Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell will push a revised budget plan this week aimed at allowing a debt-limit increase needed to avoid a government default as President Barack Obama presses for action in time for an Aug. 2 deadline.

Reid of Nevada and McConnell are amending a proposal to give Obama the power to raise the debt limit in response to complaints the plan does little to reduce the deficit. They are considering having House Republicans attach spending cuts to the legislation, according to a congressional aide, as well as provisions creating a committee of lawmakers charged with finding additional savings later.

“The good news is that Majority Leader Harry Reid and Senator Mitch McConnell are sitting down and working out an approach that we are going to try to tackle this week,” Senator Dick Durbin of Illinois, the chamber's No. 2 Democrat, said on CBS's “Face the Nation” yesterday. “We are going to be working toward a way to escape the crisis that would come if we default on America's national debt.”

Lawmakers are trying to devise a deficit-reduction plan that would give colleagues the political cover they want to cast an unpopular vote to raise the legal limit on government borrowing.

Treasury Department
The Treasury Department warns the debt ceiling must be lifted by Aug. 2 to avoid default, which it says would drive up borrowing costs for the government as well as millions of Americans seeking consumer loans linked to Treasury rates. Standard & Poor's Ratings Services and Moody's Investors Service are threatening to downgrade the government's credit rating if Congress doesn't act.

Jon Kyl, the Senate's second-ranking Republican, said he didn't know if House Republicans would go along with what he called the “McConnell-Reid effort.”

“That's what the Senate is proceeding with,” Kyl of Arizona said on ABC's “This Week” program. “Now, the House of Representatives has to make its decision about what it will do.”

Lawmakers aim to unveil a plan this week so they will have enough time to surmount procedural hurdles in the Senate, give their colleagues enough time to consider the proposal and find the votes to pass it. The plan could be put before the Senate as early as July 20, according to a Senate Democratic aide.

'Irresponsible'
White House Budget Director Jack Lew expressed confidence yesterday lawmakers won't allow a default.

“All the leaders understand that it would be irresponsible to get to Aug. 2 and not extend the ability of the United States to pay its obligations,” Lew said on “State of the Union” on CNN. “More and more” rank-and- file lawmakers understand that, Lew said. “There will be a fringe that believes that playing with Armageddon is a good idea, but I don't think that's where the majority will be.”

Treasury Department officials reject suggestions they could prioritize some payments over others and insist there are no alternatives to raising the debt limit, a Treasury official said yesterday. About $90 billion in debt matures on Aug. 4 and more than $30 billion in interest comes due Aug. 15, said the official, who declined to be identified because the department's discussions aren't public. Overall, more than $500 billion matures in August.

No 'Abstract Issue'
Raising the debt ceiling “is not some abstract issue,” Obama said at a news conference last week. “These are obligations that the United States has taken on in the past. Congress has run up the credit card, and we now have an obligation to pay our bills.”

Yields on benchmark 10-year notes reached the lowest level since December as investors sought a refuge in U.S. government debt. The Treasury attracted higher than average demand at last week's three note and bond auctions.

McConnell of Kentucky proposed a complicated plan last week that would allow Obama to raise the debt limit himself without requiring spending cuts or Republicans to cast votes to lift the $14.3 trillion cap.

It was aimed at breaking a stalemate over mutually incompatible demands by Republicans and Democrats. Republicans said any plan would have to cut spending by at least as much as it raised the debt limit and couldn't include tax increases.

$2.4 Trillion
Obama wants a debt limit high enough to accommodate government borrowing through next year's elections — roughly $2.4 trillion — and said he would agree to that much in savings only if it included tax increases. He's also ruled out a smaller debt limit increase. House Majority Leader Eric Cantor, a Virginia Republican, said last week lawmakers had agreed to less than $1.4 trillion in cuts.

McConnell's proposal ran into criticism from lawmakers in both parties who said it would do nothing to reduce red ink. So lawmakers are considering having House Republicans add what would amount to a downpayment in cuts to the McConnell plan once it clears the Senate, the aide said.

A panel of a dozen lawmakers, equally divided between the parties, would be responsible for finding additional cuts, according to the aide. The panel's plan would need the approval of a majority of its members, the aide said, and couldn't be amended once it reached the floors of the House and Senate.

No Progress
Michael Steel, a spokesman for House Speaker John Boehner, an Ohio Republican, said yesterday that “conversations have continued throughout the weekend, but there is no news or progress to report.”

Senator Tom Coburn, an Oklahoma Republican, said he will unveil his own plan today to cut the deficit by $9 trillion over the next decade. Coburn said while he doesn't expect it to pass, it would give lawmakers options. His proposal would cut defense spending by $1 trillion over 10 years, raise taxes by $1 trillion by clamping down on individual tax preferences and cut almost $2 trillion in non-defense appropriations, a congressional aide said.

The House plans to vote this week on a proposal tying a debt limit increase to a constitutional amendment to balance the budget, a proposal unlikely to pass the Senate.

“Republicans are insisting that this debate takes place before anything will happen and we live in a divided Congress,” Durbin said on “Face the Nation.” “So we have to check the boxes — one of them is to engage in this debate,” he said.

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Senate Leaders Push Revised Debt Plan

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