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."
The flurry of activity came as anxiety built up in many corners, including among Wall Street investors worried about the effects on the markets and active-duty soldiers worried about their paychecks.
After McConnell sounded a hopeful note, Reid called members of the Senate to the floor to hear him dispute the claims by his Republican counterpart and accuse Republicans of failing to enter into serious negotiations even as the Treasury risked running out of money to pay all its bills after Tuesday.
"The speaker and Republican leader should know that merely saying you have an agreement in front of television cameras doesn't make it so," Reid said after returning from a visit to the White House with Rep. Nancy Pelosi of California, the Democratic leader in the House.
Trying to build momentum for his own proposal, Reid and fellow Democrats were working to win over Republican senators to support his plan to raise the debt ceiling through 2012 and circumvent McConnell.
"Americans are watching us and demanding a result that is balanced," Reid said.
The Senate Democrats' efforts were set back Saturday when 43 of the 47 Republican senators signed a letter to Reid saying they would not back his proposal, which would allow a $2.4 trillion increase in the debt ceiling in two stages while establishing a congressional committee to explore deeper spending cuts. The numbers signaled that without changes in the plan, Reid would not be able to overcome a Republican filibuster, which requires 60 votes.
House Republicans signaled their disapproval of the Reid plan by holding a symbolic vote Saturday, rejecting it by a 246-173 vote, in a move intended to show it had no chance of passing in that chamber. About a dozen Democrats joined Republicans in rejecting the Reid plan.
The pre-emptive vote could strengthen McConnell's hand as he seeks to shape any final compromise.
At the White House and in talks in congressional offices and corridors, most of the attention was focused on finding a way to define the precise conditions under which the president could get a second increase in the debt limit that would be needed early in 2012 under both Republican and Democratic proposals. Officials in both parties said another idea that had surfaced was to require a change in Social Security policy if the new committee deadlocked, providing an incentive for the new committee to act on its own.
Under the proposal that the Congressional Budget Office said could save more than $100 billion over 10 years, a different measure of inflation would be used to calculate the annual cost-of-living adjustment in Social Security benefits. Supporters say the alternative measure of inflation is more accurate because it reflects what happens when prices rise; advocates for the elderly say the proposal is a backdoor way of cutting benefits.
Members of both parties took the floor to push for compromise, noting that the two sides were not far apart on major elements of their deficit-reduction plans.
"Failure should not be an option for us in this case, and it's time we starting finding common ground," said Sen. Johnny Isakson, R-Ga.
The unusual Saturday session came after a week of brinkmanship on Capitol Hill. On Friday, Boehner managed to pass his own House bill, along party lines, just a day after suspending the vote as the Republican leadership tried frantically to line up enough votes for passage. But the Senate swiftly rejected that plan late Friday.
While some of the back-and-forth between the House and Senate and the party leaders was typical of the late stages of a negotiation, the combative and unyielding tone in both chambers of Congress was creating more pessimism in the rank and file about the prospects that a final agreement could be struck and cleared before Tuesday.
Even if a measure is able to win significant bipartisan endorsement in the Senate, the reception in the House could be different with the Treasury Department's Tuesday deadline for increasing the debt limit at hand. But how to push a plan by House conservatives remained a major question mark.
At the Treasury Department, Secretary Timothy F. Geithner met with top advisers Saturday on contingency plans for managing the financial consequences of congressional inaction. "No one will be pleased," said one adviser, who spoke on the condition of anonymity.
The Treasury Department calculates that the government will exhaust its ability to borrow money at the end of Tuesday, forcing the government to pay its bills from a dwindling pile of cash. Independent analysts estimate the government has enough money on hand to pay all of its bills for another week, more or less, before it starts missing payments.
Obama has repeatedly called on Congress to raise the borrowing limit, known as the debt ceiling, by Tuesday to avoid any uncertainty about the government's ability to meet its obligations. Financial markets are particularly concerned about the payment of interest on the federal debt. A default on those obligations could precipitate a global financial crisis.3 comments on this story
The painful negotiations to resolve the crisis have caught the attention of troops in Afghanistan, where Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, was quizzed repeatedly on Saturday by soldiers and Marines worried about their paychecks.
In Kandahar and Helmand provinces, Admiral Mullen said it remained uncertain where money would be found if the government defaulted. Regardless of budget talks in Washington, the mission for American troops in Afghanistan would not halt, he said.
"We're going to continue to come to work," he said.