Time bomb

Mitch McConnell, the Senate Republican leader from Kentucky, has a reputation on Capitol Hill for being a tough face-to-face negotiator. But, as time ticks down toward a possible August default on federal spending obligations, even McConnell seems befuddled by the never-ending haggling over raising the government's $14.29 trillion borrowing limit.

During negotiations last week, McConnell asked a White House official the total of next year's spending cuts under the Democrats' proposal. The answer, McConnell said, was about $2 billion-representing just about half of what Washington borrows, in one day.

"It was at that point I realized that the White House simply was not serious about cutting spending or debt," he said. "In the end, the White House gave us three choices . . . a massive tax hike, smoke and mirrors, or default."

So McConnell on July 12 offered a fourth solution, something he called a "last resort." He proposed giving President Barack Obama the power to raise the debt ceiling in a way that would absolve lawmakers of responsibility. Obama could ask for a debt ceiling increase three times within the next year. Congress, under the plan, could vote on a "resolution of disapproval" of any Obama-proposed debt ceiling increase. Then Obama could veto the rejection. The president's move to increase the debt ceiling would likely survive a two-thirds congressional majority required to override a veto.

Presto, the U.S. Treasury has a higher debt ceiling and Republicans can go on the campaign trail claiming they voted against the increase. Obama wouldn't even have to offer spending cuts.

But McConnell's gambit to cede authority to the president and maneuver Republicans out of co-ownership of a bad economy quickly turned into another debt ceiling debacle. Eric Erickson from the conservative blog RedState scrawled out a furious response, calling the plan "The Pontius Pilate Pass the Buck Act of 2011." He urged his readers to mail toy weasels to McConnell's office.

The Heritage Foundation's Rory Cooper wrote, "We understand that the plan, by design, puts the onus on liberals in Washington to finally propose some way to address out-of-control spending. . . . Unfortunately political maneuvering in a time of such high stakes is not sufficient." FreedomWorks, the political organization that funded many Tea Party candidates, announced they are "encouraging our million-plus members to help Sen. McConnell find his spine." In other words, giving the president more power does not top the to-do lists of most conservatives.

With the Treasury Department warning that the government could fail to meet its financial obligations if the debt ceiling isn't increased by Aug. 2-and Moody's Investors reviewing the rising risk for a possible downgrade of the U.S. triple-A government bond rating-leading lawmakers are feeling pressure to reach a deal with the White House. House Republicans remain the most important constituency needed to back the plan, but Majority Leader Eric Cantor, R-Va., conceded, "Nothing can get through the House right now."

That is because most of the 84 new House Republicans made their way to Washington on promises to reduce the deficit. Frustrated by smaller-than-expected spending cuts in this spring's federal budget showdown, the freshmen see the debt ceiling as their last stand. They are new enough to Washington to hope for, even demand, policy victories over political ones. They want to tie any debt limit increase to three things: enforceable caps and controls on spending, cuts that match increases in the federal government's borrowing power, and no tax hikes. If the president and congressional leaders somehow reach an agreement, a sizable hurdle remains: convincing the rank-and-file members of both parties to go along.

Obama has insisted that Congress needs to "pull off the Band-Aid. Eat our peas." But conservatives balk at the president's idea of the right vegetable: a trillion-dollar tax increase that's included in the Democrats' debt limit deal. Conservatives want $2.5 trillion in deficit-reduction over 10 years in exchange for a $2.5 trillion hike in the debt ceiling. With an economy that generated only 18,000 new jobs last month (where over 100,000 approaches the norm), Republican lawmakers believe they are right to oppose additional burdens on taxpayers.

In the impasse the White House predicted calamity if the government's borrowing power is not increased. Obama said he could not guarantee that Social Security checks would go out next month. That, plus a stormy walkout by the president after a July 13 session with lawmakers, has conservatives wondering if Obama's team really wants to strike a deal before the deadline: Running out the clock may give Democrats a chance to blame Republicans for what comes next.

"[Obama] has not made any proposal in writing to deal with entitlements and to deal with any specific cuts," Sen. Jim DeMint, R-S.C., said July 12. "The president talks a lot, but we can't vote on a speech."

The United States has never gone into full-blown default before, and government officials aren't certain what the precise repercussions could be. But the Bipartisan Policy Center recently role-played the scenario, and its report concluded that the U.S. Treasury would "be picking winners and losers"-who to pay and who not to pay.

The Treasury Department has about 80 million monthly payments, the report said, and would have to choose to ignore about 40 percent to 45 percent of them. Each day, though, the revenue coming into Treasury and the payments going out are different: On Aug. 3 the Treasury expects to take in $12 billion, with $32 billion in committed spending. But on Aug. 4, the Treasury takes in $4 billion with $11 billion in committed spending. Other days of the month revenue and spending commitments are equal, so inflows and outflows of cash do not match well, making the task of choosing what bills to pay difficult.

For the month of August, if Treasury chose to pay interest on Treasury securities, Department of Defense vendor payments, and benefits for Social Security, Medicare, and Medicaid-then the Treasury couldn't fund the salaries of active military personnel or federal employees.

House freshmen-key to any debt ceiling agreement-appear ready to risk immediate hardships for a long-term change in the federal government's spending habits. Rep. Austin Scott of Georgia, president of the Republican freshman class, said he expects "some short-term volatility," but told The New York Times: "In the end, the sun is going to come up tomorrow."