Potential Debt Limit ‘Plan C’ Emerges, Democrats Say

Democratic officials are cautiously optimistic that the outlines of a potential compromise – a “Plan C” – are emerging that could bridge the differences between plans pushed by House Speaker John Boehner, R-Ohio and Senate Majority Leader Harry Reid, D-Nev.

The officials said President Obama has spent the past couple of days quietly reaching out to leaders in both parties to try and start hammering out the details, though it's clear this is still only in the discussion phase and they are not close to a deal yet.

Senate Budget Chairman Kent Conrad, D-N.D., hinted at such a compromise earlier Thursday during an interview on Fox News.

“Let me just say behind the scenes there are discussions underway to find a way forward,” said Conrad. “To how would you harmonize what Leader Reid has come up with and Speaker Boehner has come up with and I'm increasingly of the view that we can do that. That’s good news.”

The focus of this round of talks is on what kind of "trigger" mechanism the debt ceiling legislation will have to guarantee that a new special committee of Congress actually follows up with real spending cuts later this year. And whether or not positive action by the committee will allow the president to get more leeway on another lift in the debt ceiling so there’s no repeat of the current debate early next year.

These Democratic officials see three steps to a compromise and they stress that the White House believes the first two steps are not necessarily that difficult, while the third one -- the trigger mechanism -- will be the flashpoint.

Part One of the emerging compromise involves the spending cuts in the Boehner and Reid plans, which the Democratic officials note have some overlap and can be bridged relatively easy.

Part Two involves the fact that both Boehner and Reid want to set up a special committee of Congress to come back with a second round of spending cuts -- and possible tax changes -- in a few months. While there are differences to their committees, this is another area where the Democratic officials see a lot of overlap.

Part Three is the sticking point, and that is what "trigger" mechanisms are in place to incentivize action by this special committee to make sure it is not just yet another Washington commission that ends up doing nothing.

For example, Democrats want to make sure that if Republicans walk from those talks, there might be some tax increases that would kick in automatically -- giving the GOP incentive to stay and work out a deal.

At various phases of this debate, Republicans have tried to tie implementation of the president's health care reform bill to this process -- so perhaps the individual mandate would be stripped out if Democrats walked from the talks. Clearly, this is a huge sticking point -- what kind of incentives and penalties will be tied to all of this.

Hanging in the balance is not just the fate of the second round of spending cuts, but also the president's push to get a large chunk of debt ceiling space so that he does not have to come back and get Congress to vote again in a few months.

According to these Democratic officials, the White House believes Senate Republicans who were not named are starting to warm to a compromise behind the scenes. The key of course would be finding a compromise that would attract enough Senate Republicans to reach the 60-vote threshold to break a filibuster in that chamber.

But a big caveat here: If Senate Republicans were to sign on to such a deal, it would of course still need to get back through the House, where many conservatives would balk. As one senior House Republican aide told Fox News, "I hope the president can get a ton of (Democratic) House votes then" to get it through the chamber.

It's already been hard for Boehner to get this far with his current bill, so it would be highly unlikely he could get a lot of his troops on board. House Minority Leader Nancy Pelosi would have to deliver most of the votes.