Summer temperatures are not all that is hot in Washington, DC these days. Partisan posturing over lifting the nation’s debt ceiling is also generating considerable hot air. Republicans continue to oppose efforts to include any changes to the tax code that would generate new revenue. The Democrats counter that without some new revenue, a significant reduction to the federal deficit is unachievable. Lawmakers must act by 2 August 2011 to prevent the federal government from defaulting on its obligations.

The impasse and its potential to cause significant disruptions to the global economy as well as thwart a fledgling economic recovery in the United States has drawn warnings from nearly all sectors. Last week, China joined Wall Street and bond rating agencies in urging lawmakers to resolve the debt ceiling debate. Corporate leaders from the United States Chamber of Commerce and the Business Roundtable also increased pressure last week on lawmakers, calling on all of them to “do their jobs.”

In recent days, however, it has begun to appear that a political side-step initially proffered by Senate Minority Leader Mitch McConnell (R-KY) may offer both parties, Congress, and the White House a way out of the current stalemate. Senate Majority Leader Harry Reid (D-NV) has been working with McConnell to craft a plan that can pass the Senate, and likely pass the House of Representatives at the 11th hour.

As it stands now, the McConnell-Reid plan would likely include $1.5 trillion worth of spending cuts that Democrats and Republicans agreed to months ago in negotiations led by Vice President Biden. The proposal is also expected to grant the President the authority to raise the debt ceiling by $2.5 trillion over the next two years, and create a 12 member bipartisan congressional panel to recommend additional cuts and revenue generating options by the end of the year. The White House has argued for a more far reaching plan, but would likely accept this option. Many congressional Republicans like the plan as it allows them to argue that they opposed new taxes and cut domestic spending. Moreover, Republicans feel they will gain political momentum by forcing the President to request additional debt ceiling increases going into the 2012 election. Given that some recent political opinion polls show that more Americans would blame congressional Republicans for a default, it is likely that the President feels confident that he can make a case that he tried for a significant debt deal but was thwarted by ideologues in the Republican-controlled House of Representatives.


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