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Optimism starting to creep into debt crisis

By Carl Hulse

New York Times News Service

Published: Saturday, July 30 2011 11:33 p.m. MDT

Senate Majority Leader Harry Reid, D-Nev., speaks to reporters following a budget vote late in the day, Wednesday, May 25, 2011, at the Capitol in Washington. The Democratic-run Senate voted down a controversial budget plan from the Republican-majority House that calls for turning Medicare into a voucher-like program for future beneficiaries.

J. Scott Applewhite, Associated Press

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WASHINGTON — New budget talks between top congressional Republicans and President Barack Obama made progress late Saturday, suddenly stirring optimism that a last-minute deal could be reached to avert a potential federal default that threatened significant economic and political consequences.

After a tense day of congressional floor fights and angry exchanges, Sen. Harry Reid, the majority leader, called off a planned showdown vote set for after midnight but said he would convene the Senate at noon Sunday for a vote an hour later. He said he wanted to give the new negotiations a chance to produce a plan to raise the federal debt limit in exchange for spending cuts and the creation of a new congressional committee that would try to assemble a long-range deficit-cutting proposal.

"There are many elements to be finalized and there is still a distance to go before an arrangement can be completed," said Reid, who just a few hours earlier had played down talk of any agreement. "But I believe we should give everyone as much room as possible to do their work."

Reid's announcement set off an almost audible sigh of relief on Capitol Hill, where lawmakers and their aides had been bracing for an overnight clash over the debt following a day that had seen a heated House vote and lawmakers trudging from office to office in search of an answer to the impasse.

The first indication off a softening of the hard lines that have marked weeks of partisan wrangling over the debt limit came in the afternoon when the two leading congressional Republicans announced that they had reopened fiscal talks with the White House and expected their last-ditch drive to produce a compromise.

Following the House's sharp rejection of a proposal by Reid to raise the debt limit and cut spending, Sen. Mitch McConnell of Kentucky, the Republican leader and a linchpin in efforts to reach a deal, said he and Speaker John A. Boehner were "now fully engaged" in efforts with the White House to find a resolution that would tie an increase in the debt limit to spending cuts and other conditions.

"I'm confident and optimistic that we're going to get an agreement in the very near future and resolve this crisis in the best interests of the American people," said McConnell, who noted he was personally talking to both Obama and Vice President Joe Biden, a favorite partner in past negotiations.

Boehner, who would have to steer a compromise through the House, said he based his confidence on the prospect of an agreement on the sense that "we're dealing with reasonable, responsible people who want this crisis to end as quickly as possible."

A Democratic official with knowledge of the talks said McConnell called Biden early Saturday afternoon, the first conversation between the two men since Wednesday. The official said they talked at least four more times on Saturday as they tried to work out an agreement.

The deal they were discussing, this person said, resembled the bill that Boehner won approval for in the House on Friday more than it did the one that Reid had proposed.

It would immediately raise the debt ceiling by about $1 trillion, accompanied by a similar range of spending cuts, and set up a new bipartisan committee that would work to find deeper cuts in exchange for a second debt limit increase that would extend through the 2012 election.

A failure of the new committee to win enactment of its proposal could then set off automatic spending cuts across the board, including to entitlement programs. Other ideas were swirling around the Capitol as lawmakers searched for a way to avoid default. One of Reid's top lieutenants said he saw at least a glimmer of hope.

"We are a long way from any sort of negotiated agreement," said Sen. Richard J. Durbin of Illinois, the No. 2 Senate Democrat, "but there is certainly a more positive feeling about reaching an agreement than I've felt in a long time."

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