The first step comes Wednesday with a House vote on GOP-sponsored legislation that would give the government enough borrowing leeway to meet three months' worth of obligations, delaying a showdown next month that Republicans fear they would lose.
Republicans leaving a two-hour meeting Tuesday afternoon appeared confident that the measure would pass.
While it's commonly assumed that the Treasury Department wouldn't allow a disastrous default on U.S. Treasury notes, the prospect of failing to meet other U.S. obligations such as payments to contractors, unemployment benefits and Social Security checks would also be reputation shattering. House Speaker John Boehner, R-Ohio, and other GOP leaders have made it plain they don't have the stomach for it.
The legislation is disliked by many Democrats, but the White House weighed in Tuesday with a statement that the administration would not oppose the measure, even though Obama just last week dismissed incremental increases in the debt ceiling as harmful to the economy.
"I am not going to have a monthly, or every three months conversation about whether or not we pay our bills," Obama said at a news conference Jan. 14.
But what was important to the White House about the GOP proposal was that it separated the debt ceiling from other upcoming fiscal target dates and that it signaled that, at least for now, Republicans were not going to demand a dollar of spending cuts for every dollar of federal borrowing as Boehner long has demanded.
It also appeared that Senate Democrats would grudgingly accept the bill.
"The Boehner rule of 1-for-1, it's gone," said Sen. Chuck Schumer, D-N.Y. "So it's a good step forward, and we'll see what happens."
The idea driving the move by GOP leaders is to re-sequence a series of upcoming budget battles, taking the threat of a potentially devastating government default off the table and instead setting up a clash in March over automatic across-the-board spending cuts set to strike the Pentagon and many domestic programs. Those cuts — postponed by the recent "fiscal cliff" deal — are the punishment for the failure of a 2011 deficit supercommittee to reach an agreement.
These across-the-board cuts would pare $85 billion from this year's budget after being delayed from Jan. 1 until March 1 and reduced by $24 billion by the recently enacted tax bill. Defense hawks are particularly upset, saying the Pentagon cuts would devastate military readiness and cause havoc in defense contracting. The cuts, called a sequester in Washington-speak, were never intended to take effect but were instead aimed at driving the two sides to a large budget bargain in order to avoid them.
But Republicans and Obama now appear on a collision course over how to replace the across-the-board cuts. Obama and his Democratic allies insist that additional revenues be part of the solution; Republicans say further tax increases are off the table after the 10-year, $600 billion-plus increase in taxes on wealthier earners forced upon Republicans by Obama earlier this month.
"We are not going to raise taxes on the American people," Boehner told reporters.
"We feel by moving the issue of raising the debt ceiling behind the sequestration ... that we reorder things in a way that Democrats will have to work with," said Rep. John Fleming, R-La. "The cuts are the kind of cuts we want, they're just not in the places we want, but they're also not in the places that the Democrats want. So hopefully they'll be forced to come to the table and work with us on a bipartisan basis to put them where they need to be, where it has the less pain."
According to the latest calculations, which account for the recent reduction of this year's sequester from $109 billion to $85 billion, the Pentagon now faces a 7.3 percentage point across-the-board cut, while domestic agency budgets would absorb a 5.1 percent cut. The calculations are not official but were released Tuesday by Richard Kogan, a respected budget expert with the Center on Budget and Policy Priorities think tank.
"The sequester is arbitrary, but the fact is that when the sequester goes into effect ... it will have a pretty dramatic effect of people's attitudes here in Washington and they may get serious about cuts to the mandatory side of the spending equation," Boehner said, referring to benefit programs like Medicare and food stamps whose budgets essentially run on autopilot.
GOP leaders have also promised conservatives that the House will debate a budget blueprint that projects a balanced federal budget within a decade. For the past two years, the fiscal plans of Budget Committee Chairman Paul Ryan, R-Wis., have contained strict budget cuts but have never projected balance.
In a slap at the Senate, which hasn't debated a budget since 2009, the House debt measure would withhold the pay for either House or Senate members if the chamber in which they serve fails to pass a budget plan. This "no budget, no pay" idea had previously been regarded mostly as a gimmick and had been earlier dismissed by many lawmakers as unconstitutional since it seems to run counter to a provision in the Constitution that says Congress can't change its pay until an election has passed.
To address that problem, the measure would deny pay until Jan. 3, 2015, if either chamber failed to pass a budget.
Schumer said Sunday on NBC's "Meet the Press" that Democrats are likely to adopt a budget this year. Under congressional rules, a joint House-Senate budget resolution is a nonbinding measure that sets forth an outline for follow-up legislation but doesn't accomplish any cuts by itself.