Where We Stand with Debt Negotiations

At the end of a tense day, two debt-reduction plans are on the table

Aside from the implosion at Rupert Murdoch's British media empire, the story that has most dominated headlines recently is the ongoing debate over the national debt, and how our economy is going to survive past the August 2 deadline to raise our debt ceiling. The country must raise its self-imposed borrowing limit of $14.3 trillion before the self-imposed deadline, or else we default on our debt. Both sides agree that the nation needs to lessen its debt in the long term, but in the short term it must figure out a way to stay functional, which pretty much everybody agrees means raising the debt ceiling. With just over two weeks to go before the deadline, there's still no consensus on what measure to take to raise the ceiling while also curbing spending. Let's see what's on the table, and where we are in the ongoing debate.

The 'Cut, Cap, and Balance' plan: Backed predominately by Tea Party freshmen in the House of Representatives, this constitutional amendment is expected to go to a vote on the House floor tomorrow, but President Barack Obama has already said he'll veto it. The measure would raise the debt limit to $16.8 trillion from $14.3 trillion, and promises to impose "enforceable spending caps," and require a balanced budget, without any tax increases. But because it takes the form of a constitutional amendment, its passage would require a two-thirds majority in each house of Congress. Time has an explanation from the Associated Press's Andrew Taylor: "Amending the Constitution requires a 2/3rds vote of both Houses, including 67 votes in the Senate, where Republicans control just 47. 'No one believes there are 67 votes for any version of that,' said Dick Durbin of Illinois, the No. 2 Senate Democrat, on CBS' Face The Nation." U.S. News & World Report's Alex Parker called the Republican bill "Kabuki theater -- a debate with overheated rhetoric, but one over a bill with little chance of passing the Senate or surviving a presidential veto."

The McConnell-Reid plan: This morning's news was all about the compromise deal that Senate Majority Leader Harry Reid and minority leader Mitch McConnell worked out together over the weekend. As Elspeth Reeve noted earlier, the plan hasn't exactly been greeted with a chorus of approval, but at least it stands a good chance of passing the House and the Senate. McConnell and Reid spent this afternoon adding to the bill, which stipulates that the president may request three increases to the debt limit between now and the end of the year. "Along with each request, the president would be required to submit a list of recommended spending cuts -- in an amount higher than the ceiling increase request -- but those cuts would not need to be enacted for the debt limit to go up," CNN reports. But Congress can register its disapproval through "resolutions of disapproval" which the president can veto. "The purpose of this convoluted plan is to allow most Republicans and some Democrats to vote against the politically unpopular debt ceiling increase while simultaneously clearing it."

What the public thinks: The lastest Gallup Poll, from last week, shows Americans oppose raising the debt ceiling, even though both parties in Washington say it's necessary. "More Americans want their member of Congress to vote against such a bill than for it, 42% vs. 22%, while one-third are unsure. This 20-percentage-point edge in opposition to raising the debt ceiling in Gallup's July 7-10 poll is slightly less than the 28-point lead (47% vs. 19%) seen in May." But a Pew Research Center study today found Americans were split evenly on whether it was essential to raise the debt limit at all. "Four-in-ten (40%) say that, from what they’ve read and heard, it is absolutely essential that the federal debt limit be raised by Aug. 2 to avoid an economic crisis, while about as many (39%) say the country can go past this date without major economic problems."

The potential fallout: The Associated Press neatly summed up the potential consequences of a U.S. debt default today:

Default likely would produce higher interest rates for consumers on mortgages, car loans and credit cards. It also would make U.S. government borrowing more expensive and could stop government checks from going out to elderly Social Security recipients. All that holds the potential for turmoil not only domestically but also in world financial markets and international economies.

Among some voters, there is suspicion that the talks in Washington are infused with the politics of the 2012 election in which the state of the economy will likely determine whether Obama wins a second term.