Timeline: How U.S. debt talks spiraled into crisis

Thu Jul 28, 2011 1:25am BST

(Reuters) - The United States drifted closer to a credit rating downgrade and default on Wednesday as President Barack Obama's Democrats and their Republican rivals worked on competing plans to cut spending and raise the debt ceiling.

Following is a timeline of the U.S. debt debate:

November 2, 2010 - Republicans win control of the House of Representatives on a promise to scale back government spending and tackle budget deficits that have hovered at their highest levels relative to the economy since World War Two.

December 1, 2010 - A report by a bipartisan deficit reduction panel commissioned by Obama advocates $3 trillion in spending cuts and $1 trillion in revenue increases -- mainly by closing loopholes in the tax code -- over 10 years.

January 2011 - Six Republican and Democratic senators, known as the "Gang of Six," begin talks on a long-term deficit-reduction deal they can present to their parties.

February 19 - The House passes a budget for the current fiscal year that would cut $61 billion from last year's levels. The Democratic-controlled Senate defeats it one month later.

April 9 - Obama and congressional leaders bring the government to the brink of a shutdown before they agree on a budget for the current fiscal year that cuts $38 billion from last year's levels. Billed as the largest domestic spending cut in U.S. history, it actually causes the government to spend $3.2 billion more in the short term.

April 13 - After Obama's initial proposal is criticized as inadequate, the president lays out a new deficit-reduction plan that would save $4 trillion over 12 years. He proposes that Vice President Joe Biden lead deficit-reduction talks.

April 15 - The House passes a budget that would cut spending by $6 trillion over 10 years, in part by scaling back medical care for the elderly and the poor.

May 5 - Biden and negotiators from both parties hold their first meeting as top Republicans say there will likely be no broad agreement on tax reform and healthcare.

May 9 - House Speaker John Boehner, the top Republican in Congress, says any increase in the debt ceiling must be matched by an equal amount of spending cuts. The Treasury Department estimates it needs at least $2 trillion to cover borrowing through the November 2012 elections.

May 11 - House Republicans release a spending outline for the coming fiscal year that has deep cuts in education, labor and health programs cherished by Democrats.

May 16 - The United States reaches its $14.3 trillion debt limit. The Treasury Department begins tapping other sources of money to cover the government's bills.

May 17 - The "Gang of Six" talks falter as a leading conservative, Republican Senator Tom Coburn, drops out due to an impasse over healthcare.

May 31 - The House of Representatives rejects a measure to raise the debt limit in a vote staged by Republicans to pressure Obama to agree to accompanying spending cuts. Senior Democrats decry the vote as a political stunt, although 82 Democratic lawmakers join Republicans in defeating the bill.

June 9 - In a sixth meeting of the Biden group, Treasury Secretary Timothy Geithner argues that tax increases need to be part of the equation, but Republicans remain unmoved.

June 14 - Some 34 Senate Republicans vote to repeal tax breaks for ethanol, a sign that there may be some wiggle room in the party's no-tax-increase stance.

June 23 - Republicans declare an impasse in the Biden talks, saying Democrats are insisting on roughly $400 billion in new revenue by closing tax breaks for the wealthy and certain business sectors.

June 29 - The International Monetary Fund says the United States must lift its debt limit soon to avoid a "severe shock" to global markets and a still-fragile economic recovery. Obama calls for new steps to spur job growth and tax hikes on the rich, irking Republicans who remain focused on deficit cuts.

June 30 - Democratic legislators discuss a scaled-back deal that would avert default but force Congress to tackle the debt ceiling issue again before the 2012 elections. The White House rejects the idea.

July 3 - Obama and Boehner meet secretly to discuss "grand bargain" that would save roughly $4 trillion over 10 years through a tax code overhaul and trims to benefit programs.

July 5 - Obama invites top lawmakers to the White House to restart negotiations and clinch a deal by July 22.

July 7 - After hosting lawmakers at White House, Obama says Republicans and Democrats are still far apart on many issues but that all agree on the need to raise the debt ceiling.

July 8 - A dismal jobs report focuses new attention on the sputtering economy. Obama says uncertainty about the debt ceiling talks is hurting economic expansion.

July 9 - Boehner says grand bargain is out of reach because Republicans will not accept the tax increases Democrats are demanding. He calls for a more modest $2 trillion package that would rely mostly on spending cuts.

July 10 - During a testy, brief meeting at the White House, Obama and congressional leaders agree on little more than the need to meet again the following day.

July 11 - Their follow-up meeting breaks little new ground, but Obama pressures both Democrats and Republicans to make concessions that would clear the way for a deal.

July 12 - Senate Republican leader Mitch McConnell offers backup plan for raising the debt limit if there is no agreement on a broad deficit-reduction plan. Obama warns if the impasse is not resolved soon, government benefits for older Americans might be at risk after August 2.

July 13 - Moody's Investors Service puts United States on review for possible downgrade. Obama meets lawmakers for nearly two hours but a deal remains elusive.

July 14 - Ratings agency Standard & Poor's says there is a one-in-two chance it could cut the U.S. credit rating if talks remain stalemated. Obama suspends talks and gives party leaders 24-36 hours to deliver a deadlock-breaking "plan of action."

July 17 - McConnell and Senate Democratic leader Harry Reid work on a fallback plan to allow Obama to raise the debt limit. Obama meets Boehner and his deputy, Eric Cantor, secretly at White House but no progress is made toward a deal.

July 18 - Republicans push for a measure that would cut and cap government spending and require an amendment to the U.S. Constitution requiring a balanced budget. Obama says he will veto it should Congress send it to his desk.

July 19 - The "Gang of Six" resurfaces with a deficit reduction plan that proposes $3.75 trillion in savings over 10 years and contains $1.2 trillion in new revenues. Obama seizes on it and calls on Congress leaders to start "talking turkey."

July 20 - The White House signals Obama may accept a very short-term debt limit extension beyond August 2 to give a deficit cutting bill time to clear Congress. Obama meets separately with top Democratic and Republican lawmakers.

July 21 - Obama and Boehner are reported to be discussing a $3 trillion deficit-cutting deal that upsets many Democrats for not including enough tax rises to offset spending cuts. Obama repeats some revenues will need to be part of any accord.

July 22 - Boehner breaks off talks with Obama over impasse on revenue increases, raising concerns about whether a deal can come together by August 2. Boehner says agreed to $800 billion in increases but that Obama was seeking $400 billion more.

July 23 - After a brief meeting with Obama, Democratic and Republican leaders disagree over whether the debt limit can be lifted in one step or two. Obama wants to extend the borrowing authority through the 2012 election year.

July 24 - Republicans and Democrats both insist they will not allow the United States to default but instead of working together, they focus on crafting separate plans.

July 25 - Obama calls on divided congressional leaders to break their deadlock and warns of wide economic consequences if the government's borrowing authority runs out. Boehner says Republicans remain opposed to the president's approach and will advance their own plan through Congress.

July 26 - Aides scramble to rewrite the Boehner bill after non-partisan budget experts find it will not deliver level of spending cuts it promised. A Reuters/Ipsos poll finds 56 percent of Americans want a mix of tax hikes and spending cuts -- the kind of solution Obama has proposed and Republicans have rejected.

July 27 - Top Republicans and Democrats work behind the scenes on a compromise while publicly pressing ahead with rival debt plans, neither of which are likely to win congressional approval. Treasury prepares to lay out a plan on how the government will operate if the debt limit is not raised by August 2.

(Reporting by Laura MacInnis, Andy Sullivan and Caren Bohan)