LINDA WERTHEIMER, host: NPR's Mara Liasson joins us now to talk about what's likely to happen today and in the days ahead. Mara, we're waiting today to see if leaders will actually come up with something before the markets open. What do you think the chances are?
MARA LIASSON: Well, at this point I guess only a fool would predict the chances of that. But I can tell you the latest plan they're working on. Speaker Boehner is talking about a two-stage plan, a first round of cuts - maybe - spending cuts, maybe one or one and a half trillion dollars that would raise the debt ceiling for six months, till the end of this year. Then yet another bipartisan commission would be created to produce the bigger savings, as much as $3 trillion, by doing some of the same things that the president and the speaker had talked about - overhauling the tax code, restructuring Social Security and Medicare. The problem is the Democrats don't want a six-month debt ceiling increase and it's still hard to see how you get anything through the House when so many Republicans have promised not to raise the debt ceiling under almost any circumstances. And if Boehner can't get 218 Republicans to vote for it, what will he have to give Nancy Pelosi to get some Democratic votes? This is the same math problem we've had all along.
WERTHEIMER: Can you explain what the Republicans are talking about when they say that the president is insisting on tax increases?
LIASSON: The deal that Boehner rejected on Friday didn't have an upfront tax hikes. What it had was an enforcement mechanism, a trigger, that said if Congress was unable to finish tax reform, that is lowering individual and corporate rates by getting rid of loopholes, then there would be across-the-board spending cuts and tax increases of about $1.2 trillion - about 800 of which would come from letting the Bush tax cuts for upper income earners expire. So, these were hypothetical future tax increases that would happen only if Congress failed to follow through on the tax reform part of the deal.
WERTHEIMER: But the Democratic president has - the Democrats are just about as mad at the president as the Republicans are. I mean, who's caused this thing to unravel?
LIASSON: Well, I think you have to say in the end it was taxes and the inability of House Republicans to vote for revenue increases no matter how contingent. You're right - there is no doubt the president was facing heat from his Democrats for moving so far to the right on deep spending cuts upfront, with no immediate tax hikes, for agreeing to changes in Medicare and Social Security. But in the end, I think he could have brought them along if he could have gotten the commitment from the Republicans on revenues. And even though the speaker says the deal fell apart because the president came back and said I need $1.2 trillion in taxes instead of 800 billion - that's an extra $400 billion he said scuttled the deal - there's still no indication the Republicans could have gotten even $800 billion in future hypothetical tax revenues through the House. This is why Boehner and Cantor have walked away from this deal three times now.
WERTHEIMER: Do you have any sense of the political fallout at this moment? Does anybody come out looking better than anyone else or are the American people just pretty much disgusted with the entire legislative branch?
LIASSON: Well, for the moment I think the president may have a slight political edge, but that will be fleeting. Yes, he gets to say he was more reasonable, he was willing to make painful concessions for Democrats, he can try to paint the Republicans as a party who spurned a great opportunity. They couldn't say yes to cut the deficit because of their ideological commitment to no new taxes, but if there's a default or a downgrade in the credit rating of U.S. debt, the resulting damage to the economy will hurt the president the most. His reelection depends on the economy and what voters think about his stewardship of the economy, and he will have presided over a dysfunctional government.
WERTHEIMER: So, is there anything that the leaders could come up with that would cause the markets not to react negatively? I mean, are we just sort of barreling down the road toward that without any possibility of averting it?
LIASSON: Well, that's a good question. It certainly feels like that. That's what Washington feels like today, you know, waiting for disaster to happen. Up until now, the markets have brushed off the prospect of default but now it looks more real to them. Also, don't forget, last week the markets responded positively, really positively, to the reports that the speaker and the president were close to a deal. So, you have to assume that the news that the deal has fallen apart will cause the opposite reaction tonight when the markets open in Asia and tomorrow morning in the U.S. And this isn't just avoiding default, by the way. Standard and Poor's have said that if the Congress and the president can't come up with a long-term deficit-reduction deal, within three months they'll downgrade the credit rating even if immediate default is averted in the short term.
WERTHEIMER: NPR's political correspondent Mara Liasson. Thank you.
LIASSON: Thank you, Linda.
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