By Virginia Ainslie

The immediate goal is to secure at least $2.4 trillion in 10 year savings to offset an equal increase in the debt ceiling. The Biden group achieved tentative agreement on $1.5 - $1.7 trillion in spending reductions, about 2/3 of this goal. This includes a $1.1 trillion reduction in discretionary appropriations over the next decade - a huge cut that will repeatedly reduce funding for almost all federal programs for the foreseeable future.

The choice now is to find either some mix of revenue and additional savings to close the gap, or settle for a smaller deal that would require another debt ceiling increase before November, 2012.

The White House has offered significant Medicare savings if Republicans agree to increase revenue by eliminating a number of tax subsidies, tax credits, and loopholes. Some of the revenue achieved by these Medicare reforms could be used to help offset the cost of annual adjustments in the alternative minimum tax (AMT) for upper-middle-income families - an important Republican priority.

House Republicans desperately want to get a big deal done now, and find the Administration Medicare savings offer a welcome solution to the toxicity generated by House Budget Chairman Paul Ryan's Medicare voucher proposal.

Senate Minority Leader McConnell, however, is standing firm in his refusal to agree to any changes in taxes or revenue - a stance which could force a smaller deal unless House Republicans align with Democrats and President Obama to outflank McConnell.

There is some talk this morning about the White House possibly agreeing to a smaller deal. Some White House advisors are sure this would help Democrats win in FY 2012 when the voting public will be "experiencing the impacts of huge federal spending cuts, in part, because Republicans refused to give up tax breaks for the rich and for big corporations". Many Dems in Congress think this would be a huge mistake.

Rep. Michelle Bachman, an announced Republican candidate for President, stated yesterday that she doesn't believe the August 2nd deadline for a debt ceiling deal is real. She and a substantial number of other Republican Members of the House are convinced the Administration will delay the day of reckoning, and that Treasury claims of imminent financial market meltdown are overblown. The President's relaxed demeanor in talks and the previous postponement of the debt ceiling increase deadline have fueled this view. Some House Tea Party freshmen remain convinced that the best way to reduce spending is to refuse to increase the debt ceiling at all.

Meanwhile, a new analysis by the Bipartisan Policy Center shows that the U.S. will not be able to pay almost half of its obligations if it lapses into default on August 2nd. Jay Powell, a former Undersecretary of the Treasury for Finance under President George H. W. Bush and a visiting scholar at the Bipartisan Policy Center, indicates that on August 2nd (or close to it), federal spending would be reduced by as much as 44% for the remainder of August, as the Treasury prioritizes payments in order to remain under the debt limit.