gwen: washington's latest showdown -- will the debate over debt and deficits drive the nation to the brink? or is it just another example of a gridlocked capital that can't reach agreement, even when they agree? tonight on "washington week" -- >> if we can't do the biggest deal possible, then let's still be ambitious. it is constructive to say that if washington operates as usual and can't get anything done, let's at least avert armageddon. gwen: but a debate over whether to raise borrowing limits exposes a deep policy and political divide. >> we're at 6.2 trillion and they're at 1.5 trillion at best. that's just the way it is.

>> republicans refuse to be drawn into this legislative trap. >> no jobs bill in sight that's worth its salt. and yet, dealing recklessly, dealing recklessly with our economy. >> why are so many republicans in congress still saying that a first-ever default on our nation's financial obligations would be no big deal? gwen: wall street, bond-rating agencies and the federal reserve sound the alarm. >> it would create a very severe financial shock that would have effects not on on the u.s. economy but on the global economy. gwen: while some republicans say it's a phony problem. >> this is misnomer that i believe the president and the secretary have been trying to pass off on the american people. gwen: who's right? who's wrong? where are the honest brokers? and what happens next?

covering the week, gloria borger of cnn, john dickerson of "slate" magazine and cbs news, michael duffy of "time" magazine, and david wessel of "the wall street journal." >> award-winning reporting and analysis. live from our nation's capitol, this is "washington week with gwen ifill," produced in association with national journal. corporate funding for "washington week" is provided by -- >> we know why we're here. >> to give our war fighters every advantage. >> to deliver technologies that anticipate the future today. >> to help protect america everywhere, from the battle space to cyberspace. >> around the globe, the people of boeing are working together to give our best for america's best. >> that's why we're here.

>> corporate funding is also provided by prudential financial. at&t, rethinking -- possible. additional funding is provided by the annenberg foundation, the corporation for public broadcasting and by contributions to your pbs station from viewers like you. thank you. once again, live from washington, moderator gwen ifill. gwen: good evening. when the president of the united states starts using words like "armageddon," you can be forgiven for wondering how we got to this point. short version? leaders in both parties agree that borrowing limits should be raisedand that the deficit should be cut yet they seem no closer tonight to figuring out how to do it than they were this time last week. the basic options on the table, the big deal, about $4 trillion

in budget cuts. the medium deal, about 2:5 trillion in cuts with no revenue increases or tax price. and the deficit ceiling deal. at a white house news conference today the president resorted to bakery metaphors. >> i think about this like layer cake. you know, you can do the bare minimum and then you can make some progressively harder decisions to solve the problem more and more and we're in a position now where if we're serious about this and everybody is willing to compromise, we can fix this thing probably for a decade or more. gwen: but speaker john boehner who only last week seemed close to striking his own deal with the president said today the white house is not being serious. >> listen, we're in the fourth quarter here. time and again republicans have offered serious proposals to cut spending and address these

issues and i think it's time for the democrats to get serious as well. gwen: how did we come to this path, john? >> it's a sign of how far apart they are that you're using metaphors. here's how we got here. i'll do just the recent history. a week ago we thought we were in a pretty good place. speaker boehner and the president were in a room together, maybe working out a deal together. it was the big deal, approaching 4 trillion and the president was promising he would cut even some things that democrats love, social security and medicare and entitle." . and john boehner was saying we might be able to work out the tax part. the white house said that boehner couldn't sell that to his own side. house republicans say the president backed off of entitlements and that's when it fell apart for both sides. so this week we had daily

meetings at the white house, two presidential press conferences and we're no closer to a deal tonight. in fact, those first two options you offered look like they're off the table. they're trying to get any kind of deal at all. a face-saving deal and it's going to be a ugly fails. gwen: it feels like a giant game of chicken. >> it is and we're all, unfortunately, in the cars. my favorite word of the week was that the word compromise now means in washington surrender. where you just can't do it. and the most interesting statistic i've heard all week is that you have to go back to 191 to find a republican member of congress who has voted far major tax increase. what we learned this week in a way that i don't think fully the democrats oren leaders realize with the debate inside the republican party about taxes. it is over and it's been over for quite some time. none of the options that are likely, number two and three

involve taxes and i'm guessing that by the end of the day when this does get done -- in fact, the president says taxes don't need to be in this deep. >> the white house talks have potentially become irrelevant. i think it's really kind of moved to capitol hill. but what's interesting about watching these house republicans is that i think you're essentially seeing a leadership audition for leadership with the new members. these seem to be members that have come their on their own by -- by way of the tea party and that they're kind of looking for the natural leader to lead them in the congress. john boehner tried to cut a deal with barack obama, didn't work out. ok. eric cantor blew up the original deficit talks with joe biden. walked out of those. went into a meeting this week with the president, got into a bit of a tiff and has become

sort of the spokesman for the republicans on this. so you see in a sense that he's a leader who wants to really represent this new group, which represents the base of the republican party. gwen: and which represents a real and enduring ideological divide. it's not like these republicans don't actually believe that raising taxes is going to hurt the economy. they actually believe it should be on the table but i was struck by hearing the president say he believes that too. >> i think there is an ideological divide. it has to do with the role of government. the republicans would like to use this confrontation to end up with a smaller government. the president believes the opposite. he's trying to clear the decks of the fiscal disaster so that he can do other things. he sees a more activist role of government. what's unfortunate is that in order for each of them to advance their cases and clarify their positions -- the president has called this a

clarifying moment -- the net result is we make no progress in either destruction. the most likely outcome is we avoid armageddon. i think senator mcconnell's proposal suggests that there will be some face-saving weigh way to avoid the deadline but we won't get any closer to fiscal stability. >> usually in these things they get bigger, they add sweeteners, they add bribes. they start at a size and get much larger. we've shrunk. the republicans put 60's six on the table in march. obama came back at four and we'll be lucky to get two now and it may be smaller. >> the way these deals usually come out is kind of immaculate conception. nothing is going to get done until a deal is done and suddenly attached and there it is. where is the president's budget plan? what are his specific

entitlement cuts? at the press conference today it was interesting because i heard the president talk about needs testing medicine tear medicare. really? gwen: john boehner talked about it a little bit today. let's listen. >> i don't want to preclude any chance of coming to an agreement, but they've been unwilling to put a real plan on the table and without serious spending cuts, without real reform of our entitlement programs, this problem is not going to be solved. gwen: then the president also spoke about means testing as well. >> we've said that we are willing to look at all those approaches. i've laid out some criteria in terms of what would be acceptable. you can envision a situation where, for somebody in my position, me having to pay a little bit more on premiums or

co-pays or things like that would be appropriate. gwen: that sound you hear is democrats screaming, liberals screaming but it sounded like they were in agreement. >> this is where they were last saturday. this whole notion of the president has to put a plan out there. look at what happened to john boehner when he hinted about a possible tax bill with the president. he got killed by his party. the president was offering these little olive branches or sacrifices and this is what he said in the news conference today. i'm willing to take the hit from my party. also older voters. that was the group he lost in 2008. so he's taking a political risk in saying if i'm willing to take the hit republicans should be willing to take the hit with their constituents when it comes to taxes. >> i think what's missing is anybody who seems to be able to put together a deal. when you spoke about the 1980 budget deal, there was dick

army. people like dan and bob dole who were skilled at this art of having legislative compromise amid public invective and at the moment there seems to be nobody either in the administration or in the congress who can do that. gwen: what are the consequences? i've heard the chairman of the federal reserve and the president of the united states and any number of think tank wonks say catastrophe in august 3. and we've heard these warnings from the bond rating agencies. >> i think it would be catastrophic if the government didn't raise the debt ceiling and i think that is now the feeling to have leadership in congress. the united states government boros 40 cents for every dollar it spends and that's not a good position to be in if you suddenly are not able to borrow

anymore. and that's just a direct effect, never mind what it would do to the markets. the government would not be able to pay some bills. the republicans say that's ok, we'll pick and choose. but there's a second consequence that i think is just as important. if they raise the debt ceiling -- we've gone through all this pain and we're no closer to fiscal stability than before. that will also have consequences and those won't go away on august 4. gwen: i don't hear the panic. >> one of the developments that is different is there are 75 to 115 members of the house who actually believe that we don't have to do this. maybe the number is a little lower than that. who think that maybe it would be good if the government went through the process of not paying for certain things anymore because they believe a lot of different things about it. >> they believe that's the way to get the government to change. >> and i might add that 233 house members took a pledge in

the last election not to raise taxes and they feel very bound by that because they know that their constituents are going to hold them to it. gwen: when they heard the president say today we have to fix this before they can do other things, the other things they heard was -- the president said investment. they heard spending. >> the problem with what michael talks about -- the house caucus brought in one of their economists to say this really is a big problem -- this is serious. stop denying it's going to be a bad thing. i don't think it changed a lot of minds. not raising the debt ceiling would be a problem. but even for this bare bones deal that senator mcconnell put forward which would raise the debt limit but allow republicans to vote against it, even that might not pass. and they're going to try to buy them off by adding a bunch of

spending cuts to the mcconnell deal. well, you start to lose democrats. you may not be able to get 218 votes. >> what the president was talking about today is it's clear he'd like an extension of the payroll tax cut. if you're going to get that and you're going to get tax cuts, as the president said, well, then what are you willing to give for that? close some loopholes? gwen: the other thing the president was trying to do today was speak over our heads and speak over the heads of the negotiators and speak to america and say they're on my side. public opinion polls seem to be shifting in the president's direction with political independents most concerned that a deal get done. but political insiders, people here in washington reflecked it by here inside the beltway. 97% of democrats predict catastrophic or major economic

consequences if congress fails to raise the debt limit while only 50% of republicans say the same and 29% say the impact would be minor. how does that drive the debate? >> two things the president said truck struck me today. he was kind of instituting a strategic withdrawal. he said he wanted the tax cuts and revenue hikes to be 3-1, then 5-1. looks to be 100-0. gwen: if i closed my eyes i could have been listening to a republican. >> he has to explain to his voters and backers as to why he's gotten into this position. second, he was kind of sandbagging the republicans a little bit. at least this is what i deteched. we can go ahead with this short-gap arm defend face-saving door number three but i'm going to run the right to run against you next term.

they alk talked about putting the two wars and tax cuts on a credit card. he came this close to saying this is a bush deficit, without mentioning names. they said this is where we're going to go if you don't take the big deals. gwen: he and the d.n.c. has raised $86 million for his re-election campaign, blowing everybody else out of the water. >> more than all the republicans combined. >> do you think the president is politically better off this week than two weeks ago? >> no. early on the president said he would veto a short-term deal. he said 30-60, 0, whatever. gwen: that was last week. >> i'm sorry. long day. gwen: that's a minute ago. >> so did he -- there aren't enough corners for people to

box themselves. in but the question is the president now faced with this co-numb drum? he said he was going to veto a short-term deal but that may be the best option. >> right now it looks like that's not the path but no path is clear. someone in the administration said the president said both side need to figure out their plan and bring it back to me. there are no meetings scheduled but this person said if there's a meeting sunday, it's a big problem. gwen: why is that? >> because it means they can't even agree on that face-saving deal, that bare bones plan. the plan that's the most bare bones would lift the debt ceiling and put the most political pressure on the president. if that's a problem there is no exit strategy. >> the plan that mitch mcconnell hatched is so clever in so many ways. gwen: and complicated.

>> and complicated. at the bottom line is the republicans get to vote against the debt ceiling, it passes and they get to vote on a balanced bunt amendment. >> and they get to do it three times before the president runs for re-election in november. the president has to make three requests. >> but they don't have to approve the cuts on the second and third time. so it's a total let's punt the ball down the field. gwen: how much of this is affected by personalities? we saw many, many leaks coming off -- out of these meetings this week involving one person or another having a tantrum, someone walking out. i think harrry reid aid -- harry reid said that cantor was childish. the president said it's not that bad. >> obviously. as gloria said people are auditioning. i think some of this was

well-orchestrated by the white house. putting a wedge between boehner and majority leader cantor was very shrewd. it made it look like they're in disarray. gwen: which is why you saw them come out and put their arms around each other. >> i kind of disagree with gloria. i think the president kind of found his footing and he was acting kind of presidential. >> he was better publicly this week because the first time he came out he was chastising everybody and that wasn't working. this week he's politically better. gwen: newt gingrich from 1995 when he was such the crybaby, page one on the "new york post"? >> that's clearly what they were trying to do with eric cantor. everybody in the democratic party was talking about him being child and i shall impetuous. here you had the president and

john boehner quietly working together like leaders and cantor came in. for months before republicans and democrats said cantor was in the room with joe biden and he was working patiently. a part of the deal. an honest player. >> you need a poster child. and they can't make boehner the poster child and they can't make mitch mcconnell the poster child. gwen: i want to take us into a big think at the end. we've been all covering washington for a -- number of years, and each time this happens we know we're going to come up with a deal at the end. but this time it feels shakier somehow. is it possible anymore to get broad bipartisan agreement on important things as long as each side as dug in their heels? >> absolutely not. this week we see no aleagues

shattered. not -- now that the republicans have a measure of responsibility they will help us govern. they were wrong. second, i think obama has elected that we were moving into a post-partisan era. when all the old battles of the right or left, the clintons thinking of doing was over. they're still republicans. they're not like democrats. there are still quite a few of them. one thing about the republican party you can say this week, it's not post partisan. >> the lame duck session, which wasn't so long ago achieved a lot but with a bunch of members of congress who had been shoate vo -- voted out of awes. gwen: which is the only way they came up with a deal. >> the whole deal was giving away money. that's easy. this is hard. >> we're trying to make a deal in the age of austerity and with a president really under it in terms of the economy. it's feared the greater share

of the blame will fall on his head if there's not a deal here and the economy goes south. there's nothing to grease this deal. gwen: and here we are in washington arguing about this deal that nobody understands but not really talking about the economy. >> i think that's really important. i think people out there watching must say these people are nuts. we have 9.2% unemployment. it's not clear that the recovery is even getting better. this must be seen out there by people as we're not really dealing with our real problem. >> and the president wants to be talking about what he's doing for you and he can't. this takes him completely off message. >> that's what he was trying to do in the press conference. saying we are doing what the american people want us to do. he kept mentioning the poll that only 26% of americans believe what the republicans' position is.

in order, they are so captive of their tea party side that we can't get a deal. gwen: it felt like the presidential pollster in chief for a change. that was interesting. we're going to talk about this more on the webcast. thank you all very much. we hope we made it a little clearer for you. i'm not sure. if we didn't, join me every night on the pbs news hour next week and we'll try again. check out our website where we share a clip from a washington budget debate that sound very familiar, except this was in 1995. we want to send out condolences of the family of betty ford. one of the most forthright and colorful first ladies of our time who was buried next to her husband gerald ford in grand rapids, michigan. when next will we see a first lady willing to dance on a table in the roosevelt room?

see you next week. good night. the conversation continues online. see more from our panel about the week's top stories. it's the webcast extra, found only on washingtonweek online at pbs.org. >> "washington week" was produced by weta, which is solely responsible for its content. funding for "washington week" is provided by -- >> this rock has never stood still. since 1875 we've been there for our clients through good times and bad. when their needs changed we were there to meet them. through the years to insurance to investment management, from real estate to retirement solutions, we've developed new ideas for the financial challenges ahead. this rock has never stood still. and that's one thing that will never change. prudential.

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