What’s Happening With the Debt Ceiling Explained

President Barack Obama signs the Budget Control Act of 2011.<a href="http://www.flickr.com/photos/whitehouse/6002624447/sizes/z/in/set-72157627217860727/">White House</a>/Flickr

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Welcome to our debt ceiling explainer. As of August 3, this explainer is no longer being updated on a daily basis. You can read on for the basics of Congress’ debt ceiling fight and a blow-by-blow account of the action from late June to the day President Obama signed the Budget Control Act of 2011 into law, on August 2. In addition, you can read about the deep, painful cuts to public investment and safety exacted by the bill, Kevin Drum on why the bill sucks, David Corn on the White House’s strategy and Nancy Pelosi’s crucial role in sealing the deal, and why this fight was just one of many to come. Going forward, major developments will be noted on our main Political Mojo blog.

The Basics: On August 2 (or maybe a few weeks later), the US government will reach the point where it can no longer pay its bills. That’s because, earlier this spring, the federal government reached the legal limit on how much money it can borrow—a.k.a., the “debt ceiling.” It’s currently set at $14.3 trillion. The government borrows money to pay for everything from tax refunds to wars and veterans’ benefits, not to mention repaying our creditors, which include China, Japan, the United Kingdom, state and local governments, pension funds, and investors in America and around the world.

A debt ceiling has existed since 1917. Before that, Congress had to provide its stamp of approval each time the Treasury Department wanted to sell US debt to raise money. (Here’s a wonky history of the debt ceiling [PDF], courtesy of the Congressional Research Service.) Putting a borrowing limit in place gave the federal government more flexibility to fill its coffers without going to Congress over and over. Lawmakers in Congress have raised the debt ceiling on many occasions, including eight times in the past decade, and Treasury Secretary Tim Geithner has said that failing to raise it and allowing the US default “would shake the basic foundation of the entire global financial system.”

What Happens If Congress Doesn’t Raise the Debt Limit? In a word: Catastrophe.

At least that’s what Geithner told Congress in January. In an ominous letter, he wrote that a US default would wreak havoc on the domestic economy and essentially result in a hefty tax on all Americans.

That’s economics 101. If you default on, say, your mortgage or car payment, creditors consider you a bigger risk and as a result, it’ll cost more for you to take out loans in the future. The same idea applies here, too, except that everyone—consumers, cities, states, corporations, and the government—will pay higher borrowing costs if the federal government defaults, Geithner says. Not to mention that the government would run out of cash to pay the salaries of federal employees and members of the military, veterans benefits, Social Security and Medicare, unemployment benefits to states, individual and corporate tax refunds, Medicaid payments, and on and on.

What’s Happening Now? Congressional Republicans are refusing to raise the debt ceiling without drastic spending cuts. They see the federal government as a reckless spendthrift, running up out-of-control deficits and undermining the integrity of the country. “We are in a debt crisis,” said House Majority Leader Eric Cantor (R-Va.). “The American people are expecting us to deliver on our commitment that we are going to change the spending crisis in Washington.” With a majority in the House, Republicans can block a debt ceiling vote until they get what they want—which is a deficit reduction deal heavy on cuts to government spending and light on everything else.

Democrats see the GOP’s obstruction as political grandstanding, a dangerous game of chicken that could lead to the US defaulting on its obligations. For months, a bipartisan group of lawmakers and Obama administration officials, led by Vice President Joe Biden, have been working on a deal to shrink the federal deficit, now at roughly $930 billion, in exchange for Republican support to increase the debt ceiling. But those talks broke down in late June over a key element of the negotiations: tax increases. Democrats want new revenue of some kind in the deal, and have floated slashing oil corporation subsidies, worth $21 billion, over ten years; Republicans won’t consider any tax increases at all. On June 23, Cantor and Sen. Jon Kyl (R-Ariz.), the number two GOPer in the Senate, abandoned the negotiations because Democrats hadn’t taken tax increases off the table.

As a result, the debt ceiling negotiations fell into the lap of President Obama. On June 27, Obama invited Senate Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) to the White House to work on a debt ceiling deal.

How Do I Follow the Action in Real Time? With the August 2 deadline looming large, we’ll be tracking the fight in Washington on a daily basis. You can find the latest developments below. (The first four updates were written in advance and published on the evening of June 28.)


UPDATE 1, Monday, June 27, 12:30 p.m. EST (Andy Kroll): For some analysis on Rep. Eric Cantor and Sen. Jon Kyl’s decision to walk away from the Biden-led bipartisan talks, intended to reach a deficit reduction deal in exchange for Republican votes to increase the debt ceiling, check me (Andy Kroll) out on “Countdown” with Keith Olbermann, on Current TV:


UPDATE 2, Monday, June 27, 2:45 p.m. EST (Andy Kroll): After meeting this morning with Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell, President Obama said he was confident a deal could be reached to prevent the US from defaulting on its debts. White House press secretary Jay Carney said at Monday’s briefing that Obama would insist on a deficit-cutting deal that included both spending cuts and tax increases, including ending oil subsidies and tax breaks for “millionaires and billionaires.”

Vice President Biden previewed Obama’s position over the weekend at a dinner held by the Ohio Democratic Party. The GOP’s insistence that tax breaks for the wealthy remain intact “borders on being immoral,” Biden said, adding, “we’re never going to solve our debt problem if we ask only those who are struggling in this economy to bear the burden and let the most fortunate among us off the hook.”

UPDATE 3, Tuesday, June 28, 7:25 p.m. EST (Nick Baumann): Politico‘s David Rogers reports that Obama and Reid “appear to be” willing to make significant cuts to Medicare and are offering to help Boehner “neutralize” the Medicare issue for the 2010 elections. (The Medicare issue is that Republicans voted for Rep. Paul Ryan’s plan to make vast changes to the program, essentially ending it in its current form and transitioning to a voucher-based system.) Here’s Rogers:

For their part, Obama and Reid appear prepared to reach much higher, putting substantial Medicare savings on the table if Republicans would accept added revenues. With the House GOP leadership in New York, all of Monday’s White House maneuvering was Senate-centric. But Obama’s hope is that Speaker John Boehner (R-Ohio), with whom he met privately last week, will be intrigued by a bolder package that might also help neutralize the Medicare issue now hurting the GOP among elderly voters.

If Rogers is right, this is big news. Nancy Pelosi and the Democratic Congressional Campaign Committee, along with Senate Democrats who are running for reelection in 2012 (Reid is not) very much want to keep the Medicare issue on the table. If Obama and Reid somehow work with Boehner to “neutralize” the issue (I’m skeptical about what would), they’d be selling out their Democratic colleagues. The President will hold a press conference Wednesday morning at 11:30, so we’ll likely know more then.

UPDATE 4, Tuesday, June 28, 8:35 p.m. EST (Nick Baumann): Huffington Post‘s Ryan Grim reports that some members of the Senate Democratic caucus believe that the debt ceiling itself is unconstitutional. Having the White House declare the debt limit unconstitutional is “going to get a pretty strong second look as a way of saying, ‘Is there some way to save us from ourselves?'” Sen. Chris Coons (D-Del.) told Grim. The constitutional argument stems from a phrase in the 14th Amendment: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” Columnist Bruce Bartlett has a good explainer for how this might work in practice.

UPDATE 5, Wednesday, June 29, 10:11 a.m. EST (Andy Kroll): In an interview with Fox News’ Sean Hannity on Tuesday night, House Speaker John Boehner (R-Ohio) downplayed the importance of the Aug. 2 deadline to cut a deal on raising the debt ceiling. Treasury Secretary Tim Geithner said last month that the Treasury could keep the US current on its obligations until that day, but on Tuesday Boehner didn’t seem too worried about Geithner’s predictions. “Nobody believes the United States is going to walk away from its obligations,” he said. “Dealing with this debt problem and this deficit problem is far more important than meeting some artificial date created by the Treasury secretary.”

In response, a Treasury official told MSNBC that Geithner’s deadline wasn’t arbitrary at all but instead “is purely a function of the government’s cash flows. We will provide an update on the debt ceiling outlook at the beginning of July, as we have done at the beginning of each month this year, but it is unlikely that the date will move by more than a day or two—if at all.”

UPDATE 6, Wednesday, June 29, 11:39 a.m. EST (Andy Kroll): In a June 28 letter Treasury Secretary Tim Geithner rejected Sen. Jim DeMint’s claim that the federal government doesn’t need to raise the $14.3-trillion debt ceiling and that it could “prioritize” paying interest on the federal debt. Geithner described DeMint’s plan, laid out in a May letter co-signed by 16 Republican senators, as “radical and deeply irresponsible,” “unwise,” and “untested and unacceptably risky,” and reinforced his own position that the debt ceiling must be raised by early August at the latest.

UPDATE 7, Wednesday, June 29, 12:08 p.m. EST (Andy Kroll): President Obama told reporters today at the White House that he believes any deficit reduction deal, needed to win Republicans’ support on increasing the debt ceiling, must include tax increases of some kind as well as massive spending cuts. “You can’t reduce the deficit to levels it needs to be reduced to without having some revenue in the mix,” Obama said.

Obama chided top Republicans in Congress for refusing to consider new revenue as part of a deficit deal, saying, “I don’t think that’s a sustainable position.” He said Democrats had agreed to cut programs popular with their base, and that GOPers needed to do the same. “If everybody else is willing to take on their sacred cows and do tough things to achieve the goal of deficit reduction, I think it would be hard for Republicans to stand there and say the tax breaks for corporate jets” are a deal-breaker.

Asked about the debt talks endgame, Obama said he believed Republicans would eventually strike a deal with new revenues. “My expectation is that they’ll do the responsible thing,” he said.”

UPDATE 8, Wednesday, June 29, 1:45 p.m. EST (Nick Baumann): Political Wire‘s Taegan Goddard says “it’s pretty telling” that, during this morning’s press conference, President Obama “never answered whether he thought the debt ceiling was constitutional.” It looks like the president wants to maintain declaring the ceiling unconstitutional as an option. That’s strategically smart.

UPDATE 9, Wednesday, June 29, 1:52 p.m. EST (Asawin Suebsaeng): Mother Jones‘ David Corn reacts to President Obama’s press conference today and his statements regarding raising the debt ceiling and cutting a deficit reduction deal:

Obama is dealing with radical hostage-takers who do not share his sense of responsibility. So when he asks these questions—Will the GOP truly prevent young adults from getting college loans so mega-profit-making oil companies can keep their special tax breaks? Will they really push the nation into a financial crisis to score an ideological point about supposedly out-of-control spending?—is Obama underestimating the opposition? Or is he posing rhetorical queries designed to position himself (especially in the eyes of independent voters) as the reasonable fellow in this dust-up?

To read the rest, click here.

UPDATE 10, Wednesday, June 29, 5:57 p.m. EST (Siddhartha Mahanta): Standard & Poor—one of the three major credit-rating agencies—will knock the US’ current “AAA” rating down to a “D,” or “selective default,” reports Reuters. What does that mean? Come August 4, some $30 billion in short-term US Treasury bond are set to mature. If the government fails to honor them, they will be slapped with the lower rating, said John Chambers, S&P’s managing director and chairman of its sovereign ratings committee. But he noted, though, that S&P still considers the odds of a default to be “extremely low.”

UPDATE 11, Thursday, June 30, 9:37 a.m. EST (Andy Kroll): How often is it that 235 economists—among them six Nobel Prize winners—can all agree on the same thing?

On Tuesday, that many economists signed a letter urging Congress to raise the government’s $14.3 trillion debt limit without deep cuts to federal spending. “Not doing so promptly could have a substantial negative impact on economic growth at a time when the economy looks a bit shaky,” they wrote. “In a worst case, it could push the United States back into recession.” The letter was organized by the left-leaning Economic Policy Institute, a think tank in Washington, DC.

Among the co-signers (PDF) was Laura Dyson, a top economic aide in the Clinton White House; Alan Blinder, a former vice chair at the Federal Reserve; the University of California-Berkeley’s Emmanuel Saez; and Nobel laureate Robert Solow of MIT.

Here’s the full letter:

Dear Members of Congress:

We, the undersigned economists, urge Congress to raise the federal debt limit immediately and without attaching drastic and potentially dangerous reductions in federal spending. Not doing so promptly could have a substantial negative impact on economic growth at a time when the economy looks a bit shaky. In a worst case, it could push the United States back into recession.

The U.S. economy looks fragile at present. Economic growth has been too weak to generate sufficient new job creation. Reaching the limit on total outstanding debt could force a dramatic and sudden cut in federal spending that would destroy jobs and threaten the recovery. To remove spending from the economy at such a pivotal moment would be irresponsible.

Failure to increase the debt limit sufficiently to accommodate existing U.S. laws and obligations also could undermine trust in the full faith and credit of the United States government, with potentially grave long-term consequences. This loss of trust could translate into higher interest rates not only for the federal government, but also for U.S. businesses and consumers, causing all to pay higher prices for credit. Economic growth and jobs would suffer as a result.

UPDATE 12, Thursday, June 30, 10:56 a.m. EST (Siddhartha Mahanta): In his press conference yesterday, President Obama lashed out at Congress for planning to leave Washington for the July 4th recess next week, without finalizing a deficit reduction deal and a plan to raise the debt ceiling. Republicans remain intransigent, insisting that any agreement include massive spending cuts and refusing to seriously consider revenue increases. Looks like Harry Reid got the message.

“Mr. President, it is often said that with liberty comes responsibility,” [Reid] said. “We should take that responsibility seriously. I’m confident we do. That’s why the Senate will reconvene on Tuesday, the day after the Fourth. We’ll do that because we have work to do. We’ll be in session that week – that’s next week – with our first vote on July 5.”

UPDATE 13, Thursday, June 30, 12:45 p.m. EST (Siddhartha Mahanta): Senate Minority Leader Mitch McConnell invited President Obama today to meet with Senate Republicans and discuss the debt ceiling negotiations.

“I’d like to invite the president to come to today to meet with Senate Republicans—anytime this afternoon…[t]hat way he can hear directly…why what he is proposing will not pass,” McConnell said. He stressed that any proposal that includes tax hikes is a non-starter. McConnell said Obama needs to come to grips with the reality in Congress. “All of us know that Congress isn’t going to approve hundreds of billions of dollars in tax hikes—it’s simply not going to happen,” he said. “We’ve known that for six months—and we’ve been saying it all along. The President does not seem to get it.”

Another Senate Republican, Rand Paul of Kentucky, said he would vote down any debt deal that does not include a balanced budget amendment.

“We will never surmount our fiscal problems until we amend the Constitution,” he said. All 47 GOP senators favor a balanced budget amendment, which would limit government spending to 18% of the gross domestic product. But only 12—including Paul—have signed a pledge not to vote to raise the debt ceiling without one.

UPDATE 14, Thursday, June 30, 2:30 p.m. EST (Nick Baumann): Timothy Geithner, the Secretary of the Treasury, has dramatically embraced the “constitutional option” theory of the debt ceiling, Huffington Post‘s Ryan Grim and Sam Haas report. Here’s the video of Geithner whipping out his pocket constitution and reading the section of the 14th amendment that says the “public debt of the United States… shall not be questioned”:

This is yet another sign that the Obama administration and congressional Democrats are taking the “constitutional option” seriously—or at least a sign that they want people to think they are.

UPDATE 15, Thursday, June 30, 3:40 p.m. EST (Siddhartha Mahanta): President Obama rejected Sen. McConnell’s invitation to meet with Republican senators to talk about cutting the deficit (see Update 13). “What the senator invited the president to do was to hear Senate Republicans restate their maximalist position. We know what that position is,” said White House spokesman Jay Carney.

tim geithnerTreasury Secretary Timothy F. Geithner. Pete Souza/White House

UPDATE 16, Friday, July 1, 9:40 a.m. EST (Andy Kroll): August 2: It’s the day on which the US could potentially default on its debt, according to the Treasury Department. And for weeks, it’s been the do-or-die point on the calendar, looming large over the bipartisan negotiations in Washington to cut the deficit and raise the $14.3 debt ceiling.

Now, the White House has a new date: July 22. The Wall Street Journal reports that Obama administration officials say July 22 is in fact when a deal needs to be done, so that a bill can be written and passed through Congress without the nation missing a payment. That’s 11 days earlier than the target date everyone had been using until now, and it will no doubt up the stakes for the White House and Congress to cut a deal, and fast.

The newer date also appears to be a way for the Obama administration to turn up the heat on top Democrats and Republicans in Congress to quit bickering and reach a deficit-reduction agreement. Right now, however, those talks are all but dead. House Majority Leader Eric Cantor (R-Va.) and Sen. Jon Kyl (R-Ariz.) walked away from the talks two weeks ago over the issue of tax increases, and this week President Obama refused to meet with Senate Republicans on a deficit deal. “We know what that position is,” White House press secretary Jay Carney said.

UPDATE 17, Friday, July 1, 1:30 p.m. EST (Andy Kroll): Senate Majority Leader Harry Reid (D-Nev.) introduced a measure today insisting that any deal to reduce the federal deficit include tax increases on Americans earning more than $1 million a year. Reid’s offering (PDF) is what’s called a “Sense of the Senate” measure, a pledge of sorts which members of Senate would vote yes on if they supported Reid’s call for higher taxes on the rich.

The measure is unlikely to earn any Republican support, considering that GOPers refuse to support any new tax increases in a deficit deal in exchange for raising the nation’s $14.3-trillion debt ceiling. A few weeks ago, House Majority Leader Eric Cantor (R-Va.) and Sen. Jon Kyl (R-Ariz.) both walked away from bipartisan deficit negotiations, led by Vice President Joe Biden, because Democrats refused to rule out any new tax increases. Those proposed increases include cutting subsidies for oil companies, worth $21 billion over ten years, and raising taxes by a few percentage points on the wealthy. Thus Reid’s proposal, which simply calls for higher taxes on the wealthy, is DOA with Republicans.

UPDATE 18, Monday, July 4, 3:30 p.m. EST (Asawin Suebsaeng): Senator Rand Paul (R-Ky.) said Sunday he intends to filibuster the Senate’s upcoming business week in an effort to force more discussion on the debt ceiling. During an interview on C-SPAN’s Newsmakers, Paul, the Senate Tea Party Caucus founder, stated that he and like-minded conservative senators “will vote in favor of raising the debt ceiling if we can, but it will be contingent on passing a balanced budget amendment to the Constitution.”


tim geithnerSenator John McCain (R-Ariz.)Louie Palu/Zuma

UPDATE 19, Monday, July 4, 3:50 p.m. EST (Asawin Suebsaeng and Andy Kroll): Two top Republican lawmakers, including Sen. John McCain (R-Ariz.), have hinted that while they are maintaining staunch opposition to tax increases, they may consider unspecified “revenue-raisers” and tax reform plans as part of a deficit-reduction deal that could open the door to raising the nation’s $14.3-trillion debt ceiling.

Here was McCain on CNN’s “State of the Union” on Sunday:

“[Arizona senator] Jon Kyl was in negotiations with the vice president and he said there were certain revenue-raisers in other areas that perhaps we could work on, but to somehow say we’re going to raise Americans taxes, anybody’s taxes, I think…it’s a principle we promised the American people last November and that we have to stick to.”

Sen. John Cornyn (R-Texas) suggested the GOP might support eliminating tax loopholes on Fox News Sunday, but didn’t overtly mention the issue of raising revenue:

Do we believe that tax reform is necessary? I would say absolutely. There’s not enough time to get it this done between now and August 2nd. But it ought to be the first thing we turn to, try to make our tax code more rational. We could bring down rates [and] eliminate…a lot of tax expenditures or loopholes.

UPDATE 20, Tuesday, July 5, 12:12 p.m. EST (Siddhartha Mahanta): If Congress fails to increase the nation’s $14.3-trillion debt ceiling, countries who hold America’s debt could seriously question the US’ ability to make good on its debts while economists predict the US could slip back into recession. But how will we know if financial markets think that crisis is imminent? The Washington Post’s Neil Irwin breaks down five tell-tale signs. Among them:

  • Discontinuities in the Treasury bill market. If the prices of bonds maturing around the Aug. 2 debt limit deadline begins to fall, that means investors are demanding higher interest rates for holding on to them. Right now, the rate for bills maturing on August 4 is .01 percent, which is the same as those maturing on August 18th or 25th. “Get nervous if that changes,” Irwin writes.
  • Spikes in the credit default swaps market. If the price of credit default swaps—insurance against the US government debt—begins to rise, look out. “US swaps imply only a 4.6 percent chance of a default within five years. This is the indicator that is flashing warning signs — it is up substantially since early April,” says Irwin.
  • A narrower spread between Treasurys and near substitutes. If US government bonds become a riskier bet, investors could look elsewhere. Like Canada, or other credit-worthy countries like Switzerland or Germany.

Irwin also points to a narrowing gap between the interest rates on Treasury bills and other forms of short-term credit, as well as higher volatility on the rates on government bonds.

Barack ObamaZhang Jun/ZumaUPDATE 21, Tuesday, July 5, 3:18 p.m. EST (Siddhartha Mahanta): If a deficit-reduction deal in exchange for raising the debt ceiling isn’t reached soon, top Republicans appear ready to move on a short-term debt limit hike—an idea first floated by Bill Clinton last Saturday—that would involve a temporary increase in exchange for spending cuts already agreed to by Democrats and Republicans.

A short-term increase “is more likely than not at this point because we’re basically running out of time,” said Senator John Cornyn (R-Texas) on a local Dallas radio show. “[T]he House has to pass it as well as the Senate and really we’re coming up against an Aug. 2 deadline, so it may be we’ll get sort of a mini-deal.” But Cornyn emphasized that short term fixes aren’t the answer. “[W]e need to deal with the problem as a whole and that means not just kicking the can down the road which is what a mini-deal would be.”

While one top Republican suggested that the GOP might consider “revenue-raisers” as part of a deficit deal, any such deal appears a long way off. Democrats insist that any agreement must include new revenues and possibly tax increases of some kind. Republicans, however, refuse to consider any new tax increases.

UPDATE 22, Tuesday, July 5, 5:49 p.m. EST (Siddhartha Mahanta): In remarks delivered Tuesday, President Obama invited senior Republican and Democratic leaders to the White House on Thursday for more talks on raising the debt ceiling in exchange for spending cuts. The president also appeared to brush aside any possibility of a short term deal.

Afterwards, White House spokesman Jay Carney said that the president has yet to discuss the “constitutional option” with White House lawyers. The idea—invoking the 14th amendment to render the debt ceiling itself unconstitutional—was first floated by Treasury Secretary Tim Geithner as a possible strategy for bringing a quick end to negotiations.

UPDATE 23, Wednesday, July 6, 12:34 p.m. EST (Siddhartha Mahanta): CNN reports that President Obama met with House Speaker John Boehner over the weekend as part of the negotiations over raising the debt ceiling, according to a Republican official.

Rep. Ron Paul (R-Texas). flapa blog/FlickrRep. Ron Paul (R-Texas). flapa blog/FlickrUPDATE 24, Wednesday, July 6, 12:55 p.m. EST (Nick Baumann): That Rep. Ron Paul (R-Texas), perhaps the Federal Reserve’s most dedicated critic (and a supporter of heterodox, Austrian economics) has an idea for dealing with the debt ceiling is not a shock. But that at least one liberal economist is backing Paul’s idea is a bit surprising. Dean Baker of the Center for Economic and Policy Research says that Paul’s idea—namely that the Federal Reserve should tear up the $1.6 trillion in government bonds it now holds—is “surprisingly lucid”: 

The basic story is that the Fed has bought roughly $1.6 trillion in government bonds through its various quantitative easing programs over the last two and a half years. This money is part of the $14.3 trillion debt that is subject to the debt ceiling. However, the Fed is an agency of the government. Its assets are in fact assets of the government…. [T]he bonds held by the Fed are literally money that the government owes to itself.

Unlike the debt held by Social Security, the debt held by the Fed is not tied to any specific obligations… [T]here is no direct loss of income to anyone associated with the Fed’s destruction of its bonds. This means that if Congress told the Fed to burn the bonds, it would in effect just be destroying a liability that the government had to itself, but it would still reduce the debt subject to the debt ceiling by $1.6 trillion. This would buy the country considerable breathing room before the debt ceiling had to be raised again. President Obama and the Republican congressional leadership could have close to two years to talk about potential spending cuts or tax increases. Maybe they could even talk a little about jobs.

In addition, Baker says, Paul’s plan would reduce the government’s interest burden over the coming decades. (He explains that here.) “This is a proposal that deserves serious consideration, even from people who may not like its source,” Baker writes. So far, though, there’s been little sign that anyone on Capitol Hill other than Paul is thinking seriously about this idea.

obama_7.06President Obama. Zhang Jun/ZumaUPDATE 25, Wednesday, July 6, 3:46 p.m. EST (Siddhartha Mahanta): President Obama continued to make his case for a balanced approach to the budget negotiations during the White House’s first-ever Twitter town hall on Wednesday,

“Never in our history has the US defaulted on its debt,” he reminded the audience. “The debt ceiling should not be something that is used as a gun against the heads of the American people to extract tax breaks for corporate jet owners, or oil and gas companies that are making millions of dollars.”

Americans, Obama insisted, are on his side, and favor a “balanced” approach to fixing the deficit: closing corporate tax loopholes, decreasing discretionary spending to curb inefficiencies, and ramping down defense spending. Social insurance programs like Medicare, Medicaid, and Social Security are also part of that equation. And Obama still hopes that Republican and Democratic lawmakers can abandon their “sacred cows” in the budget and reduce the deficit while investing in infrastructure and research.

On taxes, Obama stated unequivocally that the Bush tax cuts for the rich should be made permanent for low and moderate income earners, who haven’t seen their wages rise over the past decade while the costs of health care, education, gas, and food, have risen.

Government revenue, the president stressed, should come from those who can afford it. “If all we do is go back to pre-Bush tax rates for top income brackets…that would raise hundreds of millions dollars… [it] could solve the deficit, debt problems [and it’s] not something that requires radical solutions,” he said. Obama reminded his audience that the rich did very well during the Clinton years, when tax levels were higher than those he has proposed. “If the wealthiest among us are willing to give up a little bit more, then we can solve this problem. It does not take a lot.”

Obama also pushed back against his conservative critics, arguing that a modest increase for the wealthiest won’t stymie job creation. “It’s not like we haven’t tried what these other folks are pitching,” he said, referring to the Bush tax cuts of 2001 and 2003. “It didn’t work. And we should go with what works.”

UPDATE 26, Thursday, July 7, 10:41 a.m. EST (Andy Kroll): President Obama has reportedly put Social Security and Medicare, two of the nation’s biggest entitlement programs, on the negotiating table as he and top Democrats try to hammer out a deficit-reduction deal with Congressional Republicans, the Washington Post reports. However, the White House has strongly pushed back against the Post‘s story, telling the Huffington Post and MSNBC First Read that there’s no massive entitlements deal under discussion. The White House added that the president has always been open to “reasonable changes” to Social Security and Medicare.

Here’s the Post‘s story:

At a meeting with top House and Senate leaders set for Thursday morning, Obama plans to argue that a rare consensus has emerged about the size and scope of the nation’s budget problems and that policymakers should seize the moment to take dramatic action.

As part of his pitch, Obama is proposing significant reductions in Medicare spending and for the first time is offering to tackle the rising cost of Social Security, according to people in both parties with knowledge of the proposal. The move marks a major shift for the White House and could present a direct challenge to Democratic lawmakers who have vowed to protect health and retirement benefits from the assault on government spending.

“Obviously, there will be some Democrats who don’t believe we need to do entitlement reform. But there seems to be some hunger to do something of some significance,” said a Democratic official familiar with the administration’s thinking. “These moments come along at most once a decade. And it would be a real mistake if we let it pass us by.”

A willingness to consider Social Security or Medicare cuts would signal a reversal in the president’s position, as entitlements had previously been off the table.

The possibility of entitlement cuts comes as Obama is pushing for a much more comprehensive deal in the deficit negotiations. The president, the New York Times reports, doesn’t want to accept a short-term agreement that would cut spending and potentially increase taxes or cut tax subsidies. Instead Obama is eyeing as much as $4 trillion in cuts, with a mix of tax revenues and spending cuts.

Cuts to Social Security and Medicare would be deeply unpopular with the American public. A new Pew Research Center poll found that 60 percent of respondents said it was important to keep the Social Security and Medicare programs as they are, while only 32 percent placed more importance on reducing the federal budget deficit. Broken down by party affiliations, Democrats overwhelming favored preserving Social Security and Medicare over deficit reduction, 72 percent to 21 percent; 50 percent of Republicans backed protecting entitlements and 42 percent backed deficit reduction; and among independents, the percentages were 53 percent and 38 percent, respectively.

UPDATE 27, Thursday, July 7, 11:08 a.m. EST (Siddhartha Mahanta):  In a Wall Street Journal op-ed today, Republican Senators Jim DeMint of South Carolina and Olympia Snowe of Maine excoriate President Obama for demanding Congress raise the debt ceiling and potentially “hijacking the promise of American prosperity.”

“If Congress increases our national debt ceiling next month without permanent, structural budget reforms, we will signal to taxpayers and bond markets alike that Washington is still in denial,” they write. “[T]he only way to compel lawmakers to maintain their responsibility forever is a balanced budget amendment to the Constitution.” In particular, what they’re referring to is a measure that would limit government spending to 18 percent of the nation’s gross domestic product—that is, the overall value of all goods and services in the US, which is $14.1 trillion. A balanced budget amendment has received the support of 47 senators, all Republicans.

DeMint and Snowe remind readers that when Senate last took up a balanced budget amendment in 1997—when the overall national debt stood at $5.36 trillion—it failed to pass by a single vote. Today, they note, that figure is $14.3 trillion, implying that a balanced budget amendment would have controlled the debt.

Why will this plan work where all others have failed?:

For one single reason: As senators and representatives, we take an oath to uphold the Constitution. By amending the Constitution, Congress will be forever bound to match our nation’s expenditures with our revenues. Toothless resolutions and statutory speed bumps have proven easy to evade or ignore. Indeed, the reason many lawmakers don’t want a balanced budget amendment is the exact reason why we need it: It would permanently end the types of legislative trickery that have now brought our country to the fiscal brink.

The senators also raise the alarm over the interest the US owes on its existing debt, an annual amount projected to reach $1 trillion by 2021. “At that rate, China would surpass the U.S. economy in size even before 2016, the year recently forecast by the International Monetary Fund,” they write.

UPDATE 28, Thursday, July 7, 12:19 p.m. EST (Siddhartha Mahanta): On Thursday, House Majority Leader Eric Cantor (R-Va.) told Fox News’ Gretchen Carlson that any deal on the debt ceiling cannot close tax loopholes without tax cuts that offset those reforms. Cantor has said in the past that he would be open to cleaning up the tax code by eliminating costly corporate exemptions, but claims that President Obama’s plan to curb loopholes will hurt small businesses and stifle job creation.

Here he is on Fox News:




UPDATE 29, Thursday, July 7, 12:40 p.m. EST (Andy Kroll): Rep. Chris Van Hollen (D-Md.), the ranking member of the House budget committee, said in an interview with CNN today that Democrats in Congress would not accept major cuts to entitlements such as Social Security and Medicare as part of a deficit-reduction deal. Van Hollen added that he didn’t know if reports were true that President Obama had put entitlements on the chopping block (the White House has denied doing so in a big way), but said the administration would find no support among Democrats if that were the case.

“What we have said is that if the president wants to adopt a separate track—just as [former Democratic House speaker] Tip O’Neill and Ronald Reagan did in the 1980s—to strengthen social security, that’s one thing. But to try and balance the budget on the backs of Social Security beneficiaries would be unacceptable,” Van Hollen told CNN’s Ali Velshi. “I’m pretty confident that’s not what the president is referring to.”

The Maryland Democrat reiterated that he supports a balanced compromise that includes tax increases such as closing corporate tax loopholes. He also said he supported lifting the cap on the payroll tax and deeper cuts to Pentagon spending.

Van Hollen said the biggest question right now with the deficit negotiations is whether Congressional Republicans will budge on accepting tax increases and new revenues as part of a deal—something GOP leaders such as House Majority Leader Eric Cantor (R-Va.) and the House rank-and-file refuse to do. “Until the Republican Party is more worried about the deficit than they are about [Americans for Tax Reform president] Grover Norquist and that whole part of their coalition, then we’re going to have a real problem.”

UPDATE 30, Thursday, July 7, 1:25 p.m. EST (Andy Kroll): After a “very constructive meeting” this morning with top Democrats and Republicans in Congress, President Obama said at today’s White House press conference that all parties would continue working through the weekend to reach a deficit-reduction deal in exchange for Republican support on increasing the $14.3-trillion debt ceiling. The president said leaders from both parties will reconvene on Sunday at which point he wants both sides to have agreed to the broad outlines of a deal. The specifics of a deal can be hammered out afterward, the president said.

Obama stuck by his position that any agreement will require concessions from both parties, even as he acknowledged that Democrats and Republicans “are still far apart on a range of issues.” He added, “There’s going to be pain involved politically on all sides.”

UPDATE 31, Thursday, July 7, 1:57 p.m. EST (Siddhartha Mahanta): Reuters reports that a “small team” of Treasury officials is working behind the scenes to find ways to sidestep a financial catastrophe if the debt ceiling is not raised by the August 2 deadline.

Among the menu of options, the team is considering whether the administration can stall its payments. Postponement, though, comes with some serious technical problems: “If Treasury were to decide to delay payments, it would need to re-program government computers that generate automatic payments as they fall due—a massive and difficult undertaking. Treasury makes about 3 million payments each day,” reports Reuters.

Treasury is also exploring whether a 1985 finding by the Government Accountability Office would allow the government to prioritize its payments—a popular strategy among some conservative Republicans. This would let the government decide, in effect, whether to pay soldiers or Medicare recipients first. The team is also deliberating whether the New York Federal Reserve Bank could function as Treasury’s broker in the markets in the event that a deal is not struck.

Keith Hennessey, former chair of the National Economic Council under George W. Bush, said a backup plan is essential. “You have to have a backup plan. If you are relying on Congress to avoid the possibility of an Armageddon, you can’t just bet on that.”

The White House has yet to comment on the talks, and is actively pooh-poohing any discussion of the “constitutional option”—the idea that the debt ceiling itself is unconstitutional. The White House wants to keep lawmakers focused on the impending August 2 deadline. Administration officials worry that “even a hint of a ‘Plan B’ could lessen the urgency to strike a deal by then,” according to Reuters.

UPDATE 32, Thursday, July 7, 4:07 p.m. EST (Siddhartha Mahanta): Speaking from the Senate floor on Thursday, Sen. Carl Levin (D-Mich.) re-introduced a bill that would close the corporate stock option tax loophole.

When corporations grant their top executives large stock option packages, they are expected to report the cost of those options on their books. But when it comes time to file their taxes, current law allows them to claim a much higher expense that qualifies them for a significant tax benefit. Closing this loophole would shrink the deficit by about $25 billion over 10 years, Levin said, citing figures from the Joint Committee on Taxation.

Stock options, Levin said, are the only type of compensation in the tax code where a corporation can deduct more than the expenses shown on their books. “It is an exception we can no longer afford,” he added.

From his floor statement:

[T]he IRS found that for the first full year in which data was available, U.S. companies claimed an excess of $61 billion in stock option tax deductions compared to their book expenses. Since then, IRS data shows that the stock option tax gap has persisted for five years, from 2005 to 2009, the latest year for which data is available, with the size of the excess tax deductions varying from $11 billion to $52 billion per year.

This loophole, Levin argues, fuels excessive executive salaries and allows companies to avoid paying their full share of the tax burden. His bill address the problem

by requiring the corporate stock option tax deduction to equal the stock option expense shown on the corporate books. It would not affect the taxes paid by individuals who receive the stock options. It would not affect so-called Incentive Stock Options which receive favored tax treatment under Section 422 of the tax code and are often used by start-up companies.

. . . the excessive corporate tax deduction for stock option pay widens the deficit while increasing the tax burden on ordinary taxpayers. By closing this tax gap, by ending the illogical treatment of corporate stock options in current law, we can reduce the budget deficit and bring much-needed fairness to the tax code. 

UPDATE 33, Thursday, July 7, 5:17 p.m. EST (Asawin Suebsaeng): The “I” word has officially been dropped.

Rep. Tim Scott (R-S.C.) said Tuesday that he would consider it an impeachable offense if President Obama were to invoke the 14th Amendment in order to ignore the debt ceiling. Scott made the comments during a town hall sponsored by LowCountry 9.12 Project, a tea party affiliate in Summerville, South Carolina. The Huffington Post has the story:

This president is looking to usurp congressional oversight to find a way to get it done without us. My position is that is an impeachable act from my perspective…This jeopardizes the credibility of our nation if one man can usurp the entire system set up by our Founding Fathers over something this significant.

Scott isn’t alone. Rep. Pete Olson (R-Texas) mentioned during an interview with Think Progress that Scott is not merely an outlier, and that there has been “a little bit” of discussion among Republican lawmakers behind closed doors about the possibility of kick-starting an impeachment process if the president declares the debt limit unconstitutional:

[Rep. Scott is] not a lonely voice. All of us out there, we’re getting closer to a place where we’ve never gone in our country’s history. So we’re all sort of learning as we go. We’ve never gotten to the point where we’ve defaulted, potentially, on our debt. So we’re looking at other options out there because this is new ground for all of us.

UPDATE 34, Thursday, July 7, 7:46 p.m. EST (Siddhartha Mahanta): The Huffington Post reports that the first Republican has conceded that the “constitutional option”—invoking the 14th Amendment to render the debt ceiling itself unconstitutional—could be a legitimate way to end the negotiations. Sen. Chuck Grassley (R-Iowa) told The Huffington Post that “[I]n the 14th Amendment, there’s something that says something about the debt of the United States government shall be honored…The 14th Amendment includes a public debt clause that insists the obligations of the government ‘shall not be questioned.'”

Grassley said that he supports the spending discipline the debt ceiling imposes on Congress, but recognizes that “[t]he Constitution trumps the law, obviously.”

UPDATE 35, Friday, July 8, 12:39 p.m. EST (Siddhartha Mahanta): President Obama will veto a short-term deficit deal, an option proposed by Senate Republicans to raise the debt ceiling for a few months to buy enough time to negotiate a more lasting agreement, Politico reports.

The president made the promise in a 90-minute meeting with congressional leaders on Thursday, going further than he had when speaking publicly about the option.

“By drawing a harder line,” Politico reports, “Obama aims to avoid revisiting the debt limit again until after the 2012 elections.

During the meeting, Obama discussed three options for resolving the negotiations: the short-term measure (which he opposes); a deal with about $2.5 trillion in cuts; and a plan that cuts spending by more than $4 trillion while raising $1 trillion in revenue.

Leaders of both parties favor the larger package. But Sen. Jon Kyl (R-Ariz.) and House Majority Leader Eric Cantor (R-Va.) raised questions about the nature of the revenue-raisers. For her part, House Minority Leader Nancy Pelosi (D-Calif.) refused to accept a deal that includes cuts to entitlement programs such as Medicaid and Social Security.

“Any discussion of Medicare or Social Security should be on its own tables,” warned Pelosi, emphasizing that the president will need House Democrats to pass any deal that emerges from negotiations. “Do not consider Social Security a piggy bank for giving tax cuts to the wealthiest people in our country. We are not going to balance the budget on the backs of America’s seniors, women or people with disabilities.”

UPDATE 36, Friday, July 8, 2:46 p.m. EST (Andy Kroll and Asawin Suebsaeng): In May, Treasury Secretary Tim Geithner pointed to the US Constitution’s 14th Amendment—which says that “the validity of the public debt of the United States, authorized by law…shall not be questioned”—and suggested the Obama administration could ignore the nation’s $14.3-trillion debt ceiling and simply keep paying its bills. Or at least that’s how it looked to some observers, including Harvard constitutional law professor Laurence Tribe.

In a New York Times op-ed published today, Tribe singled out Geithner for pointing to the the 14th Amendment as a silver bullet, and said such a strategy would not in fact pass muster. Not so fast, replied Treasury’s top attorney, George Madison.  

In an e-mail to the Times, Madison, the Treasury’s general counsel, said Geithner had not suggested leaning on the 14th Amendment and emphasized the sole authority of Congress in raising the debt ceiling and avoiding default:

The Secretary has cited the 14th Amendment’s command that “[t]he validity of the public debt of the United States shall not be questioned” in support of his strong conviction that Congress has an obligation to ensure we are able to honor the obligations of the United States. Like every previous Secretary of the Treasury who has confronted the question, Secretary Geithner has always viewed the debt limit as a binding legal constraint that can only be raised by Congress.

Barack Obama The White House/Wikimedia Commons.UPDATE 37, Saturday, July 9, 1:35 a.m. EST (Nick Baumann): Last weekend, President Barack Obama announced that he would seek a $4 trillion deficit-reduction deal as part of negotiations with Republicans to raise the federal debt ceiling. But this Saturday, Rep. John Boehner (R-Ohio), the Speaker of the House, announced that he isn’t on board with the president’s goal. The problem is just what you might expect: The White House wants to see some tax increases as part of any deal, and many, if not most, Republicans want the deal to be made up entirely of spending cuts.

The GOP leadership will seek a smaller deficit-reduction plan in the neighborhood of $2 trillion as part of any deal to raise the debt ceiling, which the government is due to hit in early August. (The President has said a deal is needed by late July to prevent the government from defaulting on its debts.) Revenue increases are still going to be a hurdle, however, because Democrats want them to be part of any smaller deficit deal, too.

The White House issued a statement late Saturday evening saying that on Sunday, Obama would “make the case to congressional leaders that we must reject the politics of least resistance and take on this critical challenge.” In other words, the White House is still pushing for the larger deficit-reduction package. Any large deficit-reduction deal on the scale Obama seeks would likely involve changes to popular social insurance programs including Medicare, Medicaid, and Social Security. Given that, convincing those “congressional leaders” the White House statement refers to is probably going to entail not only convincing Republicans to raise taxes but also convincing Democrats to fiddle with Medicare and Social Security. Say what you will about Obama’s plan, but it is certainly ambitious.

UPDATE 38, Monday, July 11, 12:50 p.m. EST (Siddhartha Mahanta): President Obama announced at a press conference today that he still wants to hammer out an ambitious “grand bargain” in the ongoing debt talks with Speaker John Boehner (R-Ohio) and other Congressional leaders, eyeing trillions in spending cuts and new revenues. Obama rejected the idea of a smaller deal that buys lawmakers a few months’ time to craft a larger agreement. “We don’t manage our affairs in three-month increments,” he said. “We’re going to resolve this, and we’re going to resolve this for a reasonable period of time.”

Obama again emphasized the importance of a balanced deal, mixing cuts and tax increases—an idea Republicans have rebuffed. Obama said he wants an agreement that tackles the short-term deficit, stabilizes the economy, avoids default, and “proves to American people that we can actually get things done in this country and in this town.”

While a majority of Americans do not support raising the debt ceiling, the president argued that it is not their job to fully grasp the implications of failing to do so. That, he said, is Washington’s job. He also praised Boehner’s role in the negotiations, but he bashed members of both parties for refusing to accept unpopular measures, such as cuts to defense spending and entitlement programs and preserving tax cuts.

“Nobody has talked about increasing taxes now, nobody has talked about increasing taxes next year,” Obama insisted. Instead, current plans call for closing tax loopholes, including those for corporate jet owners and oil companies, starting in 2013. The president also stumped for extending the payroll tax cut passed last December and unemployment benefits to states.

Obama also hit on the importance of shared sacrifice among the wealthy and middle class. “If you don’t like that formulation, then I’m happy to work with you on tax reform that could potentially lower everyone’s rates and broaden the base,” he said. But to meet his demands, such a reform cannot balance the budget on the backs of the middle class and let the rich off the hook.

Looking past a debt deal, which must be signed before Aug. 2 after which the US government can no longer pay all its bills, Obama said lawmakers should double down on job creation through new trade deals, creating an infrastructure bank, and investing in medical research and development. “If the country as a whole sees Washington act responsibly…that that will help with businesses feeling more confident about aggressively investing in this country…[I]t can have a positive impact in overall growth and employment.”House Speaker John Boehner: Medill DC/FlickrHouse Speaker John Boehner. Medill DC/Flickr

UPDATE 39, Monday, July 11, 2:30 p.m. EST (Andy Kroll): House Speaker John Boehner (R-Ohio) fired back at President Obama today by insisting, for the umpteenth time, that Republicans will not accept any tax hikes as part of a deficit-reduction deal. Just this morning, the president called for a balanced agreement that includes trillions in both spending cuts and new revenues, some potentially coming from tax increases. Boehner said it was important to cut a deal and raise the debt ceiling by August 2, but added that “the American people will not accept, and the House cannot pass, a bill that raises taxes on job creators.” (That’s half-true: More than a dozen polls show that a majority of Americans support or feel its necessary to raise taxes to tackle the deficit.)

Despite the impasse, Boehner described the deficit negotiations so far as “very sincere and honest.” The speaker also said he would consider new revenue in the form of overhauling the tax code so that tax rates were lowered but the tax base was expanded to include more people. But Boehner seemed to suggest Democrats and Republicans were no closer to a deal than they’d been in recent weeks. “This boils down to two things: The president continues to insist on raising taxes, and they’re just not serious about fundamental entitlement reforms to solve the problems for the near, immediate future.”

UPDATE 40, Monday, July 11, 5:40 p.m. EST (Siddhartha Mahanta): President Obama reportedly offered to increase the eligibility age for Medicare from 65 to 67 in exchange for an increase in tax revenues as part of the ongoing debt ceiling negotiations. According to the Huffington Post, the White House made the proposal as part of a potential “grand bargain” on raising the debt ceiling in exchange for steep spending cuts. It is unclear if it remains in play.

In addition to cuts to entitlement programs, the plan would have slashed $3 trillion in spending while raising some $800 billion to $1 trillion in revenue starting in 2013. But Republicans were also offered an alternative to the revenue increases: allowing the Bush-era tax cuts to expire for those people making above $250,000. Ultimately, the deal fell apart over the Democrats’ attempt to secure a firm commitment from Republicans over the de-coupling provision.

UPDATE 41, Tuesday, July 12, 4:10 p.m. EST (Siddhartha Mahanta): Senate Minority Leader Mitch McConnell (R-Ky.) offered a proposal that could bring an end to the prolonged negotiations between the White House and Congressional leaders—and that would blame President Obama and the Democrats for expanding the size of government, Politico reports.

McConnell’s plan would put the onus on President Obama to raise the debt ceiling through three incremental spending requests together adding up to $2.5 trillion, roughly the amount by which the White House wants to raise the debt ceiling. If Congress didn’t approve of the increase, it would need a two-thirds vote to reject it.

The plan takes a cue from the Congressional Review Act, which allows Congress to block or overturn an agency’s rules by adopting a joint resolution of disapproval, which the president could go on to veto.

McConnell’s plan would place all responsibility for increasing the debt limit on Democrats, and give Republicans three separate chances to call them out for increasing government spending. And it would leave Republicans free to vote against an increase without risking a default.

“The development confirms suspicions that the GOP was unwilling to truly use the looming debt ceiling as leverage to force conservative-friendly changes to popular entitlement programs, but suggests strongly that Republicans plan to continue politicking on fiscal issues through the 2012 elections,” TPM reports.

UPDATE 42, Wednesday, July 13, 10:33 a.m. EST (Siddhartha Mahanta): Senator Lindsey Graham (R-S.C.) said on Tuesday that Republicans should accept a deal that both cuts Social Security and Medicare and increases revenues by closing tax loopholes in exchange for raising the debt ceiling. “You’re giving money away to a few people at the expense of many, and I think it’s time to reevaluate that,” Graham told ABC News. “If you did away with all deductions and exemptions except charitable giving and the mortgage interest, that’s $1.2 trillion that’s spent every year.”

Graham, however, said he remained pessimistic that President Obama would be able to strike a deal with top Republicans by the August 2 deadline. “If I were a betting man, I’d bet no [deal],” Graham said.

UPDATE 43, Wednesday, July 13, 3:31 p.m. EST (Siddhartha Mahanta): On Wednesday, 247 national progressive and good-government organizations, including the AFL-CIO, Democracy 21, National Coalition for LGBT Health, and OMB Watch, cosigned a letter opposing House Judiciary Committee Resolution 1, better known as the balanced budget amendment. Both the House and Senate are expected to vote on the measure next week.

The bill would cap government spending at 18 percent of gross domestic product. That would slash spending much deeper than Rep. Paul Ryan’s (R-Wis.) Medicare-privatizing, Medicaid-gutting, rich-people-coddling budget plan, which holds spending between 20 and 21 percent of GDP over most of the next two decades (currently, spending is around 24 percent of GDP).

The proposal also makes it exceedingly difficult for Congress to undo the budget damage inflicted by the cap: It requires a two-thirds majority vote in both houses to break the cap, increase the debt limit, raise taxes, or close loopholes, strangling the government’s ability to increase spending on social programs, health care, or unemployment benefits.

UPDATE 44, Wednesday, July 13, 6:15 p.m. EST (Siddhartha Mahanta): Moody’s Investors Services, one of the “big three” credit rating agencies, has placed the United States’ AAA bond rating on review for possible downgrade. The agency cited rising worries that the debt limit will not be raised in time for the government to avoid a default on its debt obligations and said that it still considers the odds of a default “to be low but no longer to be de minimis.”

Even a short-term default would change Moody’s outlook on the US’ ability to meet future payments, resulting in a lower rating somewhere in the AA range. This would, in turn, result in higher borrowing costs for American families and businesses, and make US investments a risky proposition for multinational companies. For the US to regain a AAA rating, Moody’s says, it would likely have to change its process for raising the debt limit, among other things.

Moody’s has also placed the AAA ratings of Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks—all financial institutions directly linked to the US government—on review for possible downgrade, along with some municipal and housing bonds supported or guaranteed by the US government.

UPDATE 45, Wednesday, July 13, 9:25 p.m. EST (Nick Baumann): Both sides in the debt talks are pushing their versions of an alleged breakdown in negotiations on Wednesday evening. Rep. Eric Cantor (R-Va.), the second-ranking Republican in the House, claims that President Obama “abruptly” and “angrily” walked out of the room as talks broke down. Cantor “suggested that all progress in the debt talks has been erased,” according to Taegan Goddard. Cantor also said Obama said, “Eric, don’t call my bluff. I’m going to take this to the American people,” which doesn’t make much sense because if you were bluffing, you wouldn’t encourage someone to call your bluff. Something must have been lost in translation there. A Dem source tells TPM’s Brian Beutler that Cantor’s account is “overblown,” and that Cantor interrupted the president three times about a temporary debt ceiling hike while Obama was wrapping up, and then Obama “shut him down.”

When different people in a private meeting are telling different stories, it’s nearly impossible to ascertain what really happened. In this case, that’s not a huge problem. All of this pyschodrama will probably lead the morning news shows and most stories in the non-financial media. It involves personalities rather than policy, so people find it more interesting. But it doesn’t really matter. The most important debt ceiling news today was 1) Moody’s potential downgrade of the United States’ bond rating and 2) the fact that everyone will be back at the negotiating table tomorrow. Almost everything else is window dressing.

UPDATE 46, Thursday, July 14, 2:50 p.m. EST (Andy Kroll): Not only do Democrats and Republicans vehemently disagree on what to include in a deficit reduction package, they’re not even close to consensus on what will happen if the nation’s $14.3 trillion debt ceiling isn’t raised and the country fails to pay all its bills on time.

A new Congressional Insiders Poll from National Journal reveals a wide gulf between Dems and GOPers on the severity of failing to raise the debt ceiling. Sixty-one percent of Democrats said the consequences would be “catastrophic,” but only 15 percent of Republicans agreed. Meanwhile, 44 percent of GOPers said the fallout would be “major” and 29 percent said it’d be “minor.”

UPDATE 47, Thursday, July 14, 3:47 p.m. EST (Siddhartha Mahanta): Sens. Harry Reid (D-Nev.) and Mitch McConnell of (R-Ky.) are working on a “hybrid” deficit deal in exchange for raising the debt ceiling before the Aug. 2 deadline, The Huffington Post reports. The plan, combining elements of an earlier framework hashed out in negotiations led Vice President Joe Biden and the compromise hatched by McConnell this week, includes $1.5 trillion in spending cuts over the next ten years and no revenue increases. It would allow President Obama to raise the debt ceiling in three separate installments over the coming months and into next year. But Obama will also be required to offer up additional spending cuts to go along with each increase. In this case, the total spending cuts would exceed the initial $1.5 trillion.

“The president…will be able to move the debt ceiling debate into 2013, albeit while having to hold a largely pre-determined vote for a second [debt ceiling] extension (once the $1.5 trillion in cuts run out) before the election,” HuffPo‘s Sam Stein reports.  

The deal also creates a new commission of lawmakers charged with finding additional areas in the budget to cut costs. The commission’s recommendations would automatically be given amendment-free votes in both the House and Senate.

Republican and Democratic sources both told HuffPo that the hybrid plan is far from a done deal, as details over the final amount of cuts and the make up of the commission have yet to be negotiated. But that didn’t stop Sen. Chuck Schumer (D-N.Y.) from voicing support for it.

UPDATE 48, Friday, July 15, 1:10 p.m. EST (Siddhartha Mahanta): At a press conference on Friday, President Obama urged Republicans in Congress reluctant to agree to a debt deal to use the ongoing bipartisan negotiations as an opportunity to solve the nation’s long-term debt and deficit problems. Obama again made his case for ending tax cuts for the wealthy, cutting defense spending, reforming entitlements, and ending the ideological polarization that has stymied any progress on a deal.

“What is important is that even as we raise the debt ceiling, we also solve the problem of underlying debt and deficits,” he said, rebuffing recent talk of a plan hatched by Sens. Harry Reid (D-Nev.) and Mitch McConnell (R-Ky.) to raise the debt ceiling without directly addressing the deficit. “The American people expect more than that…[and that] we get our fiscal house in order.”

Obama, less scolding and combative than in past press conferences, said he hoped the negotiations with GOP leaders would soon deliver a “serious plan” that includes revenue increases and modest cuts to entitlements programs—largely through additional means testing in Medicare—that could save trillions of dollars. But he stopped short of committing to raising the retirement age and defended the sanctity of programs like Social Security and Medicare.

The president also took time out to remind Americans how the US arrived at the doorstep of potential fiscal disaster. “We cut taxes without paying for them over the past decade, [introduced a] prescription drug program that was not paid for, fought two wars, did not pay for them…had a bad recession that required a recovery act,” and introduced state aid programs, he said, all while interest on the debt continued to accumulate. “To unwind that, what’s required is that we roll back those tax cuts on the wealthiest individuals, clean up our tax code [and] cut programs that we don’t need, and…invest in those things that are going to help us grow.”

For the general public, Obama said, “this is not some abstract issue. These are obligations that the United States has taken on in the past. Congress has run up the credit card, and we now have an obligation to pay our bills.”

Obama also went out of his way to address his negotiating partners on the other side of the aisle. Recent polls, he said, show that Democratic and Republican voters alike support a balanced deficit reduction package. “A clear majority of Republican voters think that any deficit reduction package should…include revenues,” he said. Republican voters agree that “we should not be asking sacrifices from middle class folks who are working hard everyday.”

By way of solutions, Obama reiterated his support for an extension on the payroll tax cut included in last December’s tax deal as well as extended unemployment insurance benefits. Addressing specific cuts that have been part of ongoing discussions, Obama cited defense spending and curbing the growing cost of Medicare.

But cutting $2.4 trillion in discretionary spending—a number that has emerged in recent talks with Republicans—without increasing taxes on the rich effectively guts much-needed domestic spending, he said.

Obama brushed off reports that negotiations with Republicans earlier this week turned ugly, referring to a Wednesday meeting that included House Majority Leader Eric Cantor (R-Va.). Such reports, he said, “may be good for chatter in this town, [but they’re] not something folks in the country are obsessing about.”

Obama criticized the upcoming vote on the balanced budget amendment, which would freeze government spending and cap it at 18 percent of gross domestic product. “What you’re looking at is cuts of half a trillion dollars below the Ryan budget in any given year,” he said, referring to the budget proposal offered up by Rep. Paul Ryan (R-Wis.) in April. “We don’t need a constitutional amendment…we need to do our jobs.”

Ultimately, Obama argued, an ambitious spending package should be a political win for Democrats and Republicans alike. “If you care about making investments in our kids and making investments in our infrastructure and making investments in scientific research, then you should want our fiscal house in order.” That equally applied to his liberal base, Obama added: “If you are a progressive, you should be concerned about debt and deficits just as much as if you’re a conservative.”

UPDATE 49, Monday, July 18, 9:30 a.m. EST (Andy Kroll): Congressional Republicans may claim that their demand for trillions in spending cuts and refusal to consider tax increases is for the benefit of the country, but the American people simply do not agree.

According to a new CBS News poll, 71 percent of Americans disapprove of Congressional Republicans’ handling of the contentious deficit reduction negotiations with President Obama and top Democrats in Congress. What’s more, 51 percent of Republican respondents disapproved of their party’s position in the talks, while only 21 percent supported the strategies of House Speaker John Boehner, Senate Minority Leader Mitch McConnell, and House Majority Leader Eric Cantor. GOPers have demanded steep spending cuts to government programs, including Social Security and Medicare, in exchange for raising the US’ $14.3-trillion debt ceiling, the legal limit on how much the country can borrow at one time to pay its obligations.

Democrats earn somewhat higher marks from Americans for their party’s handling of the debt talks. Forty-three percent approve of the job President Obama has done, while 48 percent disapprove. Among Democrats respondents, 32 percent approve of Obama’s work, and 31 percent approve of the job Democrats have done.

It’s only one poll, but CBS News’ findings give Democrats new ammo to fight for a “balanced” deal—mixing spending cuts, tax increases, and closing tax loopholes. As for Republicans, it’s increasingly clear that they stand alone in demanding spending cuts and nothing else.

UPDATE 50, Tuesday, July 19, 9:05 a.m. EST (Andy Kroll): With President Obama and leaders in Congress at loggerheads over a deal to shrink the federal deficit and raise the nation’s $14.3 trillion debt ceiling, it’s looking likely that Senate Minority Leader Mitch McConnell’s last-ditch debt plan could move into the pole position in the heated negotiations here in Washington.

The Hill today quotes several Senate aides as saying that, while GOP leaders will continue to negotiate with Obama, they’re also looking to McConnell’s contingency plan as a compromise between Democrats and Republicans. McConnell’s plan would cut $1.5 trillion over 10 years and give Obama the authority to raise the debt through next year’s election.

The political calculus behind McConnell’s plan is clear: By making Obama send requests to Congress to increase the debt ceiling, the plan makes the president look like the big spender while giving Congress—which normally votes to increase the ceiling itself—the chance to disapprove of Obama’s request. If that happened, Obama could then veto Congress and still be able to raise the debt ceiling. McConnell is trying to have his cake and eat it too—that is, to avoid political damage and avert default.

Despite opposition from the far left and right, McConnell’s plan was accepted by leaders as a last-ditch option for Congress. Except now it’s looking more like the only option. Here’s the Hill:

But GOP aides say the leaders are already looking past those votes to a potential deal with Democrats to raise the debt limit before an Aug. 2 deadline and spare Republican lawmakers from a political backlash.

“McConnell is going to let cut, cap, and balance have its vote and then immediately move to plan B,” said a GOP aide in reference to the fallback debt plan McConnell is negotiating with Senate Majority Leader Harry Reid (D-Nev.).

Another Republican aide said McConnell’s contingency plan “has become plan A.”

Those aides join a growing chorus of lawmakers and Washington insiders who say a final deal will look like McConnell’s. When asked on Fox News Sunday about a final deal, John Podesta, who runs the liberal Center for American Progress think tank, said, “I don’t like it, but I think it is probably some version of McConnell, which is cut the deficit now by $1.3 or $1.4 trillion.” And on Monday, Sen. Dianne Feinstein (D-Calif.) said on MSNBC, “I see the Reid-McConnell bill as the only practical way forward.”

UPDATE 51, Tuesday, July 19, 2:24 p.m. EST (Andy Kroll): President Barack Obama said at today’s White House press briefing that a group of senators had offered a deficit reduction plan that he described as “very significant” and “broadly consistent” with the White House’s framework. The plan from the Gang of Seven, as Obama dubbed them, calls for reducing discretionary spending, trimming the defense budget, curbing entitlement programs such as Social Security and Medicare, and raising revenues. “For us to see Democratic senators acknowledge that we’ve got to deal with our long-term debt problem that arises out of our entitlement problems, and Republican senators to acknowledge that revenues will have to be part of a balanced package that makes sure nobody is disproportionately hurt by us making progress…is a very significant step,” the president said.

Obama said the White House had just received the Gang of Seven’s plan, adding that it “wouldn’t match perfectly” with the White House’s demands. But the president seemed to suggest the senators’ plan was a crucial development in the negotiations.

For the umpteenth time, Obama demanded that any deficit deal in exchange for raising the debt ceiling include both spending cuts and new revenues, possibly from closing tax loopholes or raising tax rates. Obama emphasized that time was running out for Congressional leaders to reach a deal, and said that Senate Minority Leader Mitch McConnell’s plan to allow the president to raise the debt ceiling remained a last-ditch option. “Our attitude is [the McConnell plan] continues to be a necessary approach to put forward in the event that we don’t get an agreement,” Obama said. “But we continue to believe that we can achieve more.”

The Gang of Seven’s plan calls for cutting the federal deficit by nearly $4 trillion over the next decade, including an immediate $500 billion “down payment” on deficit reduction. The plan would also slash defense and non-defense spending, “reform” the US tax code to save $1.5 trillion, and tackle Social Security reform on “a separate track” from deficit reduction. For the most part, though, the Gang’s plan is short on details, stipulating that the government “spend health care dollars more efficiently,” “change the debate about taxes in America,” and “reform” Social Security. We’ll share more details about the plan when we get them.

Here’s an outline of the Gang of Seven’s plan:

UPDATE 52, Thursday, July 21, 11:35 a.m. EST (Andy Kroll): It’s getting awfully lonely on Capitol Hill for House Republicans, who oppose raising the nation’s $14.3 trillion debt ceiling and so welcome the economic blowback that will ensue.

Here’s the state of play. Senate Democrats and Republicans are eyeing a compromise deal, whether it’s the Gang of Seven’s plan to cut $3.7 trillion from the deficit in 10 years or Minority Leader Mitch McConnell’s Plan B letting President Obama raise the debt ceiling in exchange for political cover heading into an election year. The White House, meanwhile, wants a deficit deal mixing spending cuts and new revenue. That leaves hard-right House GOPers on a lonely island of their own, refusing to compromise and increasing the prospect that the US might default on some its debts.

Those Republicans say voters’ mandate in 2010 was to shrink government and that their intransigence is really fulfilling that mandate. In reality, the opposite is true. Recent polls show that a majority of Americans want Washington politicians to cut a compromise deal in the deficit debate. Americans also strongly disapprove of the GOP’s handling of the debate, while rating Obama and Democrats’ handling significantly better. But, as the Los Angeles Times reports, the public sentiment has yet to sway to House GOPers:

The new class of freshman and their conservative allies in the House are not as responsive to party leadership as earlier generations of lawmakers. They openly profess more allegiance to each other.

“I’m fired up more than I’ve ever been that we truly are going to change the way business is done,” said Rep. Jason Chaffetz (R-Utah), a rising star of the conservative flank, as the House passed the debt ceiling package he sponsored.

The party’s enthusiasm for budget cuts over compromise may leave Republicans with less than they could have otherwise achieved. Obama had proposed a 3-to-1 ratio of spending cuts to tax increases, even carving into Medicare and Social Security while drawing opposition from within his own ranks.

At this point, it’s unclear what deficit deal, if any, has the best chance of passing. After President Obama praised the Gang of Seven’s five-page proposal earlier this week, Senate Majority Leader Harry Reid (D-Nev.) threw cold water on the plan by doubting whether there was the will and sufficient time to get it through Congress. After all, the plan would need to translated into actual legislation and scored by the Congressional Budget Office. As Roll Call reported, Senate Majority Whip Dick Durbin was also skeptical about the Gang of Seven’s plan, given the fast approaching August 2 default deadline.

That leaves Sen. McConnell’s last-ditch proposal, which would enact modest spending cuts and give President Obama the chance to raise the debt ceiling through the 2012 election cycle. However, by manipulating the legislative process and putting the onus on Obama (instead of Congress) to raise the debt ceiling, McConnell’s plan would make the White House look like the big spenders rather than Congress. If the McConnell plan does in fact become the main option, it’s possible that lawmakers could attach pieces of the Gang of Seven’s proposal, but whether that will happen remains unclear right now. What’s clear is this: The “grand bargain” sought by Obama is fading faster than ever.

house republicansHouse Republicans Jason Chaffetz, Majority Leader Eric Cantor, and Majority Whip Kevin McCarthy. Louie Palu/ZUMAPRESS.comUPDATE 53, Thursday, July 21, 12:45 p.m. EST (Andy Kroll): As the White House demanded Congress reach a deficit deal to avert default on Friday, House Speaker John Boehner (R-Ohio) sent a crystal clear message to Democrats and the Obama administration: It’s the GOP’s scorched-earth plan or bust.

Boehner told reporters at his weekly press conference that, despite media reports, there is no deal in the works between him and President Obama. Boehner insisted that his plan was the “Cut, Cap, and Balance” plan passed by the GOP-led House on Tuesday. “There is no agreement,” Boehner said. “There is no deal in private. Our plan is ‘Cut, Cap, and Balance.'”

That plan, which is likely to die in the Democrat-controlled Senate today, would slash federal spending by $111 billion in the 2012 fiscal year, and go on to cap spending at about 20 percent of US gross domestic product. According to the Center for American Progress, “Cut, Cap, and Balance” would necessitate a 25-percent cut to every item in the federal budget, from defense spending to education to veterans’ benefits. And if, say, defense spending was spared, it would mean far deeper cuts to other federally funded programs.

For more from the Hill, click here.

UPDATE 54, Friday, July 22, 3:33 p.m. EST (Siddhartha Mahanta): House Minority Leader Nancy Pelosi (D-Calif.) said on Friday that Democrats could accept a compromise deal that raises the debt limit, cuts spending by $2.5 trillion, and raises no revenues, TPM reports. But the plan appears to protect entitlement programs, potentially upsetting Republican aspirations to gut programs like Medicaid.

“We’re willing to bite the bullet and make serious cuts in discretionary spending,” Pelosi said. “That could go to a trillion dollars or more. And the interest saved on that can take us to like a trillion and a half dollars saved.”

Pelosi also insisted that Democrats could make even deeper cuts by slashing spending on the wars in Iraq and Afghanistan. Such cuts would add up to nearly $2.5 trillion, or the total amount President Obama is requesting that Congress raise the borrowing limit. That would satisfy Republican demands that Obama cut one dollar of spending for every dollar he requests in increased borrowing. The plan mirrors the one presented by Senate Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.)

TPM also reports that Rep. Barney Frank (D-Mass.) strongly opposes reducing cost of living adjustments for Social Security payments or raising the retirement age, but is open to further means-testing of Social Security and Medicare. This would mean lowering benefits for wealthier program beneficiaries, or taxing their benefits at a higher rate.

But other Democrats maintain that any changes to entitlements must come with a “more than just a promise” from Republicans to increase revenues in the future. “A promise alone will not get it done. He’d promise to bring up a bill that would raise net revenue of a trillion of dollars to be fair to everyone, and I’d promise to play center field for the Yankees,” Rep. Rob Andrews (D-NJ) said. “There are no ‘super-duper’ promises there are only enforceable mechanisms and non-enforceable mechanisms. Without an enforceable mechanism there aren’t going to be any Democratic votes in the process.”

UPDATE 55, Friday, July 22, 7:50 p.m. EST (Nick Baumann): President Obama gave a fiery press conference Friday evening after Speaker of the House John Boehner (R-Ohio) told reporters he was once again pulling out of debt ceiling negotiations with the White House. “We have now run out of time,” the president said, arguing that he has “been willing to make tough compromises,” but the GOP won’t take his best offers. “One of the questions the Republican party is going to have to ask itself is can they say yes to anything,” Obama said. The president has asked congressional leaders to come to the White House tomorrow to explain to him how they plan to avoid default.

Here’s the video of the president’s remarks:

UPDATE 56, Monday, July 25, 9:48 a.m. EST (Andy Kroll): After yet another weekend of meetings and tense negotiations between Congressional leaders and the White House, Senate Majority Leader Harry Reid (D-Nev.) and House Speaker John Boehner (R-Ohio) are crafting dueling plans to shave trillions of dollars from the federal deficit in exchange for raising the nation’s $14.3 trillion debt ceiling before Aug. 2, after which the government can longer pay all its bills on time.

Both plans reflect the political climate here in Washington, with Democrats unwilling to cut popular entitlement programs and GOPers demanding a drastic deal on par with their “Cut, Cap, and Balance” plan, which would slash by 25 percent spending on every government program. The details are still fuzzy, but Reid’s plan reportedly would cut spending by $2.7 trillion without touching Social Security, Medicaid, and Medicare. Those cuts would be accompanied by a $2.4 trillion increase in the debt ceiling, pushing the next debt fight until after the 2012 elections.

Boehner’s plan is less ambitious and more politically toxic for Obama and Democrats. While the plan is not finalized, news reports suggest it would trim spending by $1 trillion, and use a two-step debt-ceiling increase process, meaning Washington would duke it out over increasing the government’s borrowing limit next year sometime, in the heat of the 2012 elections. That idea is anathema to President Obama and his staff, who have repeatedly said they oppose a short-term debt deal. They claim a short-term fix would still stir uncertainty in financial markets and potentially result in higher borrowing costs for regular Americans. “The president believes that we must get this uncertainty out of the system,” Richard Daley, White House chief of staff, said on NBC’s “Meet the Press” on Sunday.

Whether House Republicans would support either plan is unclear. Last week, they stood by their “Cut, Cap, and Balance” legislation, which demands far greater cuts than any other plan offered, even as it died in the Senate on Friday. Later that day, Boehner plunged the debt debate into disarray when he pulled out of negotiations with President Obama over the White House’s demand for more than a trillion dollars in tax increases. Obama reacted angrily to Boehner’s dropping out at a hastily called Friday evening press conference. “I’ve been left at the altar now a couple of times,” Obama said.

The weekend’s negotiations saw the White House move to the sidelines, as Politico reported, while Boehner, Reid, and the top brass in their respective parties took the lead in crafting a deal before the Aug. 2 deadline. But with Boehner and Reid’s proposal’s still in the works, and the hard-right faction of the House GOP refusing to budge from its “Cut, Cap, and Balance” demands, the fate of negotiations remains up in the air with Default Day a little over a week away.

UPDATE 57, Monday, July 25, 2:05 p.m. EST (Andy Kroll): House Speaker John Boehner (R-Ohio) announced a new deficit reduction plan of his own Monday afternoon, calling for $1.2 trillion in non-defense spending cuts over the next decade in exchange for a short-term increase of $900 billion in the debt ceiling. The plan would not include tax increases, and would not initially touch entitlement programs such as Medicare and Social Security. That would set up another debt ceiling fight in April 2012, in the middle of the presidential race, a move Democrats have repeatedly rejected.

Boehner’s plan also calls for a vote in Congress on a balanced budget amendment after October 1 and before the end of the year. Such an amendment is a favorite of hawkish fiscal conservatives in Congress, including the House Tea Party Caucus and many Senate Republicans. It would also create a 12-person joint commission in Congress to agree upon another $1.8 trillion in cuts, which would be paired with a second increase in the debt ceiling, the government’s legal borrowing limit.

Later this afternoon, Senate Democrats plan to unveil a plan of their own, which would raise the debt ceiling through the 2012 election season. That plan, spearheaded by Senate Majority Leader Harry Reid, would reportedly cut upwards of $2.7 trillion in discretionary spending, without touching Social Security, Medicare, and Medicaid. Senate Democrats will lay out their plan this afternoon.

Here’s a six-page outline of Boehner’s plan:

Boehner Plan

UPDATE 58, Monday, July 25, 2:10 p.m. EST (Asawin Suebsaeng): On Friday, Bloomberg published an op-ed written by Rep. Ron Paul (R-TX), in which the Tea Party favorite and current GOP presidential candidate asserted that the federal government actually should default on its debt and legal obligations. Paul argues that while default would be “painful,” it is far preferable to “cataclysmic” hyperinflation, which he believes would result from continuing to raise the debt ceiling. Paul writes:

Just as pumping money into the system to combat a recession only ensures an unsustainable economic boom and a future recession worse than the first, so too does continuously raising the debt ceiling only forestall the day of reckoning and ensure that, when it comes, it will be cataclysmic.

We have a choice: default now and take our medicine, or put it off as long as possible, when the effects will be much worse.

As a proponent of Austrian School economic theory, Paul has a history of trying to severely limit the federal government’s actions during economic crisis. For instance, in February 2009, the Texas congressman advocated a policy of doing “a lot less” at the start of the “Great Recession,” stating during an interview on Real Time with Bill Maher that the government should “let [the] banks go bankrupt [and] let all the companies go bankrupt that overextended themselves.”

Paul is running for president for the third time, and is not seeking reelection to the House, stating that he wants to concentrate all his energy on his 2012 presidential campaign.

harry reid and john boehnerHouse Speaker John Boehner (left) and Senate Majority Leader Harry Reid. Zhang Jun/Xinhua/ZUMAPRESS.comUPDATE 59, Monday, July 25, 4:22 p.m. EST (Siddhartha Mahanta): Senate Majority Leader Harry Reid (D-Nev.) and Sen. Chuck Schumer (D-NY) rolled out a deficit reduction plan of their own on Monday that raises the debt ceiling by $2.7 trillion through 2012 and cuts spending by $2.7 trillion without initially touching Medicare, Medicaid, and Social Security.

Reid and Schumer’s plan includes $1.2 trillion in unspecified discretionary spending, which the pair claim fits what Republicans have demanded for much of the deficit negotiations. The plan also calls for the formation of a joint committee to find further savings down the road, which could include cuts to entitlement programs. Reid said he hoped to bring his plan to the Senate floor on Monday evening.

In talks over the weekend, Republican leaders balked on a plan that would cut $1 trillion in defense spending, culled chiefly from troop drawdowns in Iraq and Afghanistan. Schumer reminded House Republicans that they already voted for the same defense-related savings in Rep. Paul Ryan (R-Wisc.)’s budget in April. “Rather than trying to work with us on something as obvious on this where we can save money, they went the wrong direction,” Reid said.

Senate Democrats’ plan came on the same day that House Speaker John Boehner (R-Ohio) unveiled a deal of his own that would immediately cut $1.2 trillion in exchange for a six-month debt ceiling increase, an option President Obama has rejected. Schumer criticized Boehner for pushing a short-term plan, calling it a dodge that effectively kicks the can six months down the road.

“Does anyone think it would be a good idea to do this all over again in six months?” Schumer said. “If we cant make tough decisions now, why would be making those tough decisions later?”

Reid described his deal as a fair plan, one that should appease Democrats by raising the debt ceiling and protecting entitlements as well as Republicans because it includes no tax increases. It also meets GOP demands for cutting one dollar of spending for every dollar that the debt ceiling is raised.

Democrats, Reid emphasized, refuse to accede to Republican demands for entitlement reform until new revenue becomes part of the conversation. “But unfortunately, the Republicans…are being driven by the radical right wing that is so in tune with the tea party,” he said. Tea party Republicans, Reid added, are ignoring the wishes of the American people and business leaders, and a majority of Republican voters, who support a balanced budget deal that includes revenues.

Schumer said that all the cuts in Reid’s budget are ones Republicans have already voted for. “If they refuse this offer, it simply means they want to default,” he said.

obama speechPresident Barack Obama addresses the nation on the debt ceiling crisis. Screenshot: whitehouse.govUPDATE 60, Monday, July 25, 9:50 p.m. EST (Nick Baumann and Andy Kroll): President Barack Obama and Speaker of the House John Boehner (R-Ohio) gave back-to-back nationally televised speeches on the debt ceiling crisis Monday night. Obama urged the American people to call their members of Congress in support of his “balanced” (read: closing tax loopholes and including some tax increases, including on hedge fund managers and corporate-jet owners) approach to deficit reduction, while Boehner blamed the bad economy on government spending under Obama. (Boehner neglected to mention that the vast majority of the budget deficit is due to policies enacted under a Republican president and a Republican Congress).

Obama’s primetime address covered many bases in the president’s professorial style. He described how we got here—the previous administration turned a $150 billion federal surplus into a $1.5 trillion deficit with two tax cuts, two wars, and a prescription drug bill—and how a persistently high deficit hampers economic growth in the US. Obama added that “because neither party is blameless for the decisions that led to this crisis, both parties have a responsibility to solve it.”

Of course, as anyone who reads the news will tell you, and as Obama said Monday night, the debate over lowering the federal deficits is filled with partisan bickering and posturing. Obama singled out Congressional Republicans for their refusal to compromise with Democrats on a deal, and for supporting a plan “that doesn’t ask the wealthiest Americans or biggest corporations to contribute anything at all.” He went on, “Democrats and Republicans agree on the amount of deficit reduction we need. The debate is about how it should be done.”

In his speech, Obama endorsed a new deficit reduction plan released by Senate Democrats on Monday afternoon. That plan, crafted by Senate Majority Leader Harry Reid (D-Nev.), would enact $2.7 trillion in spending cuts, with both defense and non-defense programs on the chopping block, without touching Social Security, Medicare, and Medicaid. More crucially for Obama, the Reid plan raises the debt by enough to prevent a similar fight during the 2012 presidential campaign.

In the end, Obama called on Americans to contact their representatives in Congress and urge them to support a balanced compromise. “The American people may have voted for divided government, but they didn’t vote for a dysfunctional government,” Obama said. “They’re fed up with a town where compromise has become a dirty word.”

Boehner’s speech, which immediately followed Obama’s, laid the blame for the debt crisis at Obama’s feet. Boehner said Republicans in Congress had put forward their “Cut, Cap, and Balance” plan, which would cut 25 percent from nearly every government program if enacted, far more than any other proposal. He added that he made a “sincere effort” to negotiate with President Obama on a deal that made both Democrats and Republicans happy. “I gave it my all,” he said.

But for the most part, Boehner stuck to bashing Obama’s demands for a “balanced” deficit reduction deal and for refusing to make big enough changes to entitlement programs. (Obama did offer $650 billion in entitlement cuts last Friday.) “The sad truth is that the president wanted a blank check six months ago, and he wants a blank check today,” Boehner said. “That is just not going to happen.”

Here’s the takeaway: A deal on increasing the debt ceiling appears no closer than it did yesterday, or last month. Moreover, all of this Washington posturing is isolated from the concerns of most Americans. Most Americans did not watch either of these speeches. Most Americans (not you, dear readers) will not really be following this issue until the market crashes and/or the interest rates they pay on car or home loans go up. Maybe they won’t be following it even then. How the eventual deal (and there will eventually be a deal) affects the broader economy will be what really matters, to politicians and voters alike.

The debt ceiling will eventually be raised. As political scientist Jared Bernstein has explained, “before the deadline or after, sooner or later the debt limit will go up.” There simply isn’t enough money to pay for, well, much of anything otherwise. So what really matters here? Whether a deal gets made before serious damage is done to the economy. The outlook on that is getting gloomier every day.

UPDATE 61, Wednesday, July 27, 9:01 a.m. EST (Asawin Suebsaeng): Mother JonesDavid Corn reports on the GOP’s bunk “blank check” accusation, and how Republicans are engaging in near-Orwellian manipulation of language and meaning to perpetuate the talking point that President Obama is demanding, according to House Majority Leader Eric Cantor, “a blank check to keep spending.”

Here’s an excerpt:

With a blank check, a bearer is free to write (and then spend) any amount he or she places on the note. Thus, a blank check enables future spending. Raising the debt ceiling is about permitting the US government to cover past spending—and the blank checks of the past. These particular blank checks were issued by the Republicans during the Bush years. They voted (with the help of some Democrats) for wars in Afghanistan and Iraq without budgeting for them. They did the same with a Medicare prescription-drug benefit. They also green-lighted President Bush’s tax cuts without accounting for the drop in revenue they would cause. Together these blank checks account for two-thirds of the deficit, if not more…By claiming the debt ceiling is the problem, the Republicans are blaming the bank for the bank robber’s action.

Read the full article here.

UPDATE 62, Wednesday, July 27, 9:09 a.m. EST (Asawin Suebsaeng): Mother JonesAdam Weinstein reports on how default would seriously endanger our national security. When chairman of the Joint Chiefs of Staff, Admiral Mike Mullen, declared almost a year ago that “the single biggest threat to national security is the debt,” he wasn’t that far off. By refusing to raise the debt ceiling, conservatives are, in many ways, undermining the US’s defense apparatus, as well as our diplomatic capabilities.

Here’s an excerpt:

If the United States loses its ability to lead by economic example, that mantle could be taken up by its largest creditor nation and most credible military rival, China. And lesser powers with bones to pick with it—Iran, North Korea, Venezuela—could be emboldened. “Since the financial crisis, authoritarians and state capitalists have lost their respect for the United States,” writes Sebastian Mallaby, an economic research fellow at the Council on Foreign Relations. “Market capitalism is in disrepute; democracy is discredited. The budget fight is only deepening such feelings.”

Read the full post here.

UPDATE 63, Wednesday, July 27, 9:21 a.m. EST (Asawin Suebsaeng): Mother JonesAndy Kroll reports on how the Congressional Progressive Caucus and dozens of liberal stalwarts in the Senate have been frozen out of debt negotiations.

Here’s an excerpt:

So constricted is the flow of information on the talks that Rep. Jerrold Nadler (D-NY) tells Mother Jones his debt ceiling news was coming “mostly from the pages of the Washington Post.” Similarly, Grijalva says of the debt fight, “When we hear things…it’s what we read and hear in the news.” Take the issue of cuts to the entitlement programs Social Security, Medicare, and Medicaid…This, Grijalva says, illustrates the disconnect between progressives and the White House in the debt fight. “Those [entitlement cuts] are all things that we would’ve told the White House we can’t support,” he says. “But that discussion is something we haven’t been able to do.”

Read the full article here.

UPDATE 64, Wednesday, July 27, 11:34 a.m. EST (Siddhartha Mahanta): The results are in: the Congressional Budget Office (CBO) scored the projected savings of the deficit reduction bills authored by Senate Majority Leader Harry Reid (D-Nev.) and House Speaker John Boehner (R-Ohio). And it’s bad news for Boehner.

The CBO estimates that Reid’s bill will reduce spending by about $2.2 trillion over the next ten years, with more than half of those savings coming from caps on new spending for the wars in Iraq and Afghanistan, TPM reports. Subtracted from the total amount of federal spending, that comes out to about $900 billion in savings over the next ten years.

Boehner’s plan, meanwhile, saves $850 billion over the same time period—falling short of $1 trillion in cuts he had originally promised. How did the Speaker manage to bungle the numbers? By basing his bill’s savings estimate of $1 trillion on the January budget baseline, or the amount that the federal government was projected to spend based on its budget at the time. Since then, Congress has cut domestic spending by almost $250 billion over the next decade. Measured against those more recent projections, Boehner’s bill saves only $850 billion through 2021.

And his miscalculations left both Democrats and Republicans befuddled. “They should have known this was coming for months,” a Democratic party aide told the Washington Post.

Politico reports that the revised figures sent House Republicans scrambling for ways to fix the bill, either by offering more cuts or by lowering the amount by which the bill raises the debt ceiling—the likelier option, according to GOP aides. Republican leaders have insisted that any increase in the debt ceiling be matched by an equal amount in spending cuts.

House Republicans are split on Boehner’s bill, with conservative members of his caucus arguing that it must contain deeper cuts. As a result, the House has held off on voting for the bill till later in the week.

UPDATE 65, Wednesday, July 27, 12:45 p.m. EST (Andy Kroll): While House Speaker John Boehner (R-Ohio) and top House Republicans scramble to find enough votes to pass Boehner’s deficit reduction plan, House Democrats have emerged completely united against it.

A House Democratic aide tells Greg Sargent at the Washington Post that House Minority Whip Steny Hoyer has convinced all House Democrats to oppose Boehner’s bill, which is being reworked right now and could come up for a vote on Thursday. That’s pretty big news, and poses a problem for Boehner as he tries to drum up enough support to pass the bill out of the House.

Before today, a few Democratic defectors weren’t out of the question. When the House passed the “Cut, Cap, and Balance” Act earlier this month, it won 234 votes—including five Democrats. (Nine Republicans voted against it.) But if Democrats remain uniformly opposed to Boehner’s new bill, that’s five fewer Democratic votes the speaker has to work with. More importantly, Boehner is battling dissention in the GOP rank-and-file; yesterday, conservative Rep. Jim Jordan (R-Ohio) told reporters that there were not 218 House GOPers who supported the bill.

If Boehner can’t round up enough votes in the House, his bill is finished. That leaves Congress with Senate Majority Leader Harry Reid’s plan, which would cut spending by $2.2 trillion over the next ten years, according to the nonpartisan Congressional Budget Office.

UPDATE 66, Wednesday, July 27, 3:20 p.m. EST (Andy Kroll): On the same day that House Democrats came out as uniformly opposed to the House Speaker John Boehner’s deficit reduction bill, top brass in the House Democratic Caucus floated the idea of using the 14th Amendment as a last-ditch maneuver should Congress fail to pass legislation trimming the deficit and raising the debt ceiling before the Aug. 2 deadline.

Rep. Jim Clyburn (D-S.C.), the assistant house minority leader, and Rep. John Larson (D-Conn.), chair of the House Democratic Caucus, both held up the 14th Amendment—which commands that “[t]he validity of the public debt of the United States…shall not be questioned”—as a “fail-safe mechanism” to prevent catastrophe from failing to increase the government’s borrowing limit by Aug. 2.

Here’s Larson and Clyburn, via ThinkProgress:

LARSON: If a small group is really that intent on destroying government and is intent on saying they don’t believe there are any ramifications for their irresponsibility, then we have to have a fail-safe mechanism. We believe that fail safe mechanism is the 14th Amendment and the president of the United States.

CLYBURN: So I would say to the president, if that’s what lands on his desk, a short-term listing of the debt ceiling—he should put it on his desk next to an executive order he will have drawn up. And with the same pen that he vetoes that short term debt ceiling extension, he should sign an executive order invoking the 14th Amendment to this issue. I am convinced that whatever discussions about the legality of this issue can continue.

And here’s the accompanying video:

Despite growing calls to use the 14th Amendment, White House Press Secretary Jay Carney reiterated President Obama’s opposition to such a plan at today’s press briefing. “The president has spoken to that,” Carney said.

UPDATE 67, Thursday, July 28, 10:58 a.m. EST (Siddhartha Mahanta): After meeting with freshmen Republicans in the House on Wednesday, Boehner appears ready to bring a revised deficit reduction package to the floor, one that cuts some $917 billion in spending and raises the debt ceiling temporarily, the Washington Post reports.

Boehner had promised that his bill, released alongside a competing plan offered by Reid earlier this week, would cut spending by $1 trillion. But an analysis by the Congressional Budget Office found that his plan actually cut only $850 billion. As a result, House Republicans chose to delay their vote on the bill until a revised version with deeper cuts could be prepared.

Now, the Speaker appears ready to present “Boehner 2.0,” hoping the $917 billion in cuts will satisfy enough members of his caucus to win passage. A vote could come early this evening.

Republican aides and lawmakers expect that key votes for the measure will come from the roughly two dozen veteran members with no particular ties to Boehner. Some vote counts show that about twenty GOPers intend to oppose the bill, the Post reports. (Boehner can lose up to 22 House Republicans and still pass the legislation.)

Meanwhile, Reid—whose own plan features about $2.2 trillion in cuts and savings (including savings from ending the Iraq and Afghanistan wars)—continues to oppose Boehner’s plan and its half-a-loaf debt ceiling increase, which will provide the government with enough borrowing authority to meet its bills for only the next several months. Reid’s bill would lift the debt ceiling until after the 2012 election.

If Boehner 2.0 makes it out of the House, Reid is expected to amend it, and then send it back to the House for another vote early next week. But if Boehner’s bill fails, Democrats expect an amended version of Reid’s measure will win the day.

UPDATE 68, Thursday, July 28, 11:50 a.m. EST (Andy Kroll): House Speaker John Boehner’s rejiggered deficit-reduction bill is set for a vote on the House floor Thursday evening. At the start of the week, a group of conservative House GOPers had come out in opposition to the bill, but the GOP leadership is getting close to whipping enough votes in favor.

But here’s a bigger question no one seems to be asking: Is John Boehner’s bill a waste of time? Read more in my post, “John Boehner, the Time Waster.”

UPDATE 69, Thursday, July 28, 3:40 p.m. EST (Siddhartha Mahanta): If Speaker John Boehner’s (R-Ohio) bill passes the House but fails to win passage in the Senate tonight, Majority Leader Harry Reid (D-Nev.) is not expected to bring his own proposal up for a vote, The Huffington Post reports.

Instead, Senate Democrats hope that the defeat of Boehner’s bill, coupled with the growing risk of an impending default, will persuade Minority Leader Mitch McConnell (R-Ky.) to negotiate with Reid on a new proposal. That plan could include the automatic spending reduction triggers included in the Boehner bill to make it more attractive to Republicans, a Democratic aide told HuffPo.

Democrats are keeping an open mind. “The goal is to try to get McConnell to buy into this…There are some things discussed last weekend that Republicans didn’t want to go for that we will once again offer them as options,” the Democratic aide said. “We’ll see if they want to reconsider.”

UPDATE 70, Thursday, July 28, 5:55 p.m. EST (Andy Kroll): House Speaker John Boehner (R-Ohio) pushed back a vote on his debt ceiling bill on Thursday evening, presumably because he did not have enough votes to ensure the bill’s passage. A spokesman for House Majority Leader Eric Cantor (R-Va.) said the House would vote on the bill later Thursday evening.

According to The Hill, there are 25 House Republicans who have pledged to vote no, or are leaning toward voting no on Boehner’s bill. That postponement buys more time for Boehner and the GOP leadership to twist the arms of those who oppose the bill and avoids an embarrassing defeat in a vote seen largely as a referendum on Boehner’s leadership.

Of course, even if Boehner rounds up enough votes to win passage, his bill is dead on arrival in the Senate, where all 51 Senate Democrats and two independents have pledged to vote against it. The White House has said President Obama will veto the bill if, somehow, it ended up on the president’s desk.

UPDATE 71, Thursday, July 28, 10:40 p.m. EST (Andy Kroll): House Majority Whip Kevin McCarthy (R-Calif.) announced tonight that there would be no vote on House Speaker John Boehner’s debt ceiling bill.

As of Thursday evening, there were still 26 House GOPers who publicly opposed Boehner’s bill, and as the evening dragged on, it became clear that the speaker didn’t have the votes to pass the bill. A failed vote would embarrass the GOP top brass and likely threaten Boehner’s position as speaker. By delaying the vote for a day, Boehner, Cantor, McCarthy, and Co. buy more time to twist arms and round up a few more votes. Still, Boehner’s failure to bring his bill to a vote on Thursday is major setback for him and House Republicans, and this could provide Democrats with an opening to shape a final compromise bill more to their liking.

UPDATE 72, Friday, July 29, 11:18 a.m. EST (Siddhartha Mahanta): In the wake of the collapse of Speaker John Boehner’s (R-Ohio) deficit-reduction deal on Thursday, President Obama continued to press Republican and Democratic leaders in Congress to carve out a bipartisan resolution to the debt ceiling drama.

In a short statement delivered on Friday morning, Obama reminded lawmakers of what is at stake in the debate: the possibility of the United States defaulting on its bills and losing its cherished AAA credit rating. Losing that rating would cause interest rates to soar and effectively result in a tax increase on Americans.

Obama also reiterated his opposition to any short-term increase in the debt ceiling, a key feature in the plan drawn up by Speaker John Boehner (R-Ohio) that has been unable to garner enough votes to pass the House.

“I urge Democrats and Republicans in the Senate to find common ground on a plan that can get support from both parties in the House,” he said, reminding lawmakers that Republicans and Democrats already agree on a vast majority of the spending cuts offered up in plans authored by Boehner and Senate Majority Leader Harry Reid (D-Nev.).

Obama urged Congress to take another look at a number of alternative plans that have also been proposed, including those drawn up by Reid and Minority Leader Mitch McConnell (R-Ky.). There are “plenty of modifications we can make to either of these plans in order to get them passed by the House and Senate,” he said.

The President also took aim at tea party Republicans who have refused to budge on their intransigence to the Boehner deal, saying that a bipartisan compromise “must have the support of both parties…not just one faction.” But despite his chastising of tea party Republicans, Obama still threw them a bone, promising that the White House will pursue tax and entitlement reform in the coming months.

Even as the deadline to raise the debt ceiling approaches, Obama issued a commonsense appeal to lawmakers. There are “a lot of crises in the world that we can’t always predict or avoid…this isn’t one of those crises. The power to solve this is in our hands. And on a day we’ve been reminded how fragile the economy already is, this is a burden we can lift ourselves.”

UPDATE 73, Friday, July 29, 3:20 p.m. EST (Siddhartha Mahanta): John Boehner has revised his debt ceiling bill once more, adding a balanced budget amendment in hopes of winning the support of straggling Republicans.

Like the earlier version, this plan also includes a temporary debt ceiling increase and a “super committee” that will recommend additional spending cuts. As Dave Weigel reports, it also includes a balanced budget amendment that must pass both the House and Senate before a second debt ceiling increase/spending cut installment—$1.6 trillion more in borrowing authority, and $1.6 trillion in spending cuts—is approved.

But, as of now, there are no specifics on how this balanced budget amendment will be structured. That differs sharply from the Cut, Cap, and Balance plan in Boehner’s previous bill, which limited federal spending to 18% of gross domestic product and required that any new spending be approved by a two-thirds majority in both the House and Senate.

Though the bill may still not win enough Republican support to win passage, Boehner will bring it to the floor tonight. And while the long game is clear—avoid default, at all costs—in the short run, his mission is becoming obvious: do whatever it takes to save face as Speaker of the House, and show that he can still control his caucus.

UPDATE 74, Friday, July 29, 6:35 p.m. EST (Andy Kroll): House Speaker John Boehner’s retooled debt ceiling bill passed the House on Friday evening by a vote of 218 to 210. Twenty-two Republicans voted against the measure; not a single Democrat supported it. The bill now moves to the Senate, where 51 Senate Democrats and two independents have pledged to vote against it, ensuring its immediate demise.

It was a rocky road to 218 for Boehner. Top House GOPers had planned to vote on the bill Thursday evening, but it became clear at the last minute that Boehner did not have enough votes to secure passage. So instead Republicans sent the bill back to the House rules committee for revisions. By Friday morning, the bill had been amended to include a balanced budget amendment, a ploy used to win over conservative holdouts. And ultimately, the strategy worked, as Friday’s vote made clear.

Now, with Aug. 2 mere days away, the debt ceiling debate moves to the Senate, where Majority Leader Harry Reid (D-Nev.) will likely shoot down Boehner’s bill as he works with Minority Leader Mitch McConnell to craft a compromise deal capable of passing the Senate. After that, the bill will go to Boehner and the House days, if not hours, before the deadline.

UPDATE 75, Friday, July 29, 7:15 p.m. EST (Andy Kroll): The addition of a balanced budget amendment, or BBA, to House Speaker John Boehner’s debt ceiling bill gave the measure the nudge it needed to pass the House. Without it, as many as 26 House Republicans might have voted no on Boehner’s bill, as seen in the drama on Thursday evening. But here’s an important point to keep in mind: It’s unclear what type of BBA got added to Boehner’s bill. The bill doesn’t say. And that’s a pretty whopping detail to leave out.

Talking to reporters after the vote, Rep. Steve King (R-Ia.), who cast one of the GOP’s 22 no votes, said Republicans “could’ve done better” by passing a more hawkish debt bill, and he pointed to the flimsiness of Boehner’s BBA as an example. Here’s what King said:

We’re going to have to go back now and really define the balanced budget amendment, too. What is it? Is it the one in ‘Cut, Cap, and Balance’? The one that’s out of the [House] judiciary committee? Or is it something that will be defined by an amendment on the floor of the House or Senate?

The mention of “Cut, Cap, and Balance” refers to the Cut, Cap, and Balance Act passed by the House in mid-July. That bill included a requirement that balanced budget amendment be passed before raising the nation’s debt limit. That version (PDF) would not only force the federal government balance its books, but would also require a two-thirds supermajority vote in Congress to increase taxes. The House judiciary committee also passed a BBA in June quite similar to the Cut, Cap, and Balance Act version, capping spending by the federal government at 18 percent of the nation’s GDP and requiring a supermajority to raise taxes. King’s third option refers to some future version of the BBA still to be passed.

All of which is to say, the sweetener Boehner used to pass his bill is all talk and little substance. Of course, you might say the same thing about the frenzy surrounding today’s House vote in general: With its demise all but assured in the Senate, Friday’s fireworks were symbolic and not much else.

UPDATE 76, Friday, July 29, 9:45 p.m. EST (Andy Kroll): The Senate immediately rejected House Speaker John Boehner’s debt ceiling bill on Friday night by a vote of 59 to 41. That leaves Senate Majority Leader Harry Reid (D-Nev.) to put together a compromise deal that will win the approval of enough Republicans in the Senate and the House in time for the Aug. 2 deadline.

Here’s Talking Points Memo’s Brian Beutler on what a possible Reid deal might look like:

The gist: Reid hopes to entice Republicans to support his plan in two ways. First, with slightly deeper cuts. Second, by adopting an idea, first proposed by Senate Minority Leader Mitch McConnell, that would delegate the authority to raise the debt limit to President Obama — and give Congress the prerogative to attempt to block Obama from taking that action.

It does not include any penalties or triggers to force Congress to enact entitlement and tax reforms in the coming months.

The new cuts aren’t very extensive. They bring the package’s total deficit reduction up to $2.4 trillion — but only when judged against a slightly outdated January baseline. Judged against the current baseline, the revised plan would still reduce the deficit by $2.2 trillion.

UPDATE 77, Saturday, July 30, 6:15 p.m. EST (Andy Kroll): In a contentious and fiery display, the House voted down Senate Majority Leader Harry Reid’s debt ceiling bill by a vote of 173 to 246. The vote left lawmakers yet again scrambling to cobble together a deal that can pass both chambers of Congress in time for the Aug. 2 deadline.

Democrats reacted furiously to the way in which the Republicans brought Reid’s bill to the floor. Instead of needing a simple majority to pass, House Republicans held the vote under what’s called suspension, requiring a super-majority to approve the bill. In doing so, House Democrats said Speaker Boehner, who claimed to be doing his “level best” in the debt talks, had ensured the bill’s demise. “How can it be on the level if we’re bringing a $2.5 trillion bill to the floor, under suspension, the same way we might bring naming a post office?” House Minority Leader Nancy Pelosi (D-Calif.) asked on the House floor. “Why is it brought under suspension, which requires a two-thirds vote, guaranteeing that it will not prevail?”

The defeat of Reid’s bill in the House dashed hopes that it would break the debt ceiling deadlock mere days before August 2, when the Treasury Department says it will not have enough money to pay the federal government’s bill. But even before the House vote on Saturday, 43 Senate Republicans signed a letter pledging to oppose Reid’s bill if and when it came up for a vote.

With Reid’s bill left for dead, the negotiations have brought President Obama back into the fold in a big way. On Saturday afternoon, Speaker Boehner said he and Senate Minority Leader Mitch McConnell were resuming negotiations with the White House to possibly find a last-minute compromise. “Sen. McConnell and I are both confident that we’re going to be able to come to some agreement with the White House and end this impasse,” Boehner said. But as of Saturday afternoon, it was unclear whether Obama, McConnell, Boehner, Reid, or any other Congressional leaders were anywhere closer to an agreement. Reid himself said rumors that a bipartisan deal was forthcoming were “not true.”

UPDATE 78, Saturday, July 30, 9:45 p.m. EST (Andy Kroll): Congressional Democrats are ramping up their calls for President Obama to use the 14th Amendment—which says “the validity of the public debt…shall not be questioned”—to ensure the federal government pays its bills on time come August 2.

House Minority Leader Nancy Pelosi (D-Calif.) joined a growing chorus of Democrats urging Obama to bypass the broken legislative process in Congress and simply order the Treasury Department to disregard the debt ceiling and keep meeting its financial obligations. As the Huffington Post reported, Pelosi supports the 14th Amendment option, according to an anonymous Democratic lawmaker. “Nancy clearly wants it,” the lawmaker claimed. Sen. Tom Harkin (D-Iowa) said on the Senate floor today that “I believe the president is obligated to ensure…the public debt not be questioned.” Harkin publicly urged the president to go the 14th Amendment route. And on Saturday, a group of progressive House Democrats offered a resolution pushing the president to use the 14th Amendment.

The White House, however, has insisted that it will not use the 14th Amendment to bypass Congress. At a recent press conference, White House Press Secretary Jay Carney said the Obama administration “does not believe that the 14th Amendment gives the president the power to ignore the debt ceiling.”

UPDATE 79, Saturday, July 30, 10:20 p.m. EST (Andy Kroll): Senate Majority Leader Harry Reid (D-Nev.) postponed a vote on his debt ceiling bill, which would trim $2.2 trillion in spending over a decade in exchange for raising the government’s borrowing limit, from 1 a.m. on Sunday morning to 1 p.m.

Reid’s delay buys more time for top congressional Republicans to try to work out a deal with President Obama on a last-ditch debt ceiling deal. In his brief remarks on Saturday night, Reid expressed hopes that whatever the deal is, it will raise the debt ceiling through 2012, and not on a short-term basis as Republicans have proposed. “I’m confident that a final agreement will adopt the Senate’s long-term approach,” Reid said.

After the House voted down Reid’s bill on Saturday, and 43 Senate Republicans pledged to oppose it, the fate of Reid’s bill looked bleak. The negotiations then shifted from the Senate to the White House, where House Speaker John Boehner and Senate Minority Leader Mitch McConnell said they had resumed talks with the president on a debt deal. Some lawmakers had expressed optimism that those talks would finally break the deadlock, but Reid said on the Senate floor that such projections were “not true.”

UPDATE 80, Saturday, July 30, 11:00 p.m. EST (Andy Kroll): President Obama and top Republicans in Congress have reportedly reached a tentative deal that would cut spending by $1 trillion right away and raise the debt ceiling by $2.8 trillion.

According to ABC News’ Jonathan Karl, a new framework for a deal would give the White House the hefty debt ceiling increase the administration wants, pushing the next potential fight until after the 2012 election season. The tentative deal would create a bipartisan committee of lawmakers to recommend an additional $1.8 trillion in long-term spending cuts, ultimately bringing the total cuts on par with the ceiling increase. That committee, ABC reports, would have to give its recommendations to Congress before Thanksgiving. If Congress didn’t enact the recommended cuts, that would trigger automatic reductions to discretionary spending programs (think the Environmental Protection Agency, the Veterans Administration, jobless benefits to states, etc.) as well as entitlement programs such as Social Security and Medicare.

If such a deal is indeed in the works, it represents a crucial last-gasp compromise between Democrats and Republicans that Congress has failed to reach so far. On Friday, the House passed Speaker Boehner’s debt ceiling bill, but that was rejected shortly after in the Senate. On Saturday, Senate Majority Leader Harry Reid’s version was voted down by the GOP-controlled House. At this point, Congress’ logjam shows no sign of abating, which means a potential breakthrough in the White House-GOP talks is all the more important. Without new revenues, though, it hardly resembles the “balanced” deal orginially sought by President Obama and top Democrats.

UPDATE 81, Sunday, July 31, 9:35 a.m. EST (Andy Kroll): Senate Minority Leader Mitch McConnell (R-Ky.) said on CBS’ “Face the Nation” that a tentative compromise deal between the White House and top Congressional Republicans would cut $3 trillion in spending and raise the nation’s $14.3 trillion debt ceiling in two steps through the 2012 election. As for the progress of the 11th-hour negotiations, McConnell said Republicans and the White House were “very close” to a deal.

The total cuts laid out by McConnell exceed by several hundred billion dollars the details of a tentative deal laid out in earlier reports. The emerging agreement would create a bipartisan commission of lawmakers to recommend more spending cuts by Thanksgiving of this year.

Huffington Post’s Ryan Grim has more on how this commission, or “Super Congress” as some are calling it, figures into the negotiations:

In order to shore up GOP support for a debt-ceiling deal, Senate Democrats are exploring ways of giving the proposed Super Congress even greater super powers, according to multiple news reports and congressional aides with knowledge of the plan. Under the new proposal, if the new legislative body composed of 12 members of both parties doesn’t come up with a bill that cuts at least $1.8 trillion by Thanksgiving, entitlement programs will automatically be slashed.

The Super Congress will be made up of six Democrats and six Republicans from both chambers. Under the reported framework, legislation the new congressional committee writes would be fast-tracked through the regular Congress and could not be filibustered or amended.

UPDATE 82, Sunday, July 31, 1:45 p.m. EST (Andy Kroll): Senate Majority Leader Harry Reid (D-Nev.) failed this afternoon to win enough support for a full vote on his debt ceiling bill. The vote to block the bill’s progress was 50-49.

The spotlight now moves (again) to the White House, where top Congressional Republicans are hashing out a last-ditch deal with President Obama. The details of that agreement are far from finalized, but various news reports say it could enact up to $3 trillion in spending reductions, create a bipartisan deficit commission to find more areas ripe for cutting, and most importantly raise the debt ceiling by nearly $3 trillion in two steps. What programs would be hit hardest by the cuts, and the mechanics of the new deficit committee, remain to be seen, and a number of Democratic and Republican senators declined to comment on the bill this afternoon because there was so little verifiable information available.

White House communications director Dan Pfeiffer threw cold water on reports of a new, breakthrough deal, tweeting, “Despite all the reporting, no deal has been reached, there are still [important] issues to work out, and a lot of bad info is floating out there.”

UPDATE 83, Sunday, July 31, 2:30 p.m. EST (Andy Kroll): A key sticking point is emerging in the ongoing negotiations between the White House and Congressional Republicans. It centers on a bipartisan committee of lawmakers that would recommend more spending cuts on top of the immediate slashing of discretionary programs as called for in a debt ceiling deal.

Some context: Both House Speaker John Boehner’s debt bill and Senate Majority Leader Harry Reid’s, both of which have been defeated in Congress, would’ve created a 12-person committee to find more ways to trim the federal deficit. And rumors of a deal between top GOPers and President Obama have mentioned the creation of such a committee, which would, the thinking goes, hand over its suggestions to Congress before the end of 2011.

But there are two big questions here: What if the committee deadlocked? And: If a majority on the committee did agree on what to slash, what would happen if Congress failed to act on them? One answer frequently tossed around is that committee deadlock or inaction by Congress would trigger automatic spending cuts to everything from Medicare to defense spending. Republicans favor such a trigger, believing that it gives the committee “teeth” and more power to get its recommendations implemented.

According to Sen. Dick Durbin (D-Ill.), the assistant majority leader, the use of a trigger and the aforementioned questions are big points of contention in the ongoing GOP-White House talks. “That has been the whole conversation, the so-called trigger,” Durbin said. “What is hanging over the head of the committee if they don’t agree? And what’s hanging over Congress if we don’t with their findings?”

The way Durbin put it, it remains to be seen what kind of trigger will figure into the GOP-White House deal. But if implemented, it could push both Democrats and Republicans to take the new joint committee more seriously, as opposed to previous deficit commissions whose recommendations have gone largely unheeded. For Democrats, the prospect of slashing entitlements is anathema; Republicans feel the same way about defense spending. And so by putting both parties’ sacred cows in the crosshairs, that could nudge them toward acting upon the committee’s suggestions.

Speaking on the Senate floor, Sen. Reid echoed Durbin’s position on the committee trigger. Reid used the foggiest of language to describe what a trigger would do—”there would be a trigger that if they didn’t resolve this, then something else would happen”—but he stressed the need for it. Reid also insisted that all government spending be open to cuts by the bipartisan committee. “There are no constraints,” he said. “They can look at any program we have in government, any program.”

UPDATE 84, Sunday, July 31, 4:45 p.m. EST (Andy Kroll): ABC News’ Jake Tapper reports that the White House and top congressional Republicans have all but finalized a plan to cut at least $2.7 trillion from the deficit while increasing the debt ceiling by $2.4 trillion in two steps. Here’s more from Tapper:

The agreement looks like this: if the super-committee tasked with entitlement and tax reform fails to come up with $1.5 trillion in deficit reduction that passes Congress, the “neutron bomb” goes off—as one Democrat put it—spending cuts that will hit the Pentagon budget most deeply, as well as Medicare providers (not beneficiaries) and other programs.

If the super-committee comes up with some deficit reduction but not $1.5 trillion, the triggers would make up the difference.

So it’s a minimum $2.7 trillion deficit reduction deal.

And the debt ceiling will be raised by $2.4 trillion in two tranches: $900 billion immediately, and the debt ceiling will be raised by an additional $1.5 trillion next year—either through passage of a Balanced Budget Amendment, which is unlikely, or with Congress voting its disapproval.

Democrats are arguing that programs for the poor should be exempted from the plan’s spending cuts. They also say that if the deficit committee does not tackle the issue of tax reform, President Obama should let the Bush tax cuts expire for wealthy Americans. Of course, the deal is still not done, but Democrats and Republicans appear to be as close as they’ve been in the months-long fight to sealing a deal.

UPDATE 85, Sunday, July 31, 5:30 p.m. EST (Andy Kroll): Senate Majority Leader Harry Reid will support the in-the-works debt ceiling deal negotiated by top GOPers and the White House so long as the Senate Democratic rank-and-file backs it. “Senator Reid has signed off on the debt-ceiling agreement pending caucus approval,” a Reid spokesman said on Sunday evening.

UPDATE 86, Sunday, July 31, 7:00 p.m. EST (Andy Kroll): House Minority Leader Nancy Pelosi (D-Calif.) told reporters on Sunday evening that a White House-GOP debt ceiling deal is not guaranteed to win Democratic support in the House when it comes up for a vote. “We all may not be able to support it, or none us may be able to support it,” Pelosi said.

UPDATE 87, Sunday, July 31, 9:20 p.m. EST (Andy Kroll): In brief remarks Sunday night, President Obama announced that he and congressional leaders had hammered out a deal to slash government spending by upwards of $2.5 trillion in exchange for a two-part increase of $2.1 trillion in the nation’s debt ceiling. Obama emphasized that the new debt deal still needed to be passed by Congress, but noted that all major stakeholders had agreed on the terms. “There are still some very important votes to be taken by members of Congress,” Obama said, “but I want to announce that the leaders of both parties, in both chambers, have reached an agreement that will reduce the deficit and avoid default—a default that would have had a devastating effect on our economy.”

The plan, according to outlines circulated by the White House and House Speaker John Boehner’s office, draws mostly on Republican ideas, mixing and matching pieces of previous debt ceiling proposals. It includes no new tax revenue. It would enact immediate spending cuts of $913 billion over ten years ($350 billion of which would be defense-related cuts) in exchange for a short-term debt ceiling increase of $900 billion. It would create a bipartisan committee of 12 lawmakers tasked with finding at least $1.5 trillion more in spending cuts; programs targeted by the commission would include entitlement programs, defense spending, and discretionary spending programs. If the committee’s recommendations—which must be voted on before December 23, 2011—are approved, Obama can raise the debt ceiling by another $1.5 trillion, effectively raising it through the 2012 election season.

However, if the commission’s recommendations are not adopted, or a balanced budget amendment is not sent to the states (as the GOP wants), it will trigger across-the-board spending cuts, split 50-50 between defense and non-defense programs, the White House’s outline says. While Social Security, Medicaid, veterans benefits, and military pay would be exempted from the triggered cuts, Medicare would be eligible.

The plan also calls for a vote in Congress on a balanced budget amendment, or BBA, after October 1 and before the end of the year. Boehner’s outline does not specify what kind of BBA the House and Senate would be voting on.

All in all, the final deal amounts to a big win for Republicans. Boehner told fellow GOP lawmakers on Sunday that the deal was “pretty much the framework we’ve been operating in.”

With no new revenues, and the possibility of entitlement cuts in the future, it’s unclear what, if anything, Democrats (and especially liberals) have to be proud of in the deal. Earlier on Sunday, Rep. Emanuel Cleaver (D-Mo.), chair of the Congressional Black Caucus, described the early framework of the compromise deal as a “shady bill” and “a sugar-coated Satan sandwich.”

Obama, in his remarks Sunday night, stressed the importance of a “balanced” deal, even though there’s little balance to speak of. He acknowledged as much, saying, “Is this the deal I would have preferred? No,” but he went on to say that the plan will begin “to lift the cloud of debt and uncertainty” hanging over the US economy.

Of course, the fight is not over. The House and Senate must still pass the plan before the Aug. 2 deadline to prevent turmoil in the financial markets and the possibility that some of the government’s bills might go unpaid. Congressional Democrats and Republicans are meeting on Monday morning to shore up their support for votes on the plan, which will likely come later on Monday. In a statement Sunday night, House Minority Leader Nancy Pelosi (D-Calif.) did not commit to supporting the new agreement. “We all agree that our nation cannot default on our obligations and that we must honor our nation’s commitments to our seniors, and our men and women in the military,” Pelosi said. “I look forward to reviewing the legislation with my caucus to see what level of support we can provide.”

Here’s the outline, via Boehner’s office, of the breakthrough deal:

3 7-31-11 Debt Framework Boehner

UPDATE 88, Monday, August 1, 10:20 a.m. EST (Andy Kroll): In a Monday morning statement, Robert Borosage, co-chair of the Campaign for America’s Future, a progressive advocacy group, savaged the Obama-GOP debt ceiling plan as “a raw deal.” He adds, “The Tea Party terrorists—the extremist faction willing to hold the economy hostage to get their way—have won. The Republic, common sense, and decency have been trampled.”

Here’s more from Borosage:

The raw deal sets a precedent that Republican leaders are already celebrating: from now on, they boast, every debt ceiling vote will be the occasion for holding the economy hostage to more extreme demands. A balanced budget constitutional amendment. A two-thirds vote for any tax hike on the rich. Privatization of Social Security. The demands will get more extreme over time.

No progressive can or should vote for this capitulation. Republicans have won big. They should be forced to produce the votes to pass this in the House. If they can’t, the president should do what he should have done from the beginning. Stop the negotiations, demand a clean lift of the debt ceiling, and invoke his constitutional powers to avoid default.

If the deal passes the Congress, then congressional Democrats should insure that no Democrat named to the Gang of 12 will accept any agreement that does not include more revenues than spending cuts, while defending Medicare, Medicaid, and Social Security from a rump process.

Given Republican intransigence, that will force deadlock, triggering deep spending cuts that won’t go into effect until January of 2013. Americans can then decide in the election whether they want to vote for those who would gut Medicare and Social Security to protect tax breaks for the wealthy.

The media will trumpet the agreement; the markets will exhale; the pressure to fall in line will be great. But when the dust clears, the economy will still be in trouble, and the federal government will be less able to help. Americans will see investments in schools, research, public health, clean energy, transportation cut back. Inequality will grow; poverty will spread.

Borosage isn’t the only liberal to lambaste the debt ceiling deal, as outlined by the White House and House Speaker John Boehner’s office. Rep. Raul Grijalva, co-chair of the Progressive Caucus, said he would vote against the deal, calling it “a cure as bad as the disease.” And Rep. Emanuel Cleaver (D-Mo.), chair of the Congressional Black Caucus, derided the bill as “a sugar-coated Satan sandwich.”

UPDATE 89, Monday, August 1, 12:58 p.m. EST (Siddhartha Mahanta): The Congressional Budget Office (CBO) has scored the debt ceiling compromise bill, officially known as the Budget Control Act of 2011. CBO estimates that the bill, aside from the parts related to the joint selected committee tasked with finding additional savings over the coming months, will reduce the deficit by $917 billion over the next ten years.

Cuts recommended by the legislation produced by the committee—or through the automatic spending cuts that would occur if the committee fails to produce legislation with the sufficient amount of cuts—will reduce the deficit by at least another $1.2 trillion between 2012 and 2021.

That adds up to a grand total of at least $2.1 trillion in cuts over the next ten years, relative to the CBO’s March 2011 baseline.

UPDATE 90, Monday, August 1, 2:17 p.m. EST (Siddhartha Mahanta): Progressives remain up in arms over the spending cuts included in the debt ceiling compromise bill that will come to a vote in the House today. In a last-ditch attempt to kill the legislation, the Progressive Change Campaign Committee (PCCC) is launching an all-out assault, instructing its members to call lawmakers and tell them to oppose the bill.

According to an email blast sent by the group to its members, over 200,000 people have pledged on PCCC’s website only to support and donate to Democrats in 2012 that oppose cuts to entitlement programs. And 87 Democrats in the House have signed a letter to oppose any deal that makes cuts to these programs.

“This deal will kill our economy and is an attack on middle-class families,” PCCC writes in the email. “It asks nothing of the rich, will reduce middle-class jobs, and lines up Social Security, Medicare, and Medicaid for cuts.”

The PCCC has sufficient reason to fear for the fiscal security of entitlements programs. During the debt ceilling negotiations, the White House reportedly considered raising the eligibility age for Medicare benefits from 65 to 67 and reducing Social Security benefits, drawing the ire of liberal Democrats. And President Obama has already promised to pursue entitlement reform once he signs into law a deal to raise the debt ceiling. 

While PCCC’s campaign is focused on protecting entitlements, neither Medicaid nor Social Security have been specifically targeted for cuts in the debt ceiling deal. But sharp cuts could come in a subsequent round of spending reduction. 

PCCC’s proposed alternative to the deal: for President Obama to invoke the 14th amendment, which would essentially rule the debt ceiling unconstitutional. “The 14th Amendment is unambiguous, and President Obama should invoke it to pay our nation’s debt. Then Democrats should focus on jobs—not cuts—in order to grow our economy.”

UPDATE 91, Monday, August 1, 4:35 p.m. EST (Andy Kroll): Leaders of the Congressional Progressive Caucus announced this afternoon that they oppose the White House-GOP debt ceiling deal and will not vote for it. Reps. Raul Grijalva (D-Ariz.) and Keith Ellison (D-Minn.), co-chairs of the caucus, said the deal tilts far much too far to the right while leaving out new revenues and making deep cuts to crucial domestic programs. Asked how many of the Progressive Caucus’ 75 members would oppose the bill, Ellison replied that “many are going to be voting no.”

Progressives’ opposition to the bill isn’t surprising. As I reported last week, progressives say they were frozen out of the debt ceiling negotiations, had little opportunity to talk with the White House about what should go into the deal. On Sunday, as details of a final deal emerged, progressives expressed dismay. Rep. Emanuel Cleaver (D-Mo.), a Progressive Caucus member, called it “a sugar-coated Satan sandwich.” Grijalva said in a statement, “This deal is a cure as bad as the disease. I reject it, and the American people reject it. The only thing left to do now is repair the damage as soon as possible.”

UPDATE 92, Monday, August 1, 7:20 p.m. EST (Andy Kroll): The House passed the Budget Control Act, the official title for the White House-GOP debt ceiling bill, by a vote of 269 to 161. In a heartwarming and surprising move, Rep. Gabrielle Giffords (D-Ariz.), who is still recovering from a violent attack on her earlier this year, arrived on the House floor midway through the vote. She voted yes. In the end, 174 Republicans and 95 Democrats voted yes; 66 Republicans and 95 Democrats voted no.

The debt ceiling bill now moves to the Democrat-controlled Senate, where it needs 60 votes to pass. There are 51 Democrats and two independents in the Senate. It is unclear whether the Senate will vote on the bill Monday night or Tuesday.

Watch Giffords’ return to the House floor on Monday night:

UPDATE 93, Tuesday, August 2, 12:25 p.m. EST (Siddhartha Mahanta): How much did the debt ceiling debacle cost taxpayers? Brace for it: $1.7 billion $17 million.

The contentious negotiations that pushed the raising of the nation’s debt ceiling to the very last day possible resulted in $17 million in additional interest payments to investors in the sale of Treasury bills to finance the government’s operations.

Why? A massive spike in interest rates in just the past two weeks, CNN Money explains. As the risk of default mounted, investors responded by reducing their holdings of short-term government bonds. If the government defaults, the odds of being paid back on time and in full would be thrown into jeopardy. To assure the risk of maintaining those holdings, investors raised their asking price by spiking the interest rates on Treasury bills.

The effect was palpable: on Monday, the Treasury auctioned $27 billion worth of three-month bills at an interest rate of 0.115 percent—up from 0.02 percent two weeks ago. Treasury also auctioned $24 billion in six-month bills at a rate of 0.15 percent, an increase from 0.06 percent two weeks ago.

This is all thanks to the prevailing uncertainty inflicted on bond traders by the debt ceiling debate. “The uncertainty has driven up yields,” said John Canavan, an analyst at Stone & McCarthy Research Associates. “You increase uncertainty in the markets and the markets will demand compensation for that.”

And the cost of that uncertainty for taxpayers is projected to rise on Tuesday, when the government will auction $23 billion in one-month Treasury bills, which are currently yielding 0.14 percent—a substantial markup from two weeks ago, when the rate was at .01 percent. That translates into $249 million in additional interest added to the national deficit.

Luckily, demand for Treasury bills remains high. Despite the increase in interest rates at Monday’s auctions, Treasury received almost 5 bids for every dollar’s worth of T-bills auctioned—only slightly below recent auction activity.

UPDATE 94, Tuesday, August 2, 12:59 p.m. EST (Andy Kroll): A bipartisan majority in the Senate approved the Republican-friendly Budget Control Act, sending the bill to President Obama’s desk for his signature.

The final vote was 74 to 26. Forty-five Democrats, 28 Republicans, and one independent voted in favor of the bill. Nineteen Republicans, six Democrats, and one independent voted against it.

President Obama is expected to the sign the bill into law today, Aug. 2, the very last day the Treasury Department said it could continue to pay all its bills on time.

UPDATE 95, Tuesday, August 2, 1:50 p.m. EST (Siddhartha Mahanta): In a brief speech delivered shortly after the Senate passed legislation to raise the debt ceiling, President Obama ripped the all-but-finished debt ceiling debate as a “manufactured crisis” and urged Congress to get back to the work that Americans elected them to do: creating jobs and boosting the economic growth.

Congress, Obama said, should take immediate steps to reduce the nation’s 9.2 percent jobless rate when it returns from its August recess. He called for extending tax cuts for middle class families and unemployment insurance for people looking for work, both of which are due to expire at the year’s end. He also said lawmakers should pass free trade deals that would make US-made products sold abroad more competitive, and increase loans to private construction companies to rebuild the nation’s crumbling infrastructure—all proposals, the president added, that enjoy bipartisan support.

Looking to future fights over trimming the deficit, Obama pressed Congress to do so through “a balanced approach with everything on the table,” despite the fact that the president and Congressional Democrats failed to include new revenues of any kind in the compromise legislation to be signed by Obama today. There is the possibility that a bipartisan “super-committee” created by the bill could increase taxes, but that committee’s recommendations won’t be known until later this year.

“I’ve said it before, I will say it again: we can’t balance the budget on the backs of the very people who’ve borne the biggest brunt of this recession,” Obama said. “Everyone is going to have to chip in.”

UPDATE 96, Tuesday, August 2, 5:10 p.m. EST (Andy Kroll): President Obama signed the Budget Control Act of 2011, the official title of the debt ceiling bill, into law this afternoon. He described the GOP-friendly, lopsided piece of legislation as “an important first step” toward shrinking the federal deficit while not “cutting too abruptly while the economy is still fragile,” a statement with which many economists would likely disagree.

The deal slashes government spending by as least $2.4 trillion over the next decade in exchange for a comparable increase in the debt ceiling. Roughly $570 billion of that will come from non-defense domestic spending programs, slashing to the bone funding for public schools, law enforcement, border security, environmental and consumer protection, college financial aid subsidies, and more. Indeed, funding for public investments and domestic spending will reach its lowest point since the Eisenhower administration under this bill. The Pentagon will receive cuts as well, though Congressional leaders say they’re unsure exactly how much would be cut.

In the next two weeks, top Democrats and Republicans in Congress will name 12 lawmakers to a joint committee tasked with finding roughly $1.5 trillion more in deficit reduction. That “supercommittee” must report back to Congress by the end of the year. The committee is allowed to consider both spending cuts and new revenues, the latter of which are not included in the Budget Control Act’s immediate reforms.

In remarks this afternoon, Obama stressed that any future efforts at deficit reduction must be “balanced,” including revenues and cuts. “We can’t balance the budget on the backs of the very people who have borne the biggest brunt of this recession. Everyone is going to have to chip in. It’s only fair. That’s the principle I’ll be fighting for during the next phase of this process.”

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