McConnell, Reid Discuss Debt Limit Plan

The Wall Street Journal reports:

A backup plan to cut the federal deficit and keep the U.S. government from default gained momentum Thursday even as President Barack Obama and congressional leaders paused their negotiations to determine if they can reach a deal.

Ratcheting higher the pressure on Washington to strike a deal, Standard & Poor's for the first time said there was a 50% chance it would downgrade its rating of long-term U.S. debt within three months because the chances of default were "increasing" and the political debate about deficit reduction and the debt ceiling had "only become more entangled." The U.S. has had a AAA bond-rating from S&P for 70 years.

The so-called Plan B is taking shape in quiet discussions between Senate Majority Leader Harry Reid (D., Nev.) and Republican leader Mitch McConnell (R., Ky.), away from unhappy House Republicans who don't favor the approach.

Senate Majority Leader Harry Reid speaks to the media next to U.S. Treasury Secretary Timothy Geithner after their meeting about the debt limit on Capitol Hill in Washington on Thursday.

It would link a package of spending cuts to a plan Mr. McConnell proposed earlier this week that would give the president the power to raise the debt limit through 2012 in three installments, unless two-thirds of Congress voted to block it. It likely wouldn't include any tax increases, a senior Democratic aide familiar with the discussions said.

Messrs. McConnell and Reid are also exploring the idea of creating a committee to identify further deficit-reduction measures and force a congressional vote on the package. The mechanism would be similar to the commission once established by Congress to make politically difficult choices to close military bases.

The ideas face enormous political and procedural hurdles, especially in the House where conservatives are determined to keep pressing for deeper spending cuts, and even Senate leaders say they are far from finding the middle ground they seek. But the effort has gained traction as time is running out to reach a deficit-reduction deal by Aug. 2, when the Treasury Department says the U.S. government will run out of cash to pay its bills.