Debt fallback plan gains momentum as GOP plans symbolic votes

Washington (CNN) -- Top administration and congressional officials are expected to continue working this week on a measure to raise the federal debt ceiling by up to $2.5 trillion, embracing a version of a fallback plan designed by Senate Minority Leader Mitch McConnell to avoid a potentially catastrophic default.

At the same time, GOP leaders are planning a series of votes on a proposed balanced budget amendment to the Constitution and sharp caps on future spending. The bills have no chance of clearing Congress or winning the approval of President Barack Obama, but would allow Republicans to demonstrate their preference for steps favored by their party's conservative base.

The maneuvering will take place against a backdrop of heightened anxiety as fears rise that Washington will not be able to pay its bills starting next month. If Congress failed to raise the current $14.3 trillion debt ceiling by August 2, Americans could be hit with rising interest rates, a plummeting dollar, and increasingly jittery financial markets, among other things.

The seriousness of the overall situation was reinforced Thursday when a major credit rating agency, Standard and Poor's, said it was placing the United States' sovereign rating on "CreditWatch with negative implications."

Moody's Investors Services -- another major rating agency -- said Wednesday that it would put the sterling bond rating of the United States on review for possible downgrade.

Obama warned last week that he could not guarantee older Americans will receive their Social Security checks next month if a deal is not reached in time. Republicans accused the president of resorting to scare tactics."I believe the debt will be extended," White House budget director Jacob Lew predicted Sunday on the ABC program "This Week." "Our efforts over the next days will be to ... do as much as we possibly can to make the tough decisions."

McConnell's plan appears to have gained momentum over the past few days as hopes have faded for a grand bargain including tax hikes on the wealthy and reforms to popular entitlement programs such as Medicare and Social Security. The Republicans leader's proposal would give Obama the power to raise the borrowing limit by a total of $2.5 trillion, but also require three congressional votes on the issue before the 2012 general election.

Specifically, Obama would be required to submit three requests for debt ceiling hikes -- a $700 billion increase and two $900 billion increases. Along with each request, the president would have to submit a list of recommended spending cuts exceeding the debt ceiling increase. The cuts would not need to be enacted in order to the ceiling to rise.

Congress would vote on -- and presumably pass -- "resolutions of disapproval" for each request. Obama would likely veto each resolution. Unless Congress manages to override the president's vetoes -- considered highly unlikely -- the debt ceiling would increase.

The unusual scheme would allow most Republicans and some more conservative Democrats to vote against any debt ceiling hike while still allowing it to clear.

McConnell, R-Kentucky, and Senate Majority Leader Harry Reid, D-Nevada, are also working on two critical additions to the plan, according to congressional aides in both parties. One would add up to roughly $1.5 trillion in spending cuts agreed to in earlier talks led by Vice President Joe Biden; the other would create a commission tasked with identifying additional significant spending cuts, tax increases, and entitlement reforms.

Changes agreed to by the commission -- composed of an equal number of House and Senate Democrats and Republicans -- would be subject to a strict up-or-down vote by Congress. No amendments would be allowed.

Sources say the panel would be modeled after the Base Closing and Realignment Commission, which managed to close hundreds of military bases that Congress could not otherwise bring itself to shut down.

As congressional leaders continue laying the groundwork for the plan, Republicans are moving ahead with a more partisan measure to "cut, cap and balance" future budgets. The plan includes major spending cuts, caps on future spending as a percentage of economic production, and a balanced budget amendment to the Constitution.

The debt ceiling proposal stands in sharp contrast to Obama's stated preference for a package of roughly $4 trillion in savings over the next decade composed of spending reforms and tax increases on the rich.

"I'm a little frustrated that (administration officials are) never willing to be specific about the reductions in spending that they would be willing to do," conservative Sen. Jon Kyl, R-Arizona, said Sunday.

"The president always just holds out this idea that, well, if you'll raise taxes, and he is very specific about the taxes he wants to raise, then (he) might be willing to look at cuts elsewhere," Kyl said.

"Well, of course, that's just not good enough. So, the point I'm trying to make is when the president says he's willing to compromise, understand why Republican leaders have been pretty reluctant to go along with this deal because we frankly don't know where the spending reductions come, but we do know where the taxes are."

Republicans have repeatedly insisted that they are the only side offering concrete proposals to address mounting deficits and the federal debt.

Democrats in turn have belittled the GOP's push for a balanced budget amendment, a perennial favorite of conservatives.

"This notion that we somehow have to change the Constitution to do what we were elected to do is just plain wrong," Sen. Dick Durbin, D-Illinois, said Sunday on NBC's "Meet the Press."

"Bottom line is, those who want to push a balanced budget amendment are saying, 'I can't promise you that I won't steal again, but I will vote for the Ten Commandments.'"

Sen. Orrin Hatch, R-Utah, insisted Saturday that "the only reason congressional Democrats would refuse to pass (a balanced budget amendment) is because they know the people of this country would rise up and quickly ratify it."

Obama evoked compromises of the past in calling Saturday for a commitment to shared sacrifice to break the current impasse on the debt ceiling.

"Let's be honest. Neither party in this town is blameless," the president said in his weekly address. "Both have talked this problem to death without doing enough about it. That's what drives people nuts about Washington."

Republicans insist they will not agree to any tax increases, arguing that such a move would derail an already weak economic recovery.

At the heart of the current debate is Obama's call for more tax revenue by allowing tax cuts from the Bush presidency to expire at the end of 2012 for families making more than $250,000. His plan would keep the lower tax rates for Americans who earn less.

Obama noted last week he is not looking to raise any taxes until 2013 or later. In exchange, the president said, he wants to ensure that the current progressive nature of the tax code is maintained, with higher-income Americans assessed higher tax rates.

But resistance to higher taxes is now a bedrock principle for most Republicans, enforced by conservative crusaders such as political activist Grover Norquist. Norquist's group, Americans for Tax Reform, has sponsored a high-profile pledge to oppose any tax increase.

The pledge has been signed by more than 230 House members and 40 senators, almost all of them Republicans.

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