The GOP said on Friday that it would agree to a 3-month debt ceiling hike.
Although this is just a short-term hike, it pretty much takes it off the table, since this means that the next hike will come after the sequester/budget debates, and the presumption is that if they can agree on those things, then the debt ceiling can get folded in.
The GOP just has one demand as part of its debt ceiling hike. The party says that in order to get the 3 month hike, the Senate must pass a budget, which is something the Senate hasn't done since 2009. As Grace Wyler explained here, Budgets are basically just expressions of how each body of Congress thinks spending should be done broadly.
The House GOP has passed the so-called "Ryan Budget" but the Senate hasn't done the equivalent (in the mean time, the government has stayed funded using an ongoing string of Continuing Resolutions, which fund the government along existing trajectories. So the GOP's demand is that in exchange for a debt ceiling hike, Senate Dems lay out their vision of where taxes and spending should be. The hope is that this can be used as political cudgel, to show that the Democrats support big deficits and high taxes.
So will Democrats agree to pass a budget? That's not set, but on Meet The Press today, Senator Chuck Schumer said that Democrats do plan to pass a budget in 2013, which would be its first in four years.
Here's Schumer's communications director:
On @meetthepress, Schumer says it makes sense for Senate to do a budget w/ reconciliation instructions for tax reform that raises revenue
— Brian Fallon (@brianefallon) January 20, 2013
If Schumer's comments are reflecting of where other Democrats are, it doesn't sound like this will be a dealbreaker.
Meanwhile, Mitch McConnell's spokesman Don Stewart snarked, re: Schumer:
— Stew (@StewSays) January 20, 2013