Reid unveils new debt bill

STEPHENS WASHINGTON BUREAU -- With the clock ticking just a week away from government default, Senate Majority Leader Harry Reid took a new stab today at a solution to the looming debt crisis.

The Nevada Democrat unveiled a bill that would raise the $14.3 trillion debt ceiling by another $2.4 trillion, enough to enable the government to continue borrowing through 2012. It would offset the new borrowing through $2.7 trillion in spending cuts and other savings.

It is the latest effort by Reid to break the impasse that has ratcheted up pressure on the Capitol and the White House ahead of an Aug. 2 deadline by which Treasury Secretary Timothy Geithner said the government will run out of money to pay its bills.

At least four other proposals that had raised hopes for a breakthrough over the past two weeks have fallen by the wayside, including the dramatic collapse on Friday of talks on a $3 trillion deal between President Barack Obama and House Speaker John Boehner, R-Ohio.

Reid's bill, and a competing one being developed in the House, came as congressional leaders and White House officials conducted negotiations over the weekend that failed to break the logjam.

The Reid bill was endorsed by Obama in a statement put out by the White House today . White House Press Secretary Jay Carney called it "a responsible compromise that cuts spending in a way that protects critical investments and does not harm the economic recovery."

Reid said he planned to bring the bill to the Senate floor later today and would work toward its passage, although it was not immediately clear whether he has 60 votes to ensure passage.

At a press conference, Reid argued it should be easy for Republicans to agree to the plan since it contains no tax increases and it more than matches new borrowing with savings and cuts in spending. The proposal also does not target Social Security and Medicare for cuts, important core principles for Democrats.

"All the Republicans have to do is say yes" Reid said, noting the GOP has agreed to individual elements in previous negotiations.

Reid said further spending cuts, revenue-raisers and discussions over the safety net entitlement programs can take place later. His bill would establish a joint congressional committee that would come up with future savings and be guaranteed a Senate vote by the end of this year.

But across the Capitol, Republicans were of a different mind. Boehner was drafting legislation that would allow a $1 trillion hike in the debt ceiling, to be offset by $1.2 trillion in spending cuts.

The GOP plan also calls for a second round of $1.8 trillion in spending cuts next year, which would allow the debt limit to be raised by another $1.6 trillion.

The main difference between the Reid plan and the new GOP plan is that the Democratic proposal seeks an answer to the always controversial government borrowing issue that would carry beyond the 2012 elections.

The GOP plan offers a short-term solution, meaning it is likely Washington would replay the debt debate next year in the heat of the campaign season.

Reid said "a short term deal is a nonstarter in the Senate and at the White House." Obama also has rejected proposals that stop short of 2012 as he faces re-election.

Republicans "are trying to force us to have the same debate on the exact same subject a few months from now," he said.

For the time being, it appeared that the House and Senate were prepared to move forward on their separate solutions, with little immediate prospect of a final compromise that would avert default.

"This is not a game of chicken," Reid said. "This is a game of reality. We are about to go over the cliff."

Reid draws $2.7 trillion in savings from several sources, including $1.2 trillion in cuts to federal programs, including defense, and $1 trillion from counting the money that will be saved by winding down U.S. participation in the Iraq and Afghanistan wars.

Another $40 billion would come from "reducing fraud and abuse," including crackdowns on health care fraud, improper unemployment insurance payments and stepped-up IRS tax enforcement.

Farm subsidies would be cut by $10 billion to $15 billion, while another $30 billion would come from changes to Fannie Mae and Freddie Mac, the government-backed housing corporations.

Contact Stephens Washington Bureau Chief Steve Tetreault at stetreault@stephensmedia.com or 202-783-1760.