After the House passed the extreme version of Speaker Boehner’s (R-OH) debt ceiling bill last night the Senate quickly moved to kill it. The Boehner bill has no chance of becoming law. Even if Senate Majority Leader Harry Reid (D-NV) found a way to pass it the Senate (and he has no desire to do so), President Obama has promised to veto the bill. Now the only hope to avoid default is some kind of deal in the Senate between Senators Reid and Mitch McConnell (R-KY). The two men must carefully draft an agreement which can not only pass through the Senate without a filibuster, but also garner 216 votes needed to pass through the House. To make matters worse, they only have three days to accomplish this task in the traditionally slow-moving Senate. In many ways, the jobs and 401(k) accounts of millions of Americans now rest in the hands of these two men.
The Boehner bill was a non-starter for Democrats on two separate grounds. First, the Boehner bill would have required another debt limit vote next year in lead up to an election. Democrats believe this would add uncertainty to the business community and that it would be even harder to get a deal done at that time. Secondly, the Boehner bill requires passage of a Balanced Budget Amendment that would likely lead to significant cuts of Social Security and Medicare. As a result, Reid and McConnelll will basically be starting from scratch to reach a compromise.
The good news is that McConnell has shown a willingness to reach a compromise in order to avoid default. Earlier this month McConnell released a plan that would enable the President to raise the debt ceiling with the support of just one-third of Congress. McConnell believes the Republicans would ultimately get blamed for a default, and polls show that he is probably right.
According to early reports, Reid is offering a proposal that would include the old McConnell proposal and also mandate about $2.4 trillion in spending cuts. The idea for Reid is to make a proposal so enticing that Republicans in the Senate cannot dare vote against lest they be seen as uncompromising.
If Reid is able to pass a bill through the Senate, it will put tremendous pressure on Speaker Boehner to pass the same bill through the House in quick order. If the Reid bill passes through the Senate with bipartisan support and then dies in the House due to Republican obstruction then the GOP would certainly get the blame for a default.
Of course, at this point everything is still speculative. Reid has not drawn up a final proposal. McConnell has not agreed to a compromise with Reid. Republicans in the Senate have not yet agreed to give up their ability to filibuster any deal. Republicans in the House have not signaled a willingness to vote for any compromise at all. Finally, Democrats in the House have also not agreed to vote for a bill which makes dramatic cuts. Until all of those things happen the country is still destined to default with potentially disastrous consequences on August 2.