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State of the Union

Debt Ceiling Deal?

Aired July 31, 2011 - 12:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

GLORIA BORGER, GUEST HOST: It's down to the wire, and a deal on the debt ceiling could be near.

(voice over): Today, as negotiations with the White House continue, where were three of the key players?

The man who could cut the final deal, leader of the Senate Republicans, Mitch McConnell, the Democrats' chief message-maker Chuck Schumer, and the president's lead economic adviser, Gene Sperling; then Moody's chief economist Mark Zandi to tell us whether a deal would save the U.S. credit rating.

I'm Gloria Borger in for Candy Crowley. And this is "State of the Union."

And we're just an hour away from a vote in the Senate on a Democratic plan to raise the debt limit, but the real action is between the president and the Republican Senate Leader Mitch McConnell.

I spoke with him earlier, and he was optimistic about getting a deal.

(BEGIN VIDEOTAPE)

BORGER (on camera): Let me get right to it. Can you announce this morning that a plan has been reached, that there's a deal?

MCCONNELL: Well, we are very close. We had a very good day yesterday. Both the president and the vice president called me and the president talked to the speaker as well, and they understand that with a Republican majority in the House and a very robust Republican minority in the Senate, we have to come together.

And I think we've made dramatic progress in that direction since April, for example, when the administration, Gloria, was asking us to raise the debt ceiling with no spending reductions at all, nothing, just a clean debt ceiling.

Now I think I can pretty confidently say that this debt ceiling increase will not -- avoid default, which is important for everybody in America to know. We are not going to have a default for the first time in our 235 year history. We're not going to have job-killing tax increases in it. We're going to deal with the problem the American people sent us here to deal with, which is that the government has been spending too much.

We don't think we have this problem because we've been taxing too little; we've been spending too much.

So I think we're very close to being in a position where hopefully I can recommend to my members they take a serious look at it and support it.

BORGER: And get it done when?

MCCONNELL: Soon.

BORGER: Today?

MCCONNELL: Soon.

BORGER: OK.

MCCONNELL: We're aware that August 2nd is a date of some significance.

BORGER: Right. Well, let me walk you through an outline of this potential deal. There has been an awful lot of reporting from CNN and elsewhere about what it contains. First the size of the package, over $2 trillion, yes?

MCCONNELL: The entire package?

BORGER: The entire package, $2.4 trillion...

BORGER: What we're looking at is a $3 trillion package, a combination of discretionary cuts, both cuts now, caps over the next 10 years to hold spending in line, and then we're also going to be voting on a constitutional amendment to balance the budget. Now, that is important for the future, because it will put some constraints on our spending habits here in Washington.

Also, let me emphasize the joint committee. In the early stages of this discussion, the press was talking about another commission. This is not a commission; this is a powerful joint committee with an equal number of Republicans and Senate -- an equal number of Republicans and Democrats, to not only look at entitlement changes, but to make a recommendation back to the Senate and House by Thanksgiving this year for an up or down vote. So think of the base closing legislation we passed a few years ago -- for an up or down vote in the House and Senate.

BORGER: OK.

(END VIDEOTAPE)

BORGER: And we are breaking away from that interview with Senator Mitch McConnell to listen to the Senate majority leader, Harry Reid. Actions are moving so quickly today. Let's listen to what he says about the vote, the upcoming vote.

REID: ... weren't asking about military strategy or how a troop drawdown in Afghanistan would affect them. No. They asked whether they would get paid if the Republicans forced the United States government to stop paying its bills.

In a region that has been rocked by violence and plagued by suicide bombers this month, they wondered how they would take care of their families if the checks stopped coming next month.

Let me read a little bit of that United Press story that came out yesterday. Quote, "Half a world away from the Capitol -- the Capitol Hill deadlock, the economy and debt crisis are weighing heavily on U.S. troops in Afghanistan.

"And the top question on their minds Saturday, even as bombings rocked the city around them, was on the top United States military officer couldn't answer: 'Will we get paid?'" -- end of quote.

Admiral Mullen went on to say, "I don't know the answer to that question, but that either way, those soldiers," he said, "all of you must continue to work every day."

Mr. President, this is really unacceptable. In a country as rich and powerful as ours, men and women with bombs going off around them shouldn't wonder whether this country will leave them high and dry.

This afternoon I asked those who have said they will never compromise on any terms to think about who their stubbornness will really hurt -- seniors, soldiers, and others.

I spoke to the vice president this morning, in fact, a couple of times. He's hopeful. Of course we have to be hopeful that we're close to an agreement with Republican leaders.

The framework of this agreement is based on new ideas and some old ideas. After speaking with Republican Leader Mitch McConnell this morning, we are cautiously optimistic.

There are a number of issues yet to be resolved, and we must understand them. There's no agreement that has been made. But we're optimistic that one can be reached. But we're not there yet.

Optimism in days past has been really stomped on at various times. These major issues still to be resolved, or these ongoing discussions is something we have to resolve in the next few hours if they're going to be resolved.

Each of them must be resolved before we have a final agreement. And as we know, one problem can stop the whole agreement from going forward.

But we must get something done as quickly as possible. I believe all sides are aware of this urgency. It's unfortunate the House of Representatives wasted all last week on legislation they knew would never pass the Senate and, in fact, barely passed the House. It passed the House with only Republican votes, not a single Democratic vote.

Democrats have said all along that we would never agree to a short- term arrangement that would put our economy at risk and force Congress into another debt ceiling showdown in a few weeks.

We have to move on. House measure -- debt ceiling for five months, August, September, October, November, and December, five months. We would be back in this same debate in a matter of weeks. We could not allow that to happen.

So any agreement has to have a long-term approach. That's the long- term approach that we've taken here in the Senate is -- we've forced here in the Senate is absolutely necessary. We must give financial markets confidence this country won't shirk its obligations now or in the future.

I know that the compromise being discussed at the White House adopts the Senate's long-term approach, which would give the economy the certainty it needs, take us past the year -- again, past January 2013. That has to be done. And that will be done if an agreement is reached.

It's also crucial the agreement being crafted set us on the path to fiscal restraint.

Mr. President, there are still elements to be resolved, and we're watching them very closely. The (inaudible) must include thoughtful constraints on spending. We know that. The 12-member commission I conceived and recommended additional deficit reduction measures this year will be a key to that effort.

And I stay to my friend, the Republican leader, I appreciate his wrapping his arms around this and being such a cheerleader for this idea. It's a good idea. It's an idea that Congress itself would solve the problem. It would be a joint committee that would move forward, and there would be a trigger that, if they didn't resolve this, then something else would happen.

And based on past experiences, I think there would be tremendous incentive not to let that certain thing happen when the trigger kicked in.

So Senator McConnell and I agree the commission owns the responsibility to set this country on the path to fiscal accountability. The joint committee, there are no constraints. It can look at any program we have in government, any program. And it has the ability to look at everything. And that's what needs to be done. The commission will ensure we undertake that responsibility.

When I thought of this idea about the commission, I knew it was important that it achieve real results. And it will be essential to choose members with open minds willing to consider every option, even when the options are tough pills to swallow for both parties.

So, Mr. President, cooperation is the only way forward. Compromise is the only way forward.

This is what Andrew Carnegie said about the virtue of compromise. Quote, "I shall argue that strong men" -- and since the Senate has changed so dramatically, "and strong women" -- that's me; I stuck that in -- "I shall argue that strong men know when to compromise and that all principles can be compromised to serve a greater principle" -- Andrew Carnegie.

But perhaps President Abraham Lincoln said it best when he said this, and I quote, "Determine that the thing can and shall be done, and then we shall find a way."

That's where we are today, Mr. President. We must determine that the thing can and shall be done, and then we need to find that way. That's President Abraham Lincoln.

Let the chair announce the business for the day.

(UNKNOWN): Under the previous order, the leadership time is reserved. Under the previous order, the Senate will resume consideration of the House...

BORGER: There we have -- there we have the Senate Majority Leader Harry Reid. And with me now is Wolf Blitzer.

You just heard that Harry Reid said, quote, "We are close to an agreement. We are cautiously optimistic."

That's what I heard earlier from Senator Mitch McConnell. What do you make of it?

BLITZER: Well, I think Mitch McConnell and Harry Reid now seem to be pretty much on the same page. Yesterday at this time they weren't very much on the same page. But they look to be on the same page right now.

We still have to hear from the Republicans in the House of Representatives, the Speaker John Boehner, Nancy Pelosi, of course, the Democratic leader, if this is going to pass, whatever they work out. And still, there's no deal until all -- all aspects of the deal are put together.

If it passes, they will need a majority in the Senate and they'll need a majority in the House of Representatives. A lot of Democrats will vote for -- if the president is for this, a lot of Democrats, most of the Democrats, will vote for it in the House, but they'll still need a whole bunch of Republicans. I don't think they're going to get a majority of the Republicans. But even if they get a third of the Republicans, I think they could pass this and the country could move on.

BORGER: And you heard Harry Reid talk about a long-term approach through 2013, which is clearly what the president wanted, but also a committee that seemed very important to Mitch McConnell -- and hopefully we can run some more of that -- this committee that would provide fiscal restraint for the Congress; in other words, forcing the Congress to act, essentially.

BLITZER: Major -- major cuts, further cuts in spending, potentially cuts in entitlement spending -- Medicare, Medicaid, Social Security -- tax revenues potentially could be on the table, tax reform if not complete tax rate hikes.

All of that could be on the table if this committee -- and they differentiate a commission like the Erskine Bowles-Alan Simpson commission. This would be a committee, equal number of Democrats, equal number of Republicans from Congress that would come up with the recommendations.

There would have to be a take-it-or-leave-it up-or-down vote in both chambers. If for some reason it didn't pass, mandatory across-the- board cuts in the military spending, domestic spending, all sorts of spending would go into effect.

BORGER: Including entitlements. And the big question we have is where are revenues in all this? And we can talk about that in a minute. Let's take a quick break and we'll be right back and hear a little bit from Senator Mitch McConnell.

(COMMERCIAL BREAK)

BORGER: And we're checking -- looking at a picture of the Senate floor. Senator Ben Cardin of Maryland is speaking right now. We just heard from the Senate Majority Leader Harry Reid, who told us he believes they are close to an agreement, which is something that Senator Mitch McConnell told us earlier today.

I'd like to play for you now while we're waiting to hear from Senator Mitch McConnell on the Senate floor something that Gene Sperling, the director of the National Economic Council, told me he said that tax cuts are not on the table for about a year and a half. Let's take a listen.

(BEGIN VIDEOTAPE)

BORGER: Thanks for being with us this morning. I know you've been working around the clock here.

SPERLING: Thanks for having me.

BORGER: I know you have been working around the clock here.

Well, you just heard Senator Mitch McConnell who was talking about a $3 trillion deal, and absolutely no revenues as part of it. Is that the deal you're working on?

SPERLING: Well, it's not going to surprise you that I am not going to negotiate here as much as I would like to...

BORGER: That's too bad.

SPERLING: ...or give the exact details.

But let me tell you what the president believes are the three principles for a compromise. One, that we have a significant down payment on deficit reduction, and as part of his willingness to compromise he is fine with that being just spending cuts that are mutually acceptable. That second we come back for a more significant effort at deficit reduction that would include entitlement reform and tax reform that raises revenues. And three, that whatever agreement we have it has to lift the cloud of uncertainty off our economy, off our job creators that has been created, not just by the threat of default now, but the idea that we would just kick that threat down the road and go through this whole mess again around the holidays.

BORGER: Well, you know, it seems to me from talking to both of these senators that there seems to be a deal that has been reached to essentially allow an automatic approval of the next installment on the debt ceiling with a vote of disapproval say coming from the Congress necessary, a super majority. So if that's the case, then you get to the second phase of this.

And the second phase of this is the question we've been talking about all morning, which is how do you guarantee that this commission and that Congress actually does the job it's supposed to be doing on -- on cutting the deficit.

So how do you guarantee that there is a balance, which I presume the president's been talking about it and I presume he wants it, between revenues and spending cuts?

SPERLING: Well, you know, I think Senator Schumer said it very well. You want to have an enforcement mechanism. And what that means, simply, is that, when you get a bipartisan group together to aim for deficit reduction, you want to make it hard for them just to walk away and wash their hands. You want them to say, if nothing happens, there will be a very tough degree of -- of pain that will take place...

(LAUGHTER)

BORGER: It sounds like you're talking to your children, I might add, but never mind.

(LAUGHTER)

SPERLING: Well -- well, but the important thing that Senator Schumer said, which is correct, is that what matters is that that enforcement mechanism be an incentive on both sides to compromise. So both sides have to essentially fear that enforcement mechanism enough that they're willing to come to the table and compromise on an agreement.

That happened in 1990, with President Bush, to avoid an enforcement mechanism. They came together. They had a balanced approach. And there's no question -- this president has been very firm on this -- that he's not going to not ask, in a big deal, for all of the burden to go on seniors, on children, on students, on the middle-class families, and then ask nothing of those who are most fortunate in our society.

BORGER: So why wouldn't there be a stalemate?

SPERLING: Well, let's note a couple of things. First of all, nobody is talking about raising any revenues over the next year and a half. In fact, the president, as you know, has been pushing very hard to cut taxes with the payroll tax cut extension for next year, because we want to make sure we're giving this economy as much momentum as possible.

But you've also seen a lot of bipartisan consensus, more than is often reported, that you can do a form of tax reform that lowers rates and still raises revenue, contributes to the debt reduction, and this president believes can be done in a way that asks those who are most fortunate to contribute, not because you're trying to do class warfare but because you want shared sacrifice.

And you just simply cannot ask sacrifice from seniors, from middle- class families, and not ask the most well-off Americans to be part of that. In fact, if you don't, then the sacrifice on everyone else becomes deeper.

That's the message the president will take to the American people in the coming months...

BORGER: But what I just heard you say is no revenues for the next year and a half?

SPERLING: That has always been the president's position.

(END VIDEOTAPE)

BORGER: Wolf, that has been the president's position, correct, no revenues in the short term?

BLITZER: He has said at that news conference a couple of weeks ago that even if there were going to be tax reforms and tax increases, they wouldn't take effect at least until 2013. In other words, if they raised the tax rate for the highest income earners, those families earning more than $250,000 a year, going back to the Clinton rate of 39.6 percent from the Bush rate of 35 percent, that wouldn't start until 2013. Now, there's a lot of Republicans and some Democrats who will oppose that even in 2013.

BORGER: I guess the big question here for the White House and for the Democrats is how can they guarantee that in this second round of budget cutting that Republicans will sign on to some kind of revenue increases to get a balance? Is that where tax reform comes in?

BLITZER: Well, you know, it depends on what your definition of tax reform, because if they eliminate some outrageous loopholes or subsidies that benefit very, very select, you know, oil industry executives or whatever, they might be able to do that. But at the same time, they're going to have to reduce some corporate profit rates and stuff like that. So they'll finesse it, but it's not going to be easy by any means, especially if you have an equal number of conservative Republicans and liberal Democrats. For them on this committee to come up with something that they could all accept and recommend it for an up-or-down vote in the House and the Senate, it won't be easy.

But if they fail, the trigger will be let's say a 4 percent across the board cut, military spending, domestic spending, and that's very painful for a lot of people.

BORGER: Well, there has to be something for everyone to hate in this in order for it to stick.

BLITZER: And that's what they would hate.

BORGER: Exactly. OK, stay with us, we'll be right back and we're looking for live coverage from the Senate floor. We're waiting to hear from Senator Mitch McConnell. We've already heard from the Senate Majority Leader Harry Reid, and it looks like things are moving along. Stay with us.

(COMMERCIAL BREAK)

BORGER: Mark Zandi, chief economist for Moody's Analytics, was upbeat about how a deal would affect the economy and the markets. I spoke with him earlier. He was in San Francisco.

(BEGIN VIDEOTAPE)

BORGER: Mr. Zandi, I have to ask you right off the bat. You've been listening out there this morning. What's your reaction to what you're hearing from Mitch McConnell and Senator Schumer?

ZANDI: Yeah, great news. I mean, this sounds like we're going to avoid a crisis. Three trillion dollars in deficit reduction over the next 10 years is more than what I would have expected. So if they actually follow through on that, I think that's great news.

And that gets us pretty close to what you might call fiscal sustainability. That's our bogey. That's what we need to get to, to restore sustainability in our fiscal situation.

So I'm quite excited. If they can pull this off, I think we're going to be in good shape.

BORGER: How do you think the markets are going to react?

ZANDI: Very positively. You know, I fully -- I think the markets fully expect that they'd get some kind of deal, that they'd push the debt ceiling to the other side of the election. I think that was the minimum the markets expected.

But this sounds like it is going to go beyond that. And I think this idea of a congressional committee with some teeth and some real pressure to come to an agreement is a very positive step. So I think the markets will react very positively.

BORGER: Does this pressure, these enforcement mechanisms, triggers as they are called in Washington-speak, would that give business, markets some sense of certainty that we were going to head on a downward trajectory with a deficit, and is that enough for them to feel certain about their business in the future and how they can operate?

ZANDI: Yes, I think so. Obviously it depends on the details and how they are going to structure this and, you know, whether it actually does have teeth and merit. But just listening to the senators, it sounds like they are working to something that is going to be substantive, and I think that will provide enough certainty to businesses.

And, by the way, that's very important. In my mind, a key reason why this economy really has not gotten going and why businesses aren't hiring is because they can't construct a narrative in their mind with respect to how policy-makers are going to do this.

And I think if they get this narrative, this should be very helpful. So, yes, I think it could be very positive.

BORGER: And do you think -- I know you are not a credit rating guru, but do you think this is also enough to kind of avert a downgrade from our AAA status right now?

ZANDI: Well, yes, of course, you know, I am not in the rating agency, I can't speak for them. But listening to what they have to say, I think this would be sufficient, yes.

You know, now, all of the rating agencies have different opinions, some may go down a different path, but I think, broadly speaking, this is substantive -- if it comes to what they are talking about now, this is substantive and I think it should avoid a downgrade.

BORGER: And has all of this spectacle and endless squabbling already hurt the economy to a certain degree? I mean, has it set us back?

ZANDI: Yes, I think it has. I think one of the reasons why we're not getting the kind of job growth that we need is, you know, businesses are just shell-shocked. You know, I talked to a lot of business people in lots of different industries all over the country, and to the person they are extraordinarily nervous about this.

And I think it has -- you know, they don't lay off workers because of this, but they certainly don't hire workers, and that's what we need. And so if they get any kind of clarity on this issue, I think given their profits, given their strong balance sheets, we are going to see them start to step up, we're going to see more job growth and this economy is going to start to kick in. So it's going to be very positive.

BORGER: So you think as a result of this deal, if a deal is indeed reached in the near future, that it will have the effect of creating jobs?

ZANDI: Absolutely. You know, I think the uncertainty of this has been a pall over the entire economy, and that if we lift it, it will make a big difference, and a few months down the road we are going to see a much better economy.

(END VIDEOTAPE)

BORGER: And, Wolf, you just heard Mark Zandi. Big difference in the economy, will create jobs, businesses will start to invest, if only they could get this deal.

BLITZER: He's very upbeat. He says that if there's a deal -- and if you believe Mitch McConnell, and we're waiting to hear from him on the Senate floor and what he told you earlier, he's optimistic -- now Harry Reid, the majority leader, he says basically the same thing. They're very, very close. He says he's cautiously optimistic. There is no deal until all the details are wrapped up. They still have some work to do. That could be done today, it could be done tomorrow. They could obviously get this done.

But the most important thing that Mark Zandi said is if they look like they have a deal, he thinks America's AAA credit rating will hold firm.

BORGER: Absolutely. So we're going to stick with this, Wolf, and we'll be back in a minute and we'll be watching the Senate floor and bring you Senator Mitch McConnell.

(COMMERCIAL BREAK)

BORGER: Welcome back to "State of the Union." We're monitoring developments that are very fast moving on the Senate floor today. And while we watch that for you, we're going to play for you some of Senator Mitch McConnell, who was with me earlier this morning on "State of the Union" and had some important news to tell us about the state of the debt limit negotiations. Take a look.

(BEGIN VIDEOTAPE)

BORGER: OK. Well, let me walk you through this in stages. And I want to get to that deficit commission, because there are discussions about --

MCCONNELL: Committee.

BORGER: Committee. There are discussions about what would happen if it doesn't do its work. Let's -- first things first, though.

MCCONNELL: Yeah.

BORGER: One sticking point has been that the president wanted an absolute guarantee that we wouldn't go through this kind of a showdown six months from now on the debt ceiling, has he gotten his wish on that? Is there a way for the debt ceiling to come up in six months and he gets guaranteed approval of it?

MCCONNELL: Well, you know, the president has been pretty candid that he was concerned about not having to do this again before his election. Frankly, my members were a little more concerned about getting the job done properly for the American people...

BORGER: OK, but what is the deal? What is the fix?

MCCONNELL: Well, you will see that this is a process that could get him past the election. We're working on the combinations that will get us there.

BORGER: Would it be a vote of disapproval? In other words, he could just propose it and it would need a super majority to disapprove? MCCONNELL: Well, the mechanism for getting a debt ceiling to be increased obviously would be the resolution disapproval. But look, we're still working on the parameters of it. We're very, very close to being able to recommend, I am to my members, that this is something they ought be able to support.

BORGER: So essentially then the president gets the ability not to have another showdown?

MCCONNELL: I'm very close to being able to recommend to my members that we have an agreement here that I'll be able to consider supporting.

BORGER: OK. And then the next big area is this debt committee, as you call it, and the question is how do they guarantee absolutely that you get the kind of deficit reduction you are looking for. Because we have had, with all due respect, committees in the past and they haven't done so well, one very recently. So how do you hold their feet to the fire? There is talk of triggers to make sure if they do not do their work, Congress will be forced to cut?

MCCONNELL: First of all, we haven't had anything like this before. This is a joint committee of Congress. It is not a commission that consists of outsiders. A joint committee of Congress with an equal number of Republicans and Democrats, under enormous pressure from the American people, from the markets, foreign countries looking at us to see if we're going to get our house in order, to come up with significant additional savings over and above the initial ones that we will approve before the end of this year, and entitlement reform is absolutely critical.

For example, the -- the trustees of the Medicare and Social Security system appointed by the president has said repeatedly, both of these very important and essential programs are in serious trouble.

BORGER: Well, so -- well, my reporting is, and I would like you to talk about what's going on inside the room you are in...

MCCONNELL: No, I know you'd like for me to do that.

BORGER: I would. I would ask is the question of how do you absolutely guarantee that these cuts come? And as I was saying, there are these triggers people are talking about so that if, for example, they can't agree, let's just say that, then there is talk of across the board spending cuts, of as much as 4 percent in areas like Medicare and defense spending. Can you talk about these sort of fail- safe mechanisms that would enforce cuts?

MCCONNELL: Well, let me say my view is that there is a mathematical possibility, obviously, that the committee could deadlock, a mathematical possibility. And there has been a lot of discussion with the White House, you are having one of their folks on -- Gene Sperling I think later to talk about. A lot of discussions over the last week about what do you do if the committee deadlocks. I think it's highly unlikely that will happen. And that has been something we've been discussing for over a week. And I hope we're on a path to resolving the what if?

BORGER: What if?

MCCONNELL: We'll let you know.

BORGER: Well, I'm going to try again.

Because the big concern of the Democrats like Gene Sperling, have been that if the committee deadlocks, and you have to come up with these deficit reduction, they want to see a balance. They want to see revenues and spending cuts. Is there a way you can guarantee that revenues would be part of any kind of overall big second phase of this?

MCCONNELL: At the risk of frustrating you, let me say again, that the trigger issue has been the one that has locked us in the extensive discussions. I thought we had an agreement or we were very close to an agreement a week ago today, and then went off to our separate corners and in my view kind of wasted a week firing volleys back and forth across the Capitol. But now I think we are back in the right place and the trigger issue is one that we'll let you know we've agreed to when we agree to it.

BORGER: What's something you want, though?

MCCONNELL: We will let you know what we've done on the trigger issue when we make the announcement.

BORGER: OK. So clearly, this is the sticking point, because the Democrats -- I mean, can you say the triggers are the sticking points?

MCCONNELL: Well, that has been an item of outstanding discussion for over a week.

BORGER: And let me go to something you mentioned earlier, which has also been a point of some contention, and that is the question of the balanced budget amendment. The people in the House and the speaker's plan wanted a guarantee of passage of the balanced budget amendment. Would that be in any deal or would there just be a guarantee of a vote?

MCCONNELL: Well, we intend to be voting on the balanced budget amendment in the Senate, and we will let you know when that is scheduled.

BORGER: As part of this plan?

MCCONNELL: We are going to be voting on the balanced budget amendment in the Senate. I hope it will pass, because that's a good, important...

BORGER: But you're not talking about a guarantee of passage.

MCCONNELL: That's an important restraint long-term on the government of the United States, which has certainly demonstrated in the decade that it can't get its financial house in order unassisted. BORGER: Well, let's say you have this deal and you get through the whole trigger question, how much of his caucus does John Boehner have to deliver?

MCCONNELL: You have to ask him that question.

BORGER: Would you expect that he would need to deliver half, though? I mean, looking at the politics of the way this is?

MCCONNELL: Look, I serve in the Senate. The best I can tell you is, I am hoping very soon to have an agreement that I can recommend to my members and we're hoping that we will have a significant percentage of them support it.

BORGER: Why would conservatives who want a guarantee of passage of the balanced budget amendment, not just a vote as you're talking about, but passage, and deeper cuts, why would they sign on to this kind of deal?

MCCONNELL: Well, I think what conservatives want to do is cut spending, and at the risk of repeating what I said earlier, back in April the administration was asking us to raise the debt ceiling cleanly, with nothing attached to it at all. We have come a long way.

I think this agreement is likely to encompass up to $3 trillion in spending reductions, no tax increases that we know will kill jobs, the president made that argument last December when he passed a bill to extend the current tax rates for two more years.

He understands that tax increases are a job killer, particularly when you have over 9 percent unemployment, that certainly is not going to be part of this.

BORGER: So can you guarantee to conservatives that no tax increases will be a part of this deal?

MCCONNELL: We're not going to raise taxes in this deal. I just said that, and I will say it again, there are no tax increases in this bill.

BORGER: So even if there is tax reform and closing loopholes, do you consider loopholes...

MCCONNELL: There will be no tax increases in this proposal. Look, we've got...

BORGER: Why would Democrats sign on to this, then?

MCCONNELL: Look, we have got over 9 percent unemployment, Gloria, over 9 percent unemployment. A vast majority of the Democrats back last December voted to extent the current tax rates, not to raise taxes on anybody.

So they understood then, the president understood then, it was a job- killer to do that. We don't intend to start doing that. That is not what this is about. The government spends too much, it does not tax too little.

BORGER: Let me ask you, why would Democrats sign on to a compromise that included potential entitlement cuts but no tax increases?

MCCONNELL: Well, you will have to ask them. If we get an agreement, the president will be supporting it and he will be making the arguments in favor of it, and you will have to ask the Democrats about what their motivation might be.

BORGER: And we are going to ask that in a moment to Senator Chuck Schumer. One last question, what has it been like to deal with the president and the vice president on this level?

MCCONNELL: I like them both. I mean, I have had a lot of dealings with them over the last couple years. And I am particularly appreciative that we're now back talking to the only person in America who can sign something into law, and that's the president of the United States.

BORGER: Well, thank you so much, Senator Mitch McConnell. Thank you for being with us.

MCCONNELL: Glad to be here.

BORGER: And maybe next time you'll be able to tell us exactly what the deal is. Thank you very much.

(END VIDEOTAPE)

BORGER: Wolf, he didn't tell us exactly what the deal is, but he certainly gave us an indication of where they're coming from right now. It looks like the Republicans are getting an awful lot of what they wanted. Isn't it?

BLITZER: They are certainly getting it. The Senate Republicans are going to be on board, Harry Reid is going to have a lot of Republican support in the Senate. The problem is going to be in the House of Representatives, where there's going to be a lot of opposition. There were more than 20 House Republicans who voted against what the speaker, John Boehner, proposed last week. And they're going to be a lot more Republicans who are going to vote against any deal that comes forward this time. But here's the key difference. Most of the Democrats will vote in favor of what the president supports.

BORGER: And so the question is going to be what is the balance, what does the balance have to be between Democrats and Republicans. I mean, John Boehner does have moderate Republicans --

BLITZER: He'll have at least 30 or 40 moderate Republicans. And it was interesting, he was meeting with let's call it that first Tuesday group, yesterday, the moderate, the centrist Republicans in the House of Representatives. They will be on board with Mitch McConnell and the president of the United States. But a lot of conservative Republicans won't. And normally the speaker doesn't like to have a vote unless he's guaranteed or she's guaranteed more than a majority of their own caucus, 50 percent. He might not get it, but he's going to have more than enough Democrats to get this passed in the House if it comes down to that.

BORGER: And that's what gives Nancy Pelosi a little bargaining power here, as the Wall Street Journal pointed out this week, that some of these Tea Party House Republicans were actually giving Nancy Pelosi more leverage in cutting a deal because they need her votes now.

BLITZER: Yes. And they'll get a lot of Democrat who will support -- if the president of the United States, not only the commander in chief but he is also the leader of the Democratic Party, if he comes out on television at some point today or tomorrow or whenever and says this is a good deal, it's not perfect, but it avoids default, averts default, economic catastrophe for the country, all that entails, he'll get a lot of Democrats in the House to vote for it.

BORGER: OK, Wolf, let's go to the floor of the Senate right now where Senator Durbin and Senator McCain are talking to each other.

DURBIN: ... and help those out of work find work with training and education.

MCCAIN: So one would have to assume, then, that the senator from Illinois believes that the last stimulus package was successful, which was, counting interest, over $1 trillion. The senator from Illinois and others who advocated the, quote, stimulus package, said that if we pass this, said the administration, if we pass this, unemployment will be a maximum of 8 percent. This will stimulate our economy and create jobs.

And you know what the senator from Illinois and others are saying now, it was not enough, that it was not enough, that we didn't spend enough, that we didn't make -- that we didn't make the deficit larger, because certainly nothing in the stimulus package was paid for.

So I hope that the senator from Illinois understands the American people understand that just spending more money has failed and failed miserably. When you look at the latest news, and it's on the front page of the Wall Street Journal and the Washington Post and the New York Times, that our economy is staggering back into a situation of stagnation.

And the response on the other -- I'll be glad to let you respond. The answer on the other side is let's have more spending and let's raise taxes. Let's take some more money out of the taxpayers' pockets in the form of spending more money, their money. It's not the administration's money. It's not the senator from Illinois's money. It's the people's money. Take some more money of theirs. This is the Nobel Prize -- well, I won't -- anyway -- take more money in taxes and more out of taxpayers' pockets and that will be the answer to our problems. I'd be glad to hear the senator from Illinois's response.

DURBIN: First, I want to thank my colleague from Arizona. For those who are witnessing this, this is almost a debate in the United States Senate, and it rarely happens. And I thank you for coming to the floor. And I'd like to --

MCCAIN: May I say that rather than having you use all our time, I thought I would engage in a colloquy.

DURBIN: I enjoy doing this.

MCCAIN: Go ahead, please.

DURBIN: First, during the course of your presidential campaign, Mark Zandi, your economist, helped you formulate some positions. His opinion of President Obama's stimulus is that it stopped a precipitous decline in our economy. It achieved all we had hoped for? No.

MCCAIN: Can I just say -- can I just interrupt one second on that particular point? Mr. Zandi was one of many advisers to my campaign. The key adviser was Douglas Holtz-Eakin, who, as you know, former head of the CBO, you know him well, who had no really brief whatsoever for that proposal. Please go ahead.

DURBIN: The second point I'd like to ask the senator from Arizona, I think one of the real bedrock beliefs among Republicans is that if you cut taxes, particularly on the wealthiest people in America, the economy will prosper. We hear that over and over again. Didn't we try that experiment under President George W. Bush? Didn't the debt of the United States double under the president, and he left a shambles behind him?

2.3 million jobs lost in the first three months of President Obama's administration because of this failed economic policy, which you continue to espouse, that if we cut taxes on the rich, America is going to get wealthier? Haven't we tried it? Where are the jobs?

MCCAIN: Could I take a little trip down memory lane with my friend from Illinois, who I had the great privilege many years ago, I don't know if I should mention, 1982 election, he and I came to the House of Representatives together. And might recall that one of his own, then a Democrat congressman from Texas, got together with President Reagan, and guess what we did? We cut taxes, and guess what? We had one of the strongest recoveries in recent history in this country.

Because -- could I just -- because we didn't start spending and add spending without paying for them. And I would say to the senator from Illinois, he is correct. The spending that went up in the previous administration was not acceptable and led to the deficit. Let me just finish.

But I will also say, speaking for myself, I voted against the Medicare Part D because it was not paid for. I voted against the earmark and pork barrel spending which were abundant as every appropriations bill came to the floor and dramatically increased spending in the worst way, wasteful and corrupt way, I will say.

And I'm proud that at least some of us said if you don't stop this spending and get it under control, then you're going to face a serious problem.

What I would also mention, and you've seen the chart, it's gotten a lot worse, gotten a lot worse since the last election. And you can't keep BIOB -- you can't keep up blame it on Bush. Go ahead. DURBIN: I'd like to respond to my colleague through the chair. My colleague from Arizona, does he recall what happened with the Reagan tax cuts? Because what happened was we tripled the national debt during that period of time, and President Reagan came to Congress 18 times to extend the debt ceiling. He holds the record. So to argue the Reagan tax cuts led to great long-term prosperity is I think seriously in doubt if you're going to use the deficit as a measure.

MCCAIN: If I could say, we believe and Reagan believed that cutting tax cuts would restore our economy, which was in the tank thanks to the practices of the previous administration before him. And we, Reagan presided over probably one of the greatest job creation periods in the history of this country. And those are numbers that I would be glad to insert in the record.

Compare that with what has happened since this administration took office, with the promise that if we passed Obamacare, if we passed TARP, if we passed all of these others that the economy would then be restored and grow. And again, it's hard for my dear friend from Illinois to refute the fact that the, categorically stated, that if we pass the, quote, stimulus package, that unemployment would be at a maximum of 8 percent.

Unemployment today is 9.2 percent. And if you look at any indicator, whether it be housing starts, whether it be the deficit, whether it be unemployed, whatever it is, it's gotten worse since the stimulus package was passed rather than better. Please go ahead.

DURBIN: Would the senator yield for a question? Does the Senator--

MCCAIN: I'd be glad to just hear your comment.

DURBIN: Well, I'm going to give you a chance to speak again. Does the senator believe that defaulting on our national debt for the first time in our history, which has been the threat looming over us from the House Republicans and others for a long period, is good for America's economy? One of his colleagues on the floor here from the state of Pennsylvania has come in and said, listen, defaulting on the debt is not that big a deal. It can be, quote, in his words, "easily managed." Does the senator from Arizona agree with that thinking?

MCCAIN: As the senator may know, I came to the floor a couple of days ago and made the comment and that the senator from Illinois and I are in agreement. Point No. 1.

You can prioritize -- I think the senator -- and every economist I know literally would agree. You can prioritize for a while where you want what remaining money is left, but the message you send to the world, not just our markets but to the world, that the United States of America is going to default on its debts is a totally unacceptable scenario and beneath a great nation. We are in agreement, No. 1.

DURBIN: Amen.

MCCAIN: No. 2 is that to insist, to insist that any agreement is based on the passage through the United States Senate of a balanced budget amendment to the Constitution of the United States, as I said before, is not fair to the American people, because the terrible obstructionists on this side of the aisle, the terrible people there, their flawed philosophical views about the future of America is not going to allow us to get 20 additional votes from your side -- assuming that you get all 47, since it requires 67 votes to pass a balanced budget amendment under the Constitution.

I think it was not only a wrong assessment, I think it's not fair to the American people to say we can pass a balanced budget amendment to the Constitution through the Senate at this time.

Now, maybe after the senator is defeated in the next election and we get rid of a lot of -- maybe that will happen. But certainly let's not tell the American people that that is a possibility today, because I think it raises their expectations in a way that's not fair to them, and frankly detracts from what I think is being done as we speak between the leaders, the president, Democrat leaders and Republican leaders, which is in a very short timeframe. Go ahead.

DURBIN: I would just say, it pains me to say that I agree with the senator from Arizona, but I do. We both feel that threatening the debt ceiling is not in the best interests of the United States, and both of us feel that holding out the threat that if you don't pass a constitutional amendment, you can't let the economy continue, is really not a good-faith bargain. I wish Senator Byrd were here to respond to that particular suggestion.

And as for my prospects in the next election, I thank the senator from Arizona for campaigning against me last time. When he did, I almost got 60 percent of the vote in Illinois. So I welcome you back to the land of Lincoln any time you'd like to come.

MCCAIN: I'd love to come out. And as I saw, I did so well in the presidential campaign in the land of Lincoln, I'm not surprised that I had such a dramatic impact on the senator from Illinois's election, as well.

Could I just say this kind of discussion I think is important, No. 1. No. 2 is we should have this national debate on other forums besides just the Sunday show, and perhaps the floor of the Senate is the best place to do that. And I want to continue to engage with the senator from Illinois.

But I hope that this agreement, I hope that this agreement will assure the American people that we will meet our obligations, that we will meet our obligations not only physically but -- fiscally -- but also meet our obligations to them to govern, to govern. Because they did send us here to govern.

I think the senator from Illinois would agree with me, the last approval rating of Congress I saw, both sides of the aisle was about 16 percent. And I have yet to encounter anyone in that 16 percent category in my travels back to my state.

And by the way, I would like to note the presence of the Budget Committee chairman here, Senator Conrad, who I think has made enormous good-faith efforts to reach an agreement on some of these issues. And I thank him for his work, and I want to assure him his reward will be in heaven, not here on earth. Does the senator from Illinois have --

DURBIN: I would also like to thank the senator from Arizona for the few minutes we've shared on floor. And I really hope more members will do this, rather than just taking turns giving speeches. These exchanges, even when we disagree, are valuable.

But I hope at the end of the day, I agree completely with the senator from Arizona. At the end of the day, we cannot allow our economy to lapse into this default. It will be devastating to a lot of innocent families and businesses across America, and it will cost us dearly in terms of our national debt.

So let us hope that we can find this bipartisan agreement that people are working on even at this moment. And I hope we can do that soon.

Incidentally, I want to say for the record, Former Senator Alan Simpson, whom I came to know even better on the Bowles-Simpson commission said, and I quote, "Ronald Reagan raised taxes 11 times in his administration. I was here. I was here. I knew him better than anybody in the room. He was a dear friend and a total realist as to politics." Mr. President, I yield the floor.

MCCAIN: Could I just remind the senator from Illinois that in retrospect, the one thing that President Reagan said he regretted, and he regretted, was the agreement that was made with the Democrat leadership that we would cut spending by $3 and increase taxes for $1 for every cut in --

BORGER: And, Wolf, good old-fashioned debate in the United States Senate.

BLITZER: It's a strong debate. And this day is only just beginning. There will be potentially lots of drama. Let's pause for a second.

(COMMERCIAL BREAK)

BLITZER: All right. We're watching the breaking news on the floor of the United States Senate right now. They're getting close to a deal, if you believe, the Senate Majority Leader Harry Reid, if you believe, the Senate Minority Leader Mitch McConnell. They are close, but they are not there yet.

In the meantime, there are some procedural votes underway on the floor of the United States Senate.

We want to welcome our viewers here in the United States and around the world. I'm Wolf Blitzer, reporting from Washington. Gloria Borger, our chief political analyst, is here as well. We've got our correspondents standing by over our - on Capitol Hill, as well as over at the White House.

But, Gloria, let's set the scene right now. We just saw live here on CNN an extraordinary exchange between Senator Dick Durbin, the Democrat from Illinois - he's been a Majority Whip, the number two Democrat in the United States Senate - and John McCain, the Republican Senator from Arizona. He was the Republican presidential candidate back in 2008.

And it was a perfect way to set the scene for this debate that's unfolding. The stakes, the economic stakes for the United States are, indeed, very, very severe right now. But, potentially, they are at a turning point.

BORGER: Yes, they are, because it seemed that all the rancor, quite honestly, was - was out of the debate between the two of them. And it seems to me that John McCain - John McCain was talking about governing, and he was talking about how Republicans need to govern, and I think that's something that Dick Durbin agreed with. And earlier in the week, you remember, that John McCain called House Republicans hobbits.

BLITZER: Right.

BORGER: Yes.

BLITZER: And these - these guys are the grown-ups right now -

BORGER: Right.

BLITZER: -- shall we say, in this whole debate.

BORGER: Yes.

BLITZER: And I think that a lot of statesman-like positions have been taken by - by Harry Reid and Mitch McConnell on that point.

You know what I want to do, I want to go back to the Senate floor and listen in on what's going on right now, because I think we're all going to get a little bit smarter in the process.

UNIDENTIFIED MALE: Mrs. Feinstein?

UNIDENTIFIED MALE: No.

UNIDENTIFIED MALE: Mr. Franken?

UNIDENTIFIED MALE: Yes.

UNIDENTIFIED MALE: Mrs. Gillibrand? Mr. Graham?

BLITZER: All right. So what they're doing is a roll call vote now on this Harry Reid proposal to move forward. They need 60 votes in order to break a filibuster. They're not going to get the 60 votes, we're told, so the debate will continue.

But they want to keep this Harry Reid legislation as a framework out there in order to - if, in fact, there's a - a bigger agreement between the White House, the Republicans and the Democrats in the House and the Senate, they will at least have this legislative framework to - to move the process forward, and the clock is clearly ticking before this deadline on Tuesday. Joe Johns I think is up on Capitol Hill. Is he standing by live right now? All right, let's bring in Joe Johns.

Joe, walk us through this little theater that's underway right now. It's - I say theater respectfully. It's very significant because they will need a legislative framework to get whatever ultimate deal they negotiate through the Senate then the House. JOE JOHNS, CNN CORRESPONDENT: Absolutely, Wolf, and the bottom line here is the Reid proposal, as it was originally written and introduced, is probably going nowhere in the United States Senate. Mitch McConnell sent out a letter - he's the Republican leader - saying yesterday that he had 43 votes against it.

But what they'd like to do is, if you will, take out the old language and cut and paste the new language they're trying to work on in order to be able to send it back over to the United States House of Representatives fairly quickly and get this issue, you know, off the table.

Meanwhile, Wolf, I don't know if you know, but we've been sort of talking around and trying to get a feel for how tough it is for Mitch McConnell, the Senate Republican leader, to get his people together and also get Democrats together on the other side in the event there is any final deal. And talking to one GOP aide, we got sort of the downside and the criticism about this - this agreement as it - as it comes together and they try to figure out how to handle it.

And here's what that GOP aide said, "They are obviously fast tracking the Gang of Six tax hikes" - this is the group that worked on this issue some time ago. And then this super committee that has been contemplated as part of this final agreement, he says, "Is sure to use the Gang of Six as the basis for negotiations to consider tax hikes." All the triggers we're talking about, these are the enforcement mechanisms, will simply amount to more intense pressure on both sides to take whatever the super-committee comes out with.

The - a - the most important point he makes is this is going to look like a big win for the Republicans today because of the cuts and the balanced budget inclusion in this contemplated agreement, but a big loss in the fall if the super-committee plan actually passes huge cuts, say, to defense.

And - and so, this is one of the things we're seeing here. We know that Mitch McConnell is going to be working hard to get support in the United States Senate. We also know that in the Republican Party it does not look like he's going to give 100 percent support from where he stands right now, Wolf.

BLITZER: No, but the - the question is will they get the majority? Will they even get 60 votes, you know, in order to get anything really important done in the United States Senate?

As you know, Joe, and you've covered Capitol Hill for many years, you almost always need 60 votes. So right now there are 51 Democrats, two Independents who caucus with the Democrats, and 47 Republicans. I think if Harry Reid and Mitch McConnell are jointly on board with the president of the United States, I think it's fair to say they will have more than 60 votes in the United States Senate. Is that right?

JOHNS: Well, you know, it's anybody's guess, quite frankly. And you know, as I do, anytime you try to predict what's going to happen in the United States Senate, it's a problem.

The question is, you know, there are a lot of Democrats out there who've been grumbling and concerned earlier this morning about whether the president of the United States, in negotiations with Republicans, might give away too much to make them feel uncomfortable as well.

So, work in progress here, but the most important thing to say is we have some of the top Democrats and Republicans in the Senate saying they are hopeful, they're optimistic, which is very, very different from what we were hearing just a little over 24 hours ago.

BLITZER: Absolutely true. Joe, stand by for a moment. Dan Lothian is over at the White House. Gloria Borger is here with me in our studio.

Dan, I'll go to you in a moment, but Gloria, I can't believe that if the Majority Leader and the Minority Leader in the Senate and the president of the United States are all on board, on the same page, if they reached the final agreement, they wouldn't get 60 votes in the United States Senate. I assume they'll get a lot more than that.

BORGER: Well, I think what you're hearing is grumbling from conservatives about this committee, this so-called super committee that Joe was just talking about, because they believed that it puts the defense budget in great jeopardy. So they're worried that if you end up with some kind of across-the-board cut, that what's going to get hurt is defense, and it's going to jeopardize national security. So I think that - that McConnell is going to get some pushback from a lot of his sort of defense hawks.

Now, we clearly didn't hear that from John McCain on the floor earlier, although he didn't speak specifically to this deal. But I do believe that's going to be a huge concern of theirs. And, on the House side, conservative House Republicans who wanted a guaranteed passage of the balanced budget amendment are not getting what they want either.

BLITZER: Stand by for a moment.

Dan Lothian is our White House correspondent. What are they saying over there, Dan? The - the president of the United States, is he getting ready to go into the East Room of the White House and deliver a speech to the nation? Will he have Harry Reid and Mitch McConnell and John Boehner and Nancy Pelosi standing up on a stage with him? Are we anywhere close to that kind of - that kind of image?

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: Well, look, I think that that is the image that a lot of people not only here in Washington but across the country and certainly overseas as well, as we have been talking to our CNN international audience, they would love to be able to see something like that.

I'll tell you what, though, the White House is trying to manage the level of optimism. You're hearing them saying things like, you know, there's still no deal yet but there's still work to be done. But I can tell you, from a Democratic source familiar with the talks, that the vice president is involved in deep negotiations not only internally here at the White House but also with lawmakers on the Hill. As you know, Wolf, the vice president has been quietly working behind the scenes, back-channel talks now for quite some time even as there was criticism from up on the Hill that the president himself had not been actively engaged, something that the White House has been pushing back on.

So that's where it stand at - stands at this point. No word yet from the White House in terms of any kind of official meeting taking place here at the White House or anything on the president's schedule in terms of coming out to the microphones but certainly anything is possible at this point.

BLITZER: We'll watch it together with you.

Stand by for a moment. I think they're just wrapping up this vote on the Senate floor.

Joe Johns, this vote, the roll call, is now basically complete. We don't have Joe right now? Joe Johns not available.

But they're just wrapping it up. Let me hear what they're - what they're saying on the Senate floor.

UNIDENTIFIED MALE: -- White House. Mr. Widen, aye.

Senators voting in the negative.

Mr. Johnson of South Dakota, aye. Mr. Leahy, aye.

Senators voting in the negative.

BLITZER: All right. They're wrapping up this vote right now on the Senate floor. They need 60 votes in order to break a filibuster. I suspect they don't have 60 votes even though one or two or three Republicans might, Gloria, vote with the Democrats - with the Democrats on this. There are 53 effective Democrats - 51 Democrats -

BORGER: Right.

BLITZER: -- two Independents, Lieberman and Bernie Sanders of Vermont.

BORGER: And here's kind of an interesting little thing to look for in this, as our Congressional producer Ted Barrett points out, that at the end of the vote, look for Harry Reid to change his vote from yea to nay. And this is a procedure that allows him to bring this up again so it can be used as the vehicle for any eventual compromise. So he has to vote against his own - his own measure, in the end.

BLITZER: Yes. And that's just a formula. But they want to keep this legislative framework alive.

BORGER: Exactly.

BLITZER: So if, in fact, the negotiations are resolved and they've got the language they need, they have this vehicle, they've already done the preliminary procedural work to set the stage for it, and then they can have a formal vote on this. And if they need 60 votes I suspect they will get it in the Senate.

The question is what happens in the House of Representatives, because you have a lot of Tea Party supporters in the House. A lot of conservative Republicans, who will not like this deal.

BORGER: No.

BLITZER: They wouldn't - wouldn't be happy with it. But you will have some Republicans who will support it, and I suspect the majority of the Democrats will support it as well.

BORGER: Yes. I - I suspect that if the president of the United States says we need to do this, that the Democrats will vote with him, because, don't forget, the Republicans can make the case, Wolf, that they've passed a couple of bills in the House of Representatives, right? And they can say we passed a bill to raise the debt limit, where's - where's your bill? And so, you know, the Democrats are not without political liability here on their own, so I presume they would supply the votes.

But, again, I think John Boehner might like to get more than 30 people on his side of the aisle to vote for this.

BLITZER: Yes. He would definitely - that would be embarrassing. But -

BORGER: Very much.

BLITZER: -- you look - in order to avoid a disaster, economic disaster, stuff happens.

We're - we're just checking the roll call, Gloria, right now. Ben Nelson, the Democratic Senator from Nebraska, voted with the Republicans. Scott Brown, the Republican Senator from Massachusetts, voted with the Democrats. Joe Manchin, the Democratic Senator from West Virginia voted with the Republicans. So there's a little bit of - a little bit of crossover voter going on, but I - I suspect that this process will continue. They're not going to be able to break this filibuster.

Joe Johns, walk us through what's happening right now. They're wrapping up the roll call.

JOHNS: Yes, well they're basically, Wolf, trying to get the votes they need to sort of keep the Harry Reid structure, if you will, in play in the event they'll need it, throw in some language that they're working on in this tentative framework, and send it back over to the House of Representatives. It appears to be an attempt at expediency, if nothing else. This vote was scheduled last night, and it looks like they decided to go this direction.

I do not know what the - what the final vote is, but they're certainly wrapping it up. It's always a lot easier when you're sitting inside the chamber and looking - looking from there.

BLITZER: Yes. In order for this Harry Reid proposal to pass, they've got to break the filibuster, which would be 60 votes. I suspect they're not going to get the 60 votes right now, but, as you say, they could at least continue this as a structure to move the process forward.

In terms of rank and file Republicans in the Senate, Joe, are you getting some additional reaction to what Mitch McConnell told Gloria Borger on STATE OF THE UNION at 9:00 A.M. Eastern, about four hours or so ago, that he's very optimistic. He thinks a deal is nearby?

JOHNS: Honestly, Wolf, in talking to people, talking to their offices, and getting e-mails back, I've been getting an awful lot of I need to see what, you know, the plan is. I need to see details. I'm - I really have not gotten a sense that rank and file is any more plugged in than we are. And, as you know, we're just getting the bare outlines from Mitch McConnell and others. People who are in the room are really not going to sit down on TV and give us all the details, certainly enough for some of those rank and file members to be able to say yea or nay.

BLITZER: Do you know if they're going be doing formal briefings, the - the Republican leadership in the Senate and in the House, they're going to meet with their respective caucuses and say, look, we've worked out a deal with the White House, here's what it is. We want to explain why we - we believe you need to support this. Are any of those meetings, as far as you can tell, scheduled?

JOHNS: No, that's precisely the way it's supposed to work. That's the way it has worked many, many times here on Capitol Hill on some of the bigger bills and some of the smaller bills, too.

However, I haven't heard anything about meetings scheduled simply because no one has said we have - we have a deal. And when somebody says those magic words, usually that's the time when they start telling people, well, we need to get in a room and tell everybody what it is.

BLITZER: Yes. And there's going to be some happy people and some not so happy on Capitol Hill.

Gloria Borger is with us. Gloria, this is, to put it mildly, messy.

BORGER: Yes. It's very messy.

But, you know, when you look at the overall picture that we're starting to put together this morning, you could say, OK, the president gets his deal into 2013, which is what he wanted. The House gets promised - promises of substantial budget cuts. And Mitch Mcconnell gets his commission or committee, as he calls it, which he wants to absolutely enforce those budget cuts.

But kind of left out of this are where's the base of the Democratic Party? They're not going to be happy with the possibility of across- the-board cuts that could affect programs like Medicare, for example, and where are conservative Republicans who don't want to put defense in this mix at all, even if they get a promise of no revenue.

So, you're right, there's going to be something for everybody to hate in all of this. But, in the end, that's the only way to get something like this done.

BLITZER: And what they would all presumably love is if the United States avoids default and the America's AAA credit rating doesn't become AA or single A, for that matter. That's - that would be a significant gain for everyone.

BORGER: Right. But - that's right. But, with one of these - and they'll all get blamed if - if there's - if there's no deal here. But the problem with one of these - these kinds of deals is they get formed, and then they have to be run by the caucuses, they have to have input into it. So there is no deal until it's all out there together, because they have to kind of manage this.

So it's interesting that we had Mitch McConnell this morning, talking about the outlines of a deal before the Democrats had really, really signed onto it.

BLITZER: What a - what a situation unfolding.

We're standing by. We're getting ready for that final roll call. They are trying to break a filibuster on the floor of the United States Senate right now. Harry Reid's proposal needs 60 votes right now in order to avoid that filibuster, but it doesn't look like they're going to get the 60 votes. Having said that, it will still enable this process to go forward.

Right now, I think they're - they're still wrapping up the roll call, but let's listen.

UNIDENTIFIED MALE: Mr. Reid, Nevada? Mr. Reid of Nevada, aye.

UNIDENTIFIED MALE: Mr. Schumer? Mr. Schumer, aye.

BLITZER: All right. So they're just wrapping up the roll call right now. They're getting ready to move on to the next process.

And, Gloria, as we await this roll call, I don't think they'll break the filibuster, but they'll have the structure in hand, the negotiations continuing. You heard Mitch McConnell. He told you not only is he speaking with the Vice President, former Senator Joe Biden, he's also speaking with the president, former Senator Barack Obama. They're having a good conversation.

He told you, I like these guys. He was very upbeat, very positive. BORGER: Well, they're listening to him, Wolf, which is why he likes them. He doesn't like them so much when they're not listening to them.

BLITZER: He seems to like - he seems to like Biden and the president more than he likes Harry Reid.

BORGER: I think that Mitch McConnell - don't forget, Joe Biden is essentially the Chief Congressional Liaison for this White House.

BLITZER: He was president of the Senate, by the way.

BORGER: Exactly, and a former senator in good standing with people on both sides of the aisle. And what I've been told by some Republican senators is that Joe Biden, contrary to popular belief, is actually a good listener and that he's easy to deal with.

And as one Republican senator said to me this week, he said, you know, Joe Biden knows how to close a deal. And that's what's very important. And he was making a distinction I think between Joe Biden and Barack Obama. He said when you talk to Joe Biden he asks you how you get from A to B and he manages to find a way to get you there, which is something that is much appreciated when you're a leader because then you can take it back to your caucus and say this is what the White House is thinking and this is what they will do and this is what they wouldn't do. This isn't Joe Biden's first negotiation.

BLITZER: No. Joe Biden's been around for a long time. I'm sure he's playing a critical role. I'm sure the president of the United States has played a critical role.

BORGER: Surely (ph).

BLITZER: You know, there's been a lot of frustration and a lot of people have been upset - a lot of Democrats, I should say, that the president did not invoke that clause in the 14th Amendment to the Constitution and say, you know what, and Bill Clinton, the former president, recommended that he do it. He said, you know what, I'm the president. My responsibility is to make sure the United States does not go into default, so I'm unilaterally raising the debt ceiling without Congressional authorization.

BORGER: And you saw what Michele Bachmann said the minute that that was raised, was that this would turn this country into a dictatorship. And you could see all the legal issues and you could see some people saying he ought to be impeached. It's not within his authority.

So I think this was clearly an area that the White House Legal Team looked at and they've decided that the way to go is the way that has always been, which is go to the Congress and get the approval to raise - to raise the debt limit. It may be anachronistic in these times, but if it's anachronistic, then you're going to have to fix it, but now is not the time to fix it.

BLITZER: Yes. And, remember, the president is a former Constitutional - BORGER: Yes.

BLITZER: -- a Constitutional scholar, professor at the University of Chicago Law School. I'm sure that weighed in on his mind as well.

Joe, we're just getting ready for the announcement of the final tally, the final roll call on the Floor of the U.S. Senate. They're trying to break this filibuster. It doesn't look like they're going to get the 60 votes.

Interestingly enough, if you go inside some of the votes -

JOHNS: Yes.

BLITZER: -- some of these people who have switched over, Democrats voting with the Republicans, Republicans voting with Democrats. I think it's fair to say almost all of them are up for election - reelection next year.

Joe Johns, are you hearing me OK?

JOHNS: I'm sorry. Oh, hi, Wolf. I couldn't say - I couldn't hear you. What did you say (ph)?

BLITZER: I was making the point that Ben Nelson, the Democrat from Nebraska, voting with the Republicans. Scott Brown, the Republican -

JOHNS: Right.

BLITZER: -- from Massachusetts, voting with the Democrats. Joe Mansion, the Democrat from West Virginia, voting with the Republicans. They all face re-election a year from November.

JOHNS: Absolutely. And, you know, there was a handful of three or four people originally that we believed the Democrats were going to go for who were - who were Republicans who were up for re-election and actually might well have voted with Democrats.

This is the kind of situation where Members of Congress are looking at their own personal interest, they're looking at what's coming down the road, and realizing that, you know, this is an issue that has totally broken through with the public, people are concerned about it, and however you vote, you're definitely going to have to go back to your home state and defend how you voted with people in town halls and on the campaign trail in that election just coming up, Wolf.

BLITZER: So - so what happens after this what's called a cloture vote, this vote on trying to break a filibuster fails, and what happens next in the Senate? Do they just continue to debate the issues? Do they have these colloquies, these exchanges, or is there something else going and they're going to recess?

JOHNS: Right. I mean, this is amazing. I have some sense of the official version of what's going on on the Floor. Just to give you a little idea of sort of the arcane rules of the United States Senate, they're voting to invoke cloture on the motion to concur to the House message with the Senate Amendment, which is the Reid Bill. If cloture isn't invoked, Reid is going to change his vote to No in order to preserve his right to make a motion to reconsider this amendment.

And basically, that is how they get to creating the vehicle where you pretty much cut, copy, and paste the new language should they get to it into, like, the form of the old bill and send it back over the House. It's very kind of complicated. And, you know, these are traditions that have been worked out here on Capitol Hill for over years and decades and centuries, too.

BLITZER: So the Senate is in business session right now, Joe. The House of Representatives is quiet over there. What do we know what's - what's happening with what is the Speaker, the Majority there, Eric Cantor, what are they doing right now as far as we could tell?

JOHNS: Well, we do know that they're waiting like everybody else to - to find out whatever final language, if final language arrives. They're going to have to deal with. I've been in contact with folks over on the House of Representatives side.

And, you know, one of the things you all have been talking about a little bit is this issue of a balance budget amendment, which is so near and dear to those Tea Party-backed Republicans, who held out for so long. They felt it was necessary to tell the Senate you've got to pass a balanced budget amendment to the United States Constitution or, you know, we're not going go your way on increasing the debt limit.

Well, the House of Representatives apparently does have some - has been able to get some type of language into this conversation between everybody else that would say, yes, if the president of the United States, if the Senate and the House actually get to a balanced budget amendment, that will make it easier the second time around for the president to get a debt limit increase. So there's some balanced budget amendment language being discussed as they work on this - this framework to try to get some deal before August 2nd, Wolf.

BLITZER: All right. Joe, let us know as soon as we get that final roll call result on the Floor of the United States Senate. We'll stay in close touch with you. Don't go too far away.

Gloria Borger is here. One of the silver linings is we do see the way the nation passes legislation -

BORGER: Right.

BLITZER: -- or an act of legislation. We're all learning a lot about the legislative process, which is very, very good.

We did invite, by the way, some of the House Republican leaders to join us and explain what's going on. So far they're remaining silent but I suspect that wouldn't be for long. They're going to want to get involved and explain their side of the story.

BORGER: Nobody can explain the Senate, Wolf. Nobody.

BLITZER: Yes. The Senate, it's always a complicated situation.

BORGER: To Joe Johns' point about -

BLITZER: Well, hold on one second, Gloria. Let's listen to the final result.

UNIDENTIFIED MALE: If not on this vote the yeas are 50 and the nays 59. Three-fifths - 49 - excuse me. The three-fifths of the senators duly chosen and sworn not having voted in the affirmative of the motion is not agreed to.

SEN. HARRY REID (D), MAJORITY LEADER: Mr. President?

UNIDENTIFIED MALE: Majority Leader.

REID: May I enter a motion to reconsider the vote, by which cloture was not invoked.

UNIDENTIFIED MALE: The motion to reconsider is entered.

REID: Thanks, Mr. President.

REID: I ask -

UNIDENTIFIED MALE: May I have order, Mr. President.

REID: I ask unanimous consent of time until 4:00 P.M. to be equally divided and controlled between the two leaders or the designees when senators permit to speak up to 10 minutes each during that period of time.

UNIDENTIFIED MALE: Without objection.

REID: Mr. President, the matter now before the Senate is still the pending matter we've been working on for several days. It's extremely important that everyone understand we have a message from the House, and if we're going to work something out, which we're hopeful that we can do, that we have a piece of legislation we can do that and not require a bunch of cloture votes.

So that's where we are. We're seeing if something can be worked out at hand for the information of senators. I've had a number of conversations in the last hour with people downtown, and the arrangement that is being worked on with the Republican leader and the administration and others is not there yet. We're hopeful and confident it can be done.

As soon as it is done, I'll let my caucus know I've had conversations with Republican leader and other senators. Senators should be aware that further roll call votes are possible today. We'll do everything we can to give members adequate notice before additional roll call votes are made.

UNIDENTIFIED MALE: Can I yield on that point?

REID: I'd be happy to hear. UNIDENTIFIED MALE: If there were to be a vote, I assume we would have significant notice for our members because many members would probably like to leave the Capitol if we're not going to be voting.

REID: I would say to my friend that's the appropriate thing to do. I would not suggest a ball game, though. Maybe closer from that.

(CROSSTALK)

REID: We'll give everyone adequate notice. As I indicate, we'll do everything we can to give members plenty of notice. As I indicated we'll do on this side of the aisle caucus later today, whenever, we're be able to do that. I would note the absence of quorum.

UNIDENTIFIED MALE: Clerk will call the roll.

(END COVERAGE)

BLITZER: All right. So there you have it. The motion failed. They didn't break the filibuster, so the process will continue. But there is a structure now. If there's a deal, if there is a deal involving the president, the Democratic and Republican leadership of the House and the Senate, and you just heard Harry Reid, the majority leader, say he's confident, he's hopeful that they're getting close to a deal. They're working on it right now.

The president is involved, the vice president is involved. The House of the Democratic leadership of the house and the Senate, the Republican, Democratic leadership, they are all involved. They're getting closer but they're not there yet. And there's no deal until everything is wrapped up.

We're going to clearly stay on top of all of the breaking news. We're not going to be far away. This is a very important day in the history of the United States. Our coverage will continue throughout the day. I'll be back later tonight for a two-hour special 9:00 p.m. Eastern.

In the meantime, we'll a break. When we come back, "FAREED ZAKARIA GPS" will air in its entirety.

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