At this stage, Boehner's relationship with Reid may be the most important one. | AP Photos All eyes now on Boehner and Reid

With markets waking, Washington’s debt standoff worsened significantly Sunday amid recriminations and distrust just eight days before the real threat on an unprecedented default.

Having broken off talks last Friday with the White House, Speaker John Boehner is still trying to achieve much of the same $3 trillion package in a two-stage process tied to raising the debt ceiling in increments of $900 billion first and then about $1.6 trillion next year.


But on the eve of a Monday Republican conference, Boehner’s would-be Senate partner, Majority Leader Harry Reid, was called to the White House on Sunday and then came out swinging, accusing the speaker of taking a “my-way-or-the-highway approach” that could never be acceptable to the Senate nor to President Barack Obama.

“Tonight, talks broke down,” Reid (D-Nev.) said. “Speaker Boehner’s plan, no matter how he tries to dress it up, is simply a short-term plan, and is, therefore, a non-starter in the Senate and with the president.”

Reid said he had begun drafting his own $2.7 trillion deficit reduction plan and urged Boehner to join him. But Republicans reacted angrily, saying Reid had been working with them Sunday afternoon up to the White House meeting and the sudden change-of-heart was dictated by Obama, jilted by Boehner but a major force in the whole struggle.

“Sen. Reid took the bipartisan plan to the White House and the president said no,” said a Republican aide familiar with the talks. A second leadership aide put it more bluntly, saying the speaker had 218 votes in the House for his proposal, while Reid and Obama don’t yet have 60 votes for any alternative in the Senate.

Indeed, since breaking off talks with the White House, Boehner has kept open lines to Obama, and the two men talked Sunday. But at this stage, the Boehner-Reid working relationship may be even more crucial, and in a conference call with Republicans on Sunday, Boehner had seemed to give a nod to Reid by emphasizing that any legislative strategy has to pass the Senate as well.

“We’ve seen this coming all year long. But here’s the challenge: To stop [Obama], we need a vehicle that can pass in both houses,” Boehner said.

“I do think there is a path,” Boehner said, still holding out hope of filing a bill Monday for House floor action Wednesday, “but it’s gonna require us to stand together as a team. It’s gonna require some of you to make some sacrifices. If we stand together as a team, our leverage is maximized and they have to deal with us. If we’re divided, our leverage gets minimized.”

Reid and House Minority Leader Nancy Pelosi (D-Calif.) met for an hour Sunday evening with the president at the White House, and the Nevada Democrat must walk a fine line between working with Boehner and keeping faith with the president and Pelosi in the mounting crisis.

Boehner has his own pressures: Conservative critics are stepping up demands that each debt-limit increase matched by locked-in savings. But the process is already so tilted against Democrats, it risks blowing up in the Republicans’ face — with huge unknown consequences for both parties and the nation.

Two issues stand out: the relevant size of the two debt ceiling increases and determining a fair reckoning for the savings from winding down the wars in Iraq and Afghanistan that have certainly contributed to the debt crisis now before lawmakers.

The war funding savings, worth upward of $1 trillion over 10 years, is a reminder of how much the fight is a struggle of numbers, not just politics. And as a practical matter Republicans are using the debt vote to insist on dollar-for-dollar spending cuts that Democrats like Reid simply find crushing, especially when the GOP refuses to consider any new tax revenues to relieve the burden.

“We can do dollar for dollar,” said one Democratic leadership aide, “But they can’t also pick the content of how we get there.”

“It’s true that our staffs continued to talk today - but we never backed off our opposition to a short-term increase and they never stopped insisting on one, and that’s why talks fell apart,” said a Reid aide. “By the time Reid went to the White House it was clear none of their proposals met our bottom line of avoiding a short-term increase. He did update Pelosi and Obama on where those talks stood, but they all agreed it didn’t meet the bottom line.”

For the White House, going into the 2012 elections, an even greater concern is to establish some certainty that this fight won’t be back before voters and markets in seven months.

“We’re running out of runway; we’re almost at the edge,” Treasury Secretary Timothy Geithner told “Fox News Sunday.”

“The idea that we’re going to spend another seven months lifting the cloud of default from the American economy, it seems an irresponsible approach. It would be bad for the economy. And we don’t think that makes sense — and there’s no reason why we have to do it that way.

As outlined by Boehner, the first $900 billion debt ceiling increase — to be enacted before Treasury’s Aug. 2 deadline — would be paired with cuts from future appropriations by about $1.2 trillion over the next 10 years.

This builds on White House talks setting discretionary spending caps in the range of $1.04 trillion to $1.045 trillion for fiscal 2012 and 2013. Future growth would be restricted to an annual pace of about half the rate of inflation. Statutory language would be included to enforce these limits, but Boehner appears to be taking a hard line, giving credit for only about 80 percent to 90 percent of the savings.

The treatment of funding for disaster aid and Pell Grants for low-income college students remains an open issue. But the $1.04 trillion mark is about midway between appropriations levels for 2011 — after cuts were made in April — and the House GOP plan for 2012. And it represents a $50 billion per year reduction from funding levels coming into this Congress.

Domestic agencies would be most affected since defense is expected to increase its share of all appropriations. And measured in real dollars adjusted for inflation, the eight major domestic appropriations bills would get less than the amount former President George W. Bush approved in his final years in office.

All this pales next to the second step required to complete the job of raising the debt ceiling a total of $2.4 trillion to $2.5 trillion to get past the 2012 election.

That second installment of $1.6 trillion will be needed by Treasury next winter and will sorely test a new joint deficit committee set up to implement many of the more difficult entitlement cuts, including those to Medicare, discussed with the White House.

The committee — to be appointed by the congressional leaders — would be asked to report by the end of November. Its task is made harder by the fact that Boehner has thus far refused to give any credit for an estimated $1 trillion in savings that the House GOP counted in its budget and attributed to winding down U.S. military operations in Afghanistan and Iraq.

That puts the panel in the same bind that earlier bipartisan talks led by Vice President Joe Biden confronted when trying to come up with a $2.4 trillion to $2.5 trillion 10-year package of spending cuts.

The Biden group made considerable progress in identifying savings, but reached a breaking point in late June when Republicans broke off talks after refusing to consider increased revenues to get to the finish line.

Unless there is some give, the result will be a repeat of this summer’s standoff, only in the first months of the 2012 presidential election year. And when asked Sunday whether the president would veto a plan if it does not extend the debt ceiling into 2013, White House chief of staff Bill Daley said on NBC’s “Meet the Press” that Obama would.

“Yes, the president believes … in order to help the American economy and help the American people, we must get this uncertainty out of the system,” Daley said.

To add more certainty to the process, one option is to trigger additional cuts automatically if the deficit committee fails to meet its prescribed target.

As now drafted, the Boehner plan requires the committee to meet its target before the president is authorized to seek the second $1.6 trillion installment. Having a trigger would give the White House more certainty of reaching this point, and this is believed to have been one of the topics discussed at last night’s Oval Office meeting between Obama, Biden, Pelosi and Reid.

A second path is a route once favored by Senate Minority Leader Mitch McConnell (R-Ky.), who would have Congress give up some of its authority to the president and be satisfied with simply voting on a resolution of disapproval regarding the debt increase.

To have any impact, such resolutions must summon a veto-proof two-thirds in both houses, an unlikely event in this Congress. But the McConnell compromise would give both parties a chance to go on the record — and allow Obama to feel some certainty as to the outcome.

But Boehner and House conservatives continue to resist, and the speaker has several options—if he were to choose to use them—that could instead facilitate the process more for Reid and the Senate.

Indeed, a level of trust has been built up between Boehner and Reid and their respective staffs. And if Boehner trusts Reid, then allowing for some down payment on this trust is not unreasonable in the first increment.

It could also be Boehner’s statement of faith in the new deficit panel or, closer to his heart, the existing House and Senate committees of jurisdiction, which could be asked to become more involved in an expedited reconciliation process built on the White House talks.

Many of the smaller government-benefit changes or increased user fees, for example, are better suited for these committees, in either case. And just as the appropriations committees are being trusted to come through with their cuts under the caps, these committees could be given targets to meet by early October.

This commitment would lessen the burden on the second debt ceiling increase. But absent any Republican give on revenues, it’s difficult to see a deal done with Reid without the GOP accepting at least partial savings from winding down the wars.

The whole issue arises because of the Congressional Budget Office’s rigid scorekeeping rules, which can be blamed on Congress itself.

In forecasting future spending, CBO feels bound to project the cost of wars forward, even when they already show signs of winding down. Thus, in its March baseline, the CBO assumes $1.67 trillion in war funding through 2021; since the administration forecasts only $630 billion, budget writers can credit themselves with more than $1 trillion in added savings.

Republicans are clearly conflicted on this point. House Budget Committee Chairman Paul Ryan of Wisconsin counted the savings to show a larger deficit reduction than he otherwise could have. The whole scoring of the White House “grand bargain” also rested on large war savings.

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John Boehner