Tea Party Showdown

Harry Reid said he would support the emerging compromise, but will it get liberals' and the Tea Party's support? Jill Lawrence reports on the deal's detractors.

07.31.11 11:45 PM ET

After months of congressional bickering and gridlock that brought America to the brink of default, signs of a breakthrough emerged late Sunday when Senate Majority Leader Harry Reid endorsed a bipartisan plan to cut up to $3 trillion in federal spending over the next decade and raise the debt limit so the country can pay its bills through 2012.

“Senator Reid has signed off on the debt-ceiling agreement pending caucus approval,” Reid spokesman Adam Jentleson said in an email Sunday evening, as Asian markets were due to open.

There were no details of the agreement, and Republican aides on Capitol Hill said it was still being worked out. But the aides said it was possible that House Speaker John Boehner and Senate Republican Leader Mitch McConnell could sign off on something by night’s end, adding to the sense of momentum as a Tuesday deadline loomed.

The national debt was closing in on $14.6 trillion on Sunday night. The Obama administration has said America will run out of money to pay its obligations on Tuesday.

House Democratic Leader Nancy Pelosi said she would meet with her members Monday to discuss the compromise plan. “We all may not be able to support it, or none of us may be able to support it," she said.

First reaction from liberals was negative. This deal trades people’s livelihoods for the votes of a few unappeasable right-wing radicals, and I will not support it,” said Rep. Raul Grijalva of Arizona, chairman of the House Progressive Caucus.

Sen. Bernie Sanders, a Vermont independent who caucuses with Democrats, didn’t even support a more Democratic-friendly Reid debt proposal that the Senate rejected in a rare Sunday vote. Sanders said that the Reid plan, due to pressure from Republicans, did not ask “the rich and large corporations” to contribute a cent to deficit reduction in the form of more taxes.

"I cannot support legislation like the Reid proposal which balances the budget on the backs of struggling Americans while not requiring one penny of sacrifice from the wealthiest people in our country,” Sanders said.

The emerging compromise plan would cut spending and raise the debt limit in two phases. A second stage of debt reduction would hinge on a special bipartisan committee of senators and House members that could consider both spending cuts and additional tax revenues.

Another key element: it would ensure the debt limit is high enough to get the country past the 2012 election without another high-stakes showdown and the threat of default. That’s been a top priority for President Barack Obama and is viewed by some financial analysts as the only way to prevent a downgrade of the United States’ AAA credit rating.

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“I'm very close to being able to recommend to my members that we have an agreement here that I hope they will consider supporting,” McConnell said Sunday morning on CNN's State of the Union. McConnell, who emerged as a key player in 11th-hour negotiations, said he can “pretty confidently" say that “we’ll avoid default."

Vice President Joe Biden has been the main emissary in the talks, according to a Democratic aide on Capitol Hill. Other participants were Reid, McConnell, Boehner, and Pelosi. The proposal was being “shopped around” to members Sunday, the aide said, even as some issues remained unresolved. The big questions that remained were how many Democrats would stick with their president and party, and whether there would be enough of them to offset potential no votes by Tea Party–aligned lawmakers and fiscal conservatives inside the GOP. They forced the debate to the brink of a deadline by demanding concessions and may not be satisfied with the latest terms.

One fiscal conservative, Sen. Lindsey Graham, R-S.C., remained uncommitted as the first details emerged. Graham told ABC's This Week the new deal was a partial victory for Republicans by paying future debt increases with spending cuts but added, “from a big picture, I'm not ready to vote for this."

The plan under discussion would boost the debt limit now and then again in six months. Congress could try to block the second increase, but Obama could veto a “resolution of disapproval” that crosses his desk.

The special bipartisan committee would have to come up with a debt reduction package by Thanksgiving, and Congress would have to vote it up or down by Christmas. Otherwise broad spending cuts would be triggered.

McConnell stressed that “we’re not going to raise taxes in this deal. There’s no tax increase in this proposal.” However, Sen. Charles Schumer said on CNN that the bipartisan committee may come up with a combination of spending cuts and tax revenues if incentives to do so are strong enough and the consequences of inaction are painful enough. The mechanism would be an automatic trigger for tax hikes, spending cuts, or both if the committee doesn’t agree on a package.

McConnell and Schumer made clear that the trigger has been a major sticking point. Schumer said Democrats would like failure by the bipartisan committee to trigger higher taxes on the wealthy and/or closing tax loopholes. He also said the threat of “defense cuts of equal sharpness and magnitude to domestic cuts” in the past has brought the parties to agreement on “a balance of revenue and cuts.”

Gene Sperling, director of the National Economic Council at the White House, reiterated the administration view that more tax revenues are needed to make sure there is “shared sacrifice” by wealthy people as well as the middle class and poor. He said that “nobody is talking about raising revenues over the next year and a half”—that Obama is in fact pushing for an extension of a payroll tax cut now in effect. Over the longer term, he said a reform of the tax code could raise revenues in a way that draws bipartisan support.

Without mentioning the possibility of increased revenues, McConnell agreed that reforming the tax code could be a key component of the work left for the bipartisan committee of Congress. "They are going to have a broad mandate to look across the federal government, including tax reform, which virtually every Republican I know thinks is a good idea, to tackle tax reform. The president also wants to tackle tax reform. They can do that. We fully expect them to deal with entitlement reform," McConnell said on CBS’s Face the Nation.

The issue of taxes has been particularly sensitive in Congress. Democrats want to close tax loopholes that benefit the rich and corporations like oil companies, as well as let lower Bush-era tax rates on high-income Americans expire. Republicans say new taxes will hurt job creation. Many also have signed no-new-tax pledges.