion. The vote was 50-49, with 60 votes need to advance the bill.

But by the time of the vote, the result was anti-climactic; the real action is unfolding far from the Senate floor, as leaders of both parties try to hammer out the final details of a deal by day’s end to raise the debt ceiling from the current $14.29 trillion. That would be accompanied by deficit cuts of about $3 trillion.

Washington leaders face a Tuesday deadline by which the nation’s $14.29 trillion borrowing limit needs to be increased so the government can meet its financial obligations.

The framework emerging over the weekend likely would allow an immediate increase to the debt ceiling, lasting through the end of 2011, accompanied by government spending reductions of roughly $1 trillion over 10 years.

To get through 2012, Congress would form a special committee made up of an equal number of Democrats and Republicans to negotiate up to $2 trillion in additional cuts as part of a package containing a further debt-ceiling increase.

A House Republican leadership aide cautioned that a deal wasn’t yet in hand. “Discussions are moving in the right direction, but serious issues remain. And no agreement will be final until members have a chance to weigh in,” the aide said

The targets for savings appeared to remain subject to negotiation. Earlier proposals by legislative leaders were aiming for a total of between $2 trillion and $3 trillion total in savings over the next decade. Mr. McConnell on Sunday said he sees a $3 trillion deal.

The two-stage deal would include a deficit-cutting mechanism that would kick in should the special committee fail to act. Several people familiar with the talks said a key element could be a new process for sequestering—or holding back—federal spending if lawmakers can’t agree on further deficit reduction.”

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