'Really close' to debt deal as deadline nears

A few hours later, Senate Majority Leader Harry Reid issued a statement saying he had signed off on a pending agreement, subject to approval by the Democratic rank and file.

But that was met by conspicuous silence from the White House, McConnell and House Speaker John Boehner's office, two days before a deadline to raise the federal debt limit and enable the government to keep paying its bills.

Privately, officials said a final sticking point concerned possible cuts in the nation's defense budget in the next two years. Republicans wanted less. Democrats pressed for more in an attempt to shield domestic accounts from greater reductions.

As contemplated in talks that McConnell and Vice President Joe Biden were negotiating, the federal debt limit would rise in two stages by at least $2.2 trillion, enough to tide the Treasury over until after the 2012 elections.

Big cuts in government spending would be phased in over a decade. Thousands of programs — the Park Service, Labor Department and housing among them — could be trimmed to levels last seen years ago.

No Social Security or Medicare benefits would be cut, but the programs could be scoured for other savings. Taxes would be unlikely to rise.

Any agreement would have to be passed by the Democratic-controlled Senate and Republican-controlled House before going to the White House for Obama's signature. With precious little time remaining, both houses were on standby throughout the day, and Speaker John Boehner was in his office.

Without legislation in place by Tuesday, the Treasury will not be able to pay all its bills, raising the threat of a default that administration officials say could inflict catastrophic damage on the economy.

If approved, though, a compromise would presumably preserve America's sterling credit rating, reassure investors in financial markets across the globe and possibly reverse the losses that spread across Wall Street in recent days as the threat of a default grew.

Senate Majority Leader Harry Reid, D-Nev., said he was "hopeful and confident" a deal would come together. But in a possible hint of dissatisfaction, he pointedly made no mention of congressional Democrats when he said negotiations were between McConnell and the White House and unnamed others.

Officials familiar with the negotiations said that McConnell had been in frequent contact with Vice President Joe Biden, who has played an influential role across months of negotiations.

The talks were proceeding toward a two-step system for raising the debt limit and cutting spending.

The first step would take place immediately, raising the debt limit by nearly $1 trillion and cutting spending by a slightly larger amount over a decade.

That would be followed by creation of a new congressional committee that would have until the end of November to recommend $1.8 trillion or more in deficit cuts, targeting benefit programs such as Medicare, Medicaid and Social Security, or overhauling the tax code. Those deficit cuts would allow a second increase in the debt limit, which would be needed by early next year.

If the committee failed to reach its $1.8 trillion target, or Congress failed to approve its recommendations by the end of 2011, lawmakers would then have to vote on a proposed constitutional balanced-budget amendment.

If that failed to pass, automatic spending cuts totaling $1.2 trillion would automatically take effect, and the debt limit would rise by an identical amount.

Social Security, Medicaid and food stamps would be exempt from the automatic cuts, but payments to doctors, nursing homes and other Medicare providers could be trimmed, as could subsidies to insurance companies that offer an alternative to government-run Medicare.

Officials describing those steps spoke on condition of anonymity, citing both the sensitivity of the talks and the potential that details could change.

The emerging deal could mark a classic compromise, a triumph of divided government that would let both Obama and Republicans claim they had achieved their objectives.

As the president demanded, the deal would allow the debt limit to rise by enough to tide the Treasury over until after the 2012 elections.

But barring a change, it appeared Obama's proposal to extend the current payroll tax holiday beyond the end of 2011 would not be included, nor his call for extended unemployment benefits for victims of the recession.

Republicans would win spending cuts of slightly more than the increase in the debt limit, as they have demanded. Additionally, tax increases would be off-limits unless recommended by the bipartisan committee that is expected to include six Republicans and six Democrats. The conservative campaign to force Congress to approve a balanced-budget amendment to the Constitution would be jettisoned.

Congressional Democrats have long insisted that Medicare and Social Security benefits not be cut, a victory for them in the proposal under discussion. Yet they would have to absorb even deeper cuts in hundreds of federal programs than were included in Reid's bill, which many Democrats supported in a symbolic vote on the House floor on Saturday.

As details began to emerge, one liberal organization, Progressive Change Campaign Committee, issued a statement that was harshly critical.

"Seeing a Democratic president take taxing the rich off the table and instead push a deal that will lead to Social Security, Medicare and Medicaid benefit cuts is like entering a bizarre parallel universe — one with horrific consequences for middle-class families," it said.

While politically powerful business groups like the Chamber of Commerce are expected to support the deal, tea party organizations and others have looked disapprovingly on legislation that doesn't require approval of a balanced-budget amendment.

If they keep to that position, it could present Boehner a challenge in lining up enough votes to support a compromise, just as Obama may have to stand down rebels within his own party.

The day began with optimistic statements in televised interviews by McConnell and White House officials, then quickly reverted to a reminder of the fierce partisanship of the past several weeks.

Soon after the Senate convened, Republicans blocked legislation Reid had advanced several days ago as part of an outbreak of brinkmanship with Boehner and the Republicans. The vote was 50-49, or 10 short of the 60 votes needed to advance the bill.

The vote was of no consequence in the fate of the separate efforts to avoid default.

Those talks were unfolding along lines determined by McConnell and Biden, and it was unclear how much more time would be needed.

On the Senate floor, Reid told lawmakers they could leave the Capitol while awaiting developments. "I would not suggest a ball game, though, maybe closer," he said.

A little over a mile away, on a hot, sunny Sunday, the Washington Nationals were playing host to the New York Mets.

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Associated Press writers Jim Abrams, Ben Feller, Laurie Kellman and Andrew Taylor contributed to this story.