John McCain and Lindsey Graham are hoping to strike a large-scale fiscal deal. Debt ceiling drama returns

Warnings from the White House, Wall Street and the world economic community be damned: Debt ceiling drama is back.

The rapidly approaching fight over lifting the nation’s borrowing limit won’t only pit Republicans against President Barack Obama but also pit Republicans against Republicans.


One example of the GOP tension: Sens. John McCain of Arizona and Lindsey Graham of South Carolina and several other Senate Republicans are hoping to strike a large-scale fiscal deal with Democrats and the White House to reform entitlements, the Tax Code, fund the government and infrastructure projects, and most important, blunt sequester cuts. They met with White House chief of staff Denis McDonough again Tuesday.

But Rep. Paul Ryan, who is taking a lead in crafting the House Republican debt plan, wants nothing to do with it.

“It doesn’t matter — we’re not going to do what they want to do,” the Wisconsin Republican told POLITICO when asked about Senate Republicans’ plan for the debt ceiling. “It really doesn’t matter what they do. It doesn’t matter what John McCain and others do on the taxes and the rest. If they want to give up taxes for the sequester, we’re not going to do that. So it doesn’t really affect us.”

Once again, Washington is waltzing toward calamity with no clear strategy. In the next six months, however, Congress and the White House will need to raise the nation’s borrowing limit to avoid a debt default and downgrade. Congressional sources say the nation will hit its borrowing limit anytime from October to the end of 2013.

At this point, some Senate Republicans appear to be in a deal-making mood — endangering the nation’s creditworthiness runs counter to cultivating an image of a party that wants to get things done.

But House Republican leaders have been telling their members for months that the debt ceiling is where they should pick their fight with the White House. As if they were reading off cue cards, several leading House Republicans inside and outside leadership say there are loads of GOP lawmakers who are perfectly willing to gamble with default.

The dynamics are set for a nasty fall fight.

At this point, leadership positions in both chambers are clear. Senate Democrats say the borrowing cap needs to be lifted without any corresponding spending cuts.

“We are not negotiating on the debt ceiling,” Senate Majority Leader Harry Reid told reporters Tuesday. “The president’s said this, I’ve said it and I don’t know how many more times we need to say that.”

In a familiar refrain, House Speaker John Boehner is already saying he needs “significant cuts in spending” to lift the debt ceiling. The Ohio Republican says the so-called Boehner rule — a hike in the debt ceiling must be matched by equal cuts and reforms — is the “right formula.”

From there on out, the positions quickly unravel.

People in and around Boehner’s leadership team privately tell POLITICO that the sooner the party moves away from the dollar-for-dollar mantra, the better off Republicans will be in negotiations with both the Senate and the White House. Boehner’s aides maintain that “reforms” to certain laws would qualify under his standard.

And that’s where GOP leadership is currently heading. House Republicans are deathly afraid of being jammed by their Senate GOP colleagues and feel that they have to pass a bill before the emerging bipartisan governing coalition in the upper chamber comes to an agreement and sends it their way.

At this point, the most likely scenario is that the House will pass a bill as an opening gambit that, in some way, combines tax reform and a new energy policy that the GOP hopes will set the nation on a path toward energy independence, according to sources familiar with House GOP planning. This way, House Republicans establish their position and try to avoid having to accept a bill worked out by Senate Republicans and the White House.

“I’m always worried about the Senate Republicans after what they’ve done,” said New Jersey Rep. Scott Garrett, a leading lawmaker in the Republican Study Committee.

Most Senate Republicans embrace the general idea of reining in entitlement spending and keeping — or even expanding — the sequester cuts. Few like raising revenue — something the White House is sure to demand.

“Our main goal going into the year-end discussion is to not walk away from the bipartisan agreement that we made two years ago to reduce spending,” said Minority Leader Mitch McConnell of the 2011 Budget Control Act. “And that unfortunately had to be done by the sequester. But the sequester is the law.”

Wyoming Sen. John Barrasso, a member of GOP leadership, said: “We need to make sure that we cut spending, not increase taxes.

Graham, who is in talks with the White House, said it’s a good sign people are beginning to engage on a deal in these early stages.

“We’re talking at different levels about Tax Code reform, entitlement reform, infrastructure packages. What do we have to do? I think we have to fund the government, we have to raise the debt ceiling, or at least talk about raising the debt ceiling. Anything that’s going to happen, happens around those two issues,” Graham said Tuesday. “The fact that so many people are talking about how to get ready for these events is a bit encouraging.”

But Republicans like Rep. Steve King of Iowa and Sen. Marco Rubio of Florida show how difficult it will be to satisfy the right. In exchange for hiking the debt ceiling, Rubio wants a plan to balance the budget in the next decade. King wants a balanced-budget amendment sent to the states — or a repeal of Obamacare.

Sen. Ron Johnson (R-Wis.) has a laundry list of asks.

“We have all kinds of options,” Johnson told POLITICO. “I certainly want to take a look at what we can do in terms of removing from the health care legislation the most damaging parts … We should really repeal the medical device tax” and allow states to opt out of Obamacare.

Although no decisions have been made about how to proceed, preliminary discussions among House leaders have led to additional clarity. First, the preference now in leadership circles is to have one debt ceiling hike instead of several short-term debt-cap hikes. Moving several bills would present stiff challenges to those trying to gather 218 GOP votes.

Although they once toyed with releasing a debt-limit plan before August, Republicans now say there’s no reason, since the borrowing limit might slip until the end of 2013.

The lack of certainty among Republicans about the right approach is somewhat stunning. In January, House Republicans used most of a legislative retreat to reorder the year’s fiscal fights to their advantage. Increased revenues and an improved economic picture ruined that plan, pushing the debt ceiling fight from this summer until the fall or winter.

House Democrats are watching these contortions with some disbelief. House Minority Whip Steny Hoyer said “this is as serious a challenge on fiscal matters as I’ve seen.” New Jersey Rep. Rob Andrews, who has been Democratic negotiator on previous deals, said Republicans will fold in this fight.

“I think there will be an omnibus appropriations bill, an extension of the debt ceiling, a fix to the sequester as part of that compromise,” he said.

As for Ryan’s criticism of McCain’s plans, the Arizona Republican said he thinks he could sell the House on whatever he comes up with.

“It’s kind of chicken or egg,” he told POLITICO. “Do you want to negotiate with them first or do you want to come up with a proposal and try to sell it, like we’re doing with immigration? You need to keep in constant communication with the House so that they don’t feel left out of anything.”

Manu Raju contributed to this report.