Frantic talks between the White House and Congress appear to be heading into the final stretch, but with twists and turns that are tortuous to follow.
In the latest developments, the White House and the Republican House Leadership are rumored to be close to a $3 trillion agreement to cut spending.
Although denied by the White House and House Speaker John Boehner, they spent all day Thursday meeting and trying to hash out details of such an agreement.
The potential spanner in the works might be the outrage of the Democrats in Congress who are hearing that the President may be willing to drop his insistence on new taxes as part of any package.
Apparently, a deal being discussed would lock in cuts in spending and social programs, as Republicans want, but would suspend decisions on increasing taxes until 2012. Congress would, if the rumors are to be believed, take up comprehensive tax reform next year.
When word spread about the President’s supposed cave-in to the Republicans, the reaction was incendiary. Sen. Barbara A. Mikulski (D-Md.) described the Democrats reaction as ‘volcanic’.
The Democrats insist that if specific cuts in programs are listed, so should specific new taxes, especially given that the major debt reduction dollars are coming from cuts, not new taxes.
The fears of the Democratic congressmen are well-founded as President Obama has chosen Republican-biased compromises almost every time he has been pressured.
The reality now is that there time has run out for a detailed agreement to be worked out. There may be a short-term raising of the debt limit to give all the players more time to work out the larger agreement.
In any case, the U.S. has reached the end of the road in terms of muddling along. Anything other than a decisive plan to stem the red ink will be punished by the ratings agencies and the markets in due course. The next few days will be critical.