Debt ceiling: Why Sunday could be make-or-break day for 'grand bargain'

President Obama is pushing for a comprehensive deal to raise the debt ceiling and trim long-term deficits. But any big deal will require arm-twisting in Congress, and time is running out.

The White House and congressional leaders are looking to a new round of talks on Sunday to signal whether a grand bargain on raising the debt ceiling will come quickly – or at all.

The sense of urgency surrounding the Sunday talks is driven not only by an economic deadline, but increasingly by a political one, as well. The government is on track to run out of money by Aug. 2, and in order to meet that deadline, congressional leaders will need weeks to sell a comprehensive deal – which will likely include painful spending cuts or tax increases – to their respective parties.

“If we are going to have an agreement, we’d have it by Sunday,” said Sen. Lamar Alexander (R) of Tennessee after a briefing with House Speaker John Boehner and Senate minority leader Mitch McConnell on Thursday’s White House debt talks.

In a shift, President Obama this week played down rumors that the White House would have to settle for a short-term deal to avoid default on Aug. 2. Instead, he said there is a historic opportunity to restore confidence that the US can stem the tide of red ink and get its fiscal house in order.

So far, negotiators have avoided leaking specifics on the debt talks and are critical of news reports that claim, for example, that Social Security cuts are now on the table. But the White House and House and Senate leaders confirm that the talks are aiming at significant cuts – at least $4 trillion over a 10- to 12-year period – and are nearing endgame.

The push for a significant deal could give negotiators a boost in selling sacrifices to their respective party caucuses, White House press secretary Jay Carney told reporters after Thursday’s White House meeting.

“You would not want to give on an issue that is hard for you as a Republican or Democrat if the reward is not significant,” he said. “And the reward here, for both parties, is the opportunity to significantly reduce the deficit, send the message that we're getting our fiscal house in order, and providing, therefore, the confidence in the American economy that will help us grow faster and create jobs faster.”

But the president says the price for a deal of that scope is a “balanced approach” to deficit reduction that includes painful cuts in discretionary spending (including defense spending), cuts in entitlement spending, and ending certain tax breaks. GOP leaders say that tax increases are off the table, Democrats are resisting entitlement cuts.

House minority leader Nancy Pelosi (D) of California told reporters after the meeting that she offers the White House “full cooperation” on a “grand bargain” on debt, but not at the expense of Medicare or Social Security.

“I also want to have full clarity about where House Democrats stand,” she said in a press briefing on Thursday. “We do not support cuts in benefits for Social Security and Medicare…. We are not going to balance the budget on the backs of America's seniors, women, and people with disabilities.”

Thursday’s White House meeting was the first announced negotiating session since GOP negotiators walked out of talks led by Vice Joe President Biden on June 23 after an impasse on raising taxes. Republican leaders have said that tax increases are off the table, but there is a break in GOP ranks over whether ending tax loopholes, also known as tax spending, could be used for debt reduction.

In the latest such move, Sen. John Thune (R) of South Dakota joined Democratic Sens. Dianne Feinstein of California and Amy Klobuchar of Minnesota on Thursday in sponsoring a bipartisan deal to cut $6 billion in annual tax breaks for ethanol. The deal would run afoul of some conservative groups that want to shink the size of government, because it would not balance that move with tax cuts, meaning the money would go into federal coffers.

The deal, however, provides that some two-thirds of the savings in the current fiscal year – $1.33 billion if the credit expires on July 31 – would go to debt relief and the balance to extend tax credits for ethanol pipelines.

Democrats see unpopular tax breaks as an opening to break GOP opposition to including taxes in a debt deal. For several weeks, they have taken to the Senate floor to call on Republicans to cut other tax loopholes and use the savings to offset the deficit. These include a $2.2 billion tax break for hedge-fund managers, a $300 million tax break for corporate jet owners, and $10.5 billion in tax breaks for the oil and gas industry.

Most Republicans have signed a pledge sponsored by Americans for Tax Reform that provides that any cuts in tax breaks must be offset by other tax cuts to ensure that the outcome on balance is revenue neutral – and hence can't be used to increase the size of government.

Sen. Mike Lee (R) of Utah, a member of the Senate tea party caucus, says that he supports that principle, but sees “ways of raising revenue without increasing taxes.” These include closing loopholes so Congress can lower marginal corporate tax rates, stimulate growth, and, eventually increase government revenue.

But the offsets don't necessarily need ot come at the same time as the cuts in tax breaks.

It’s a hot topic for GOP leaders responsible for negotiating a final deal.

“We all understand it’s a tough spot for [Speaker Boehner] to be in,” says Senator Alexander. "Republicans control the House, but we have a Democratic president and a Democratic Senate, so any agreement he makes is not going to be something we are entirely happy with.”

“The debt is an economic catastrophe. I hope they swing for the fences and get a result. It has to be as close to Republican principles as possible for me to support it,” he adds.