By Virginia Ainslie

The White House has announced that July 22nd is the new deadline for securing agreement on a debt ceiling deal.  This allows only about 10 days to get a deal translated into legislative language and through both chambers of Congress.

Given this, House Majority Leader Cantor has indicated he may keep the House in session the week of July 18-22, which is currently scheduled as a Congressional District Work Period.

Two Senate Republicans, including Sen. John Cornyn of Texas (a member of the Senate Republican leadership team), indicated over the July 4th weekend that they could accept some tax expenditure changes if the deal included sufficient spending cuts in an enforceable package.  This is a major divergence from House Republicans’ insistence on “no tax changes or increases”.

Tea Party groups are now divided, with more on the “cut, cap, and balance spending-cut-only” side than on the “no debt ceiling increase” side, but they remain united against including any new revenue in the deal.

Sensing this dissonance among Republicans, the Administration is said to be putting together a “last and best” offer that will include cuts to Medicare and Medicaid, as well as extension of the payroll tax holiday for another year.  This offer is designed to get Republicans to accept significant tax expenditure changes in return for major long term entitlement cuts.  No change to Bush era tax cuts is expected, but a long list of tax credits, subsidies, deductions, and tax breaks are on the White House tax expenditure hit list.

This mega-deal Administration offer will differ from the budget proposal that Senate Budget Committee Chairman Kent Conrad plans to present to Senate Democratic leaders today, and share with the Senate Democratic caucus tomorrow.  This proposal is not expected to include any changes that would affect Social Security, Medicare or Medicaid beneficiaries.  However, it could affect health care providers, drug companies, nursing homes and doctors.  Also, any extension of the payroll tax holiday will reduce income to the Social Security Trust Fund, which is already paying out more than it collects.

If a big mega-deal can’t be worked out by July 22nd, a smaller deal that includes only the spending cuts tentatively agreed to by the bipartisan Biden group negotiators is a possible fall back.  The Administration’s big entitlement cut offer would come off the table.  A smaller deal would require another debt ceiling increase before the 2012 elections.   This might postpone the day of reckoning for 6 to 8 months, but promises to leave nobody - including voters - happy.

A 10-year deal to minimize the impact of the Alternative Minimum Tax (AMT) and a permanent Medicare “doc payment fix” are two hot potatoes in talks about a mega-deal.  Both are Republican priorities, but can’t be included in any agreement that doesn’t include new revenue.

Meanwhile, the U.S. Treasury has confirmed that - if there is no increase in the debt ceiling by August 2nd and they are forced to prioritize payments for interest due on the debt, Social Security, Medicare, Medicaid, defense contractors and unemployment insurance -   there will be no cash left to pay for military salaries, veterans’ programs, IRS refunds, or the non-defense federal employee payroll.