WASHINGTON — With Republicans and Democrats still deeply divided over how to shrink the budget deficit and the national debt, the only way for them to avoid a financial crisis at this late date may be to perform a legislative magic trick
The idea, conjured by Senator Mitch McConnell of Kentucky, the Republican leader, would allow Republicans to accede to an increase in the government’s debt limit without actually voting for it or giving in to President Obama’s demand for tax increases as part of any deal.
It would give the White House a way out of the box that it is in and avert a potential deeper blow to the economy. And it would allow Democrats to head into an election year having backed substantial spending cuts without having, so far, buckled to pressure to bite into the entitlement programs that represent core values to many liberal voters.
That, at least, is the goal of the approach offered last week by Mr. McConnell, who continued to work with Senator Harry Reid, the Democratic majority leader, on Monday to refine their fallback proposal even as the parties exchanged fire leading up to coming floor fights in the House and Senate over a Republican deficit-reduction plan. The Senate leaders are developing cuts and other deficit-reduction provisions to provide some lubricant to pass the measure, which has been ridiculed by many Republicans as a slick effort to dodge accountability.
While negotiations continued, House and Senate Republicans plan to focus their energy this week on the so-called cut, cap and balance proposal embraced by conservatives. It would reduce spending next year by more than $100 billion, cap future spending based as a percentage of the economy and require a balanced-budget amendment to be approved by Congress and sent to the states for ratification before the debt limit could be increased.
Before the House debate scheduled for Tuesday even began, the administration issued a veto threat on behalf of Mr. Obama, who on Sunday had a private meeting at the White House with the two top House Republicans — Speaker John A. Boehner of Ohio and Representative Eric Cantor of Virginia, the majority leader.
“The bill would undercut the federal government’s ability to meet its core commitments to seniors, middle-class families and the most vulnerable, while reducing our ability to invest in our future,” the White House said in a statement. It said the measure “would set unrealistic spending caps that could result in significant cuts to education, research and development, and other programs critical to growing our economy and winning the future.”
Mr. Cantor said the president was being too hasty in his dismissal of the legislation and called the Republican plan a “common sense” proposal to “ensure that Washington begins to live within its means and put in place a constitutional balanced-budget amendment that will make balancing our budget the rule, not the exception.”
The measure has little to no chance of approval in the Senate. Still, Republicans hope that enabling the rank and file to vent their frustration and vote for the deficit-cutting plan could clear the air and also clear the way for moving forward with the McConnell plan should no suitable alternative proposal surface.
Mr. McConnell’s proposal would essentially flip the current process on its head by calling on Congress to disapprove rather than approve an administration request for a debt limit increase. It would then allow the president to veto the disapproval if it clears Congress, allowing the debt limit to be raised to avoid a default, assuming the veto could be sustained.
The plan also calls for a special Congressional commission to be created that would recommend future spending cuts and policy changes that lawmakers and the White House could then show to the financial markets as evidence that the government intended to get its fiscal problems under control.
Officials knowledgeable about the talks say that the Senate leaders are also negotiating a package of spending cuts that would be attached to the McConnell plan, though perhaps not until it reaches the House. That package would reduce discretionary federal spending by $1.1 trillion over 10 years, take about $200 billion out of programs like federal pensions and agricultural subsidies and save another $200 billion in interest payments.
In order to limit the ability of conservative Republicans to filibuster the McConnell measure, the plan could be attached to a resolution on deficit cutting being considered in the Senate, saving some time given the approach of the Aug. 2 deadline set by Treasury for raising the ceiling.
The bill would still face multiple procedural challenges. And even if it were to pass and create the new process for approving the debt limit increase, Congress would still have to engage in another round of votes on the disapproval of the debt limit increase and a likely veto. But approval of the initial legislation would trigger immediate approval of a $100 billion increase in the debt limit to forestall a crisis should the disapproval and veto process not be complete by Aug. 2.
Since the biggest problem facing the legislation right now is the resistance of House Republicans, the Senate leaders are planning to let the House add the spending cuts into the package as a way to draw support. Even if nearly all House Democrats agreed to back the proposal to avoid a default, dozens of Republicans still must support it to get it across the finish line.
Republicans officials, far from confident that the McConnell plan could clear the House, suggested Monday that the spending package being put together in the Senate might not be enough to win over Republicans who have insisted on a dollar of cuts for every dollar of increase in the federal debt limit.
With the president continuing to barter with the House Republican leadership, the McConnell legislation, through the creation of the Congressional commission, could also conceivably be used as a way to enact any compromise Mr. Obama could reach on more far-reaching deficit-reduction proposals or tax law changes.
“We’re making progress,” the president told reporters after an event Monday.
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