Talks continue over debt ceiling

Hoping to break the impasse over the nation’s debt limit, White House and congressional leaders and aides continued their private discussions Sunday to exchange possible proposals to keep the government from defaulting on its bills.

Senate leaders have shaped the outline of a compromise that would attach as much as $1.5 trillion largely in spending reductions to a debt ceiling increase, and establish a new congressional committee to present further cuts for a vote by year’s end. Other ideas also were being considered.

No signs emerged that the negotiations were as contentious as last week, when tempers sometimes flared. But no immediate breakthrough was apparent.

“There have been a lot of conversations going on, and they will continue,” Jacob Lew, director of the White House Office of Management and Budget, said on CNN’s “State of the Union.”

Congress has been “figuring out what it could do,” Lew added on NBC’s “Meet the Press.” “That will continue over the next day or so.”

President Obama and Vice President Joe Biden participated in the private discussions, which took place all weekend, the White House said.

Obama had given congressional leaders until this weekend to return from their party caucuses with components of a debt-reduction plan they could support.

House Speaker John A. Boehner’s office said there was nothing new to report.

“Meetings have been occurring, ideas are being exchanged and scenarios are being discussed,” said Boehner’s spokesman, Michael Steel. “We are keeping the lines of communication open with all parties.”

GOP leaders have begun preparing their members for a compromise to achieve a midsized debt-reduction deal before Aug. 2, when the nation is expected to run out of money to pay its bills if the debt ceiling remains at $14.3 trillion.

Federal Reserve Chairman Ben S. Bernanke warned last week that failure to raise the ceiling would cause “a very severe financial shock” to the global economy.

Republicans have refused to consider new taxes on wealthy Americans, ending hopes for a proposed comprehensive deficit-reduction package worth more than $4 trillion in savings over 10 years, which Obama had sought. The GOP’s spending plan would also require raising the debt ceiling.

Both the House and Senate face several symbolic votes this week that will provide political cover for some lawmakers but are unlikely to resolve the standoff.

The House will vote Tuesday on legislation engineered by its Republican majority that would exchange a debt ceiling increase for deep spending cuts across the federal government in current and future years.

The measure is not expected to become law, but the vote is important to the right flank that drives the House GOP majority and is most resistant to raising the debt ceiling.

The so-called cut-cap-balance proposal would slash more than $110 billion in fiscal 2012, cap future spending and require congressional passage of a balanced-budget amendment to the Constitution that would be sent to states for the lengthy ratification process.

The Senate also is expected to vote midweek on a series of balanced-budget amendments. None are expected to win the two-thirds majority required for passage.

Sen. Jim DeMint (R-S.C.) said the cut-cap-balance proposal was “hardly a radical idea.”

“The fact is, Republicans and Democrats have been irresponsible,” DeMint said on “Meet the Press.” “They’ve brought our debt to the point where we literally can’t borrow much more money without bankrupting our country.”

Others warned that time was running out to find a solution.

The Senate could begin to consider a compromise package by late Wednesday. But the legislative process would require at least a week to surmount an expected filibuster.

To prepare for the politically difficult period ahead, GOP leaders arranged a frank session with rank-and-file members Friday. Budget experts outlined the fiscal upheaval that would occur if the government stopped paying its bills.

Failure to pay the debt would upend financial markets, experts said. Soaring interest rates would hurt not only the government but Americans seeking mortgages or other loans, including for purchasing cars or attending college. Top credit-ranking agencies have warned that federal bonds may be downgraded if Washington fails to act. The lower the bond rating, the higher the borrowing cost.

Some GOP lawmakers acknowledged the steep education campaign they must begin with voters in their districts and home states.

Americans are broadly divided on the issue. Recent opinion surveys suggest about 47% of those polled said their greater concern is that raising the debt limit would lead to more government spending, while 42% said they were more concerned that a government default would cripple the economy.

Republicans have largely dismissed a compromise proposal from Sen. Mitch McConnell of Kentucky, the GOP leader, to allow Obama to raise the debt limit after Congress took a series of votes to reject new borrowing.

But McConnell and Senate Majority Leader Harry Reid (D-Nev.) have been drafting an alternative that would also force spending cuts and establish a committee to outline future cuts.

lisa.mascaro@latimes.com

cparsons@latimes.com

Peter Nicholas in the Washington bureau contributed to this report.