Jonathan Alter
Bloomberg News Columnist
As President Barack Obama and congressional Republicans trade shots on the budget, it's getting harder to see how they'll pull back from the brink and avoid a cataclysmic default.

With only a month to go before the Aug. 2 deadline for raising the U.S. debt limit, this feels like a financial version of the 1964 Cold War thriller Fail-Safe -- a helpless stumble toward disaster.

At his news conference this week, the president argued against an all-nighter negotiation by invoking his daughters' doing their homework early. This brought back memories of President Jimmy Carter, in a 1980 debate, saying that he discussed nuclear war with his daughter, Amy, which didn't go over well at the time. Better for Obama to skip the daughters and stick with the nukes.

As David Walker, the former comptroller general and a leading voice for fiscal sanity, puts it: "When you're playing with a tactical nuclear weapon, you don't want to take the timing device down to the last seconds."

Walker, who served under presidents of both parties, holds no official position in the current talks, but he's been playing the role of go-between. In two months of low-key shuttle diplomacy, he's met privately with John Boehner, Harry Reid, Mitch McConnell, Tim Geithner, Ben S. Bernanke, Eric Cantor, Steny Hoyer, Gene Sperling, and the heads of all of the relevant congressional committees.

Time Is Short

Details of these talks are skimpy, so I don't know how the parties are reacting to Walker's ideas. But time is short, fresh thinking scarce and the impasse seemingly unbridgeable: Republicans say they can't support a deal with tax increases, and Democrats say they can't support one without them. The numbers seem much too big, and the policy choices much too complicated, for a full solution by Aug. 2.

The Walker Compromise might just be the way out.

Like Tom Coburn, one of the Senate's most conservative members, Walker says there's no way to save $4 trillion over 10 years (the number agreed on by both parties) without both spending cuts and tax increases. But the latter, anathema to Republicans, will have to be finessed to get to an agreement. So Walker's remedy for a debt-limit deal is three-fold.

Three-Part Plan

First, make several billion in immediate reductions to 2012 discretionary spending. These are essentially symbolic cuts that would give the Republicans something for their base and help convince markets that the president and Congress aren't just kicking the can down the road.

Second, cut $100 billion in the 2012-13 budget, which is about what Vice President Joe Biden and Cantor agreed on before Cantor walked out on negotiations, though Walker would have them implemented more slowly so as not to harm the recovery. This might include eliminating a few indefensible tax expenditures, such as ethanol subsidies (already rejected by the Senate) and the tax breaks for corporate jets that the president highlighted in his news conference, but would mostly focus on spending cuts.

Finally -- and this is the key to the deal -- institute budget controls with pay-as-you-go requirements, annual spending caps and specific debt-to-GDP targets. If the targets aren't hit by late 2013 -- by which time Congress and the president would have had a chance to overhaul the tax code and start reforming Medicare and other entitlements -- buzzers would sound, lights would flash and the deal would trigger automatic draconian spending cuts and what Walker delicately calls "surcharges," which in plain English means higher taxes.

Safety Valve

Obama has already agreed to a 3:1 ratio of spending cuts to tax increases, which sounds about right to Walker for the triggers. But the numbers and ratios in this third element are less significant than the principle, which is that what Walker calls an "automatic default mechanism" is the way to go. Such a contraption would give Washington a strong incentive to move toward real tax and entitlement reform over the next two years.

Will Republicans bite on this? This week, no. "The biggest sticking point right now is that Republicans don't want revenue on the table even as a default," Walker told me. "My message to the GOP is that this is not a tax increase, it's a safety valve, a 'Fail-Safe.'" In the movie and earlier book of that name, the automatic fail-safe mechanism for strategic bombers actually made nuclear war more likely, not less, but no matter.

We need a default mechanism to prevent default. As the players all know, this worked during the 1990s when the triggers and caps that began under the Gramm-Rudman-Hollings Act kicked in. With a combination of spending cuts and tax increases, Presidents George H.W. Bush and Bill Clinton managed to turn daunting deficits into surpluses by the end of the century.

Norquist Looms

Grover Norquist, the anti-tax crusader recently described by Alan Simpson as "the most powerful man in America, including the president," has convinced the majority of House members to sign his pledge to oppose all tax increases. He'll fight even these fail-safe triggers, just as he fought them under the first President Bush. (When Stephen Colbert asked Norquist this week whether he would support a tax increase if it would save grandmothers from being bitten to death by angry fire ants, he said: "I think we console ourselves with the fact that we have pictures and memories.")

Norquist's favorite argument to fellow Republicans is that the first President Bush lost his bid for re-election in 1992 because he abandoned his "read-my-lips-no-new-taxes" pledge. He threatens that the same fate will befall Republicans who agree to any tax increases now, even in the form of surcharges that need not be triggered if politicians act responsibly.

Misreading The Mood

This is a misreading of history and of current politics. Bush's measly 37 percent of the vote in 1992 was the result of factors far beyond taxes. (Ross Perot, who won an astonishing 19 percent of the vote as an independent, harped on deficits, not the broken tax pledge.) And if today's Republicans agree to a historic deal that cuts $4 trillion from the budget, it's hard to imagine that many would be successfully challenged in primaries by Tea Party activists, most of whom say they care more about deficits than taxes anyway.

As the clock ticks down, some variation on the Walker formula seems the best hope for averting another financial fiasco. Obama and Boehner can do what the president (played by Henry Fonda) couldn't manage in the movie -- save the day with a "Fail-Safe" device.

(Jonathan Alter, author of The Defining Moment: FDR's Hundred Days and the Triumph of Hope, is a Bloomberg View columnist. The opinions expressed are his own.)