U.S. Senate kills House debt limit increase increase

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U.S. Senate kills House debt limit increase
  Bloomberg July 29, 2011  


The Senate swiftly rejected a House Republican plan to raise the U.S. debt limit and cut spending as Democrats pressed for passage of their own alternative before an Aug. 2 deadline to avoid default.

Democratic Senate leaders planned to work through the weekend, starting with a possible move at 1 a.m. on July 31 for a longer-term increase in the nation’s debt limit.

This would lead to a deadline-daring series of negotiations between leaders of the two chambers.

The Senate voted 59-41 to table House Speaker John Boehner’s plan, which the House approved by a vote of 218-210. No Democrats supported the House’s plan, and 22 Republicans opposed it, including 11 first-term House members.

“We’ve done everything we can to find a common-sense solution,” said Boehner of Ohio, who personally pressed reluctant members of his own party for support and narrowly prevailed. “This House has acted,” he said, and it’s time for Democrats and Obama “to put something on the table.”

President Barack Obama, who has threatened to veto a shorter-term measure such as the House’s, pressed Congress to reach a compromise. White House spokesman Jay Carney said after the House vote that the Senate Democrats’ proposal offers the ‘basis for that compromise.’

“Right now, this is the only compromise there is,” said Senate Majority Leader Harry Reid of Nevada.

Spending Cuts Debated

House Democratic leader Nancy Pelosi of California said Republicans, with deep spending cuts tied to their debt-ceiling increase, are trying to dismantle decades of bipartisan legislative progress designed to help middle-class Americans.

The Republicans’ goal “is to reduce the public role in the lives of the American people,” Pelosi said on the House floor before the vote. “This bill is going nowhere; it is a total waste of time,” she said. “The clock is ticking on the need for us to raise the debt ceiling so we do not default on our past obligations.”

As negotiations in Washington intensified, Treasuries rallied, sending yields on 10-year notes to their lowest level since November. Yields on 10-year Treasury notes declined 15 basis points, or 0.15 percentage point, to 2.8 percent at 5:22 p.m. in New York, according to Bloomberg Bond Trader prices. Stocks fell as economic growth trailed forecasts.

Midnight Action

Senate procedures allow for an initial vote on Reid’s plan at about 1 a.m. on July 31, and the measure could be altered any time before that vote. A final Senate vote then could be held at about 7 a.m. on Aug. 1, allowing the measure to return to the House before the Aug. 2 deadline.

Obama may invite congressional leaders back to the White House for more talks, according to a Democratic official. No decision has been made about further discussions between Obama and Democratic and Republican congressional leaders, said the official, who wasn’t authorized to speak publicly about the administration’s strategy.

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While Obama and Vice President Joe Biden have been in contact with lawmakers, the president hasn’t talked with Boehner in recent days, the official said.

“If we don’t come to an agreement, we could lose our country’s AAA credit rating, not because we didn’t have the capacity to pay our bills — we do — but because we didn’t have a AAA political system to match our AAA credit rating,” Obama said earlier today at the White House.

‘Rough Agreement’

Obama said with Democrats and Republicans in “rough agreement” on plans to raise the debt limit within days of a threatened default, the time for compromise is “now.”

The Treasury Department has said the U.S. will breach its borrowing limit and run out of options for avoiding default if the $14.3 trillion debt ceiling isn’t raised by Aug. 2.

Senate Budget Committee Chairman Kent Conrad expressed confidence that lawmakers will head off a default.

“Work expands to fill the time. We certainly know that’s true here,” Conrad, a North Dakota Democrat, said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. “Leaders on both sides are sufficiently responsible that they understand if there were a default, it would be a disaster for this country.”

The Treasury is preparing contingency plans to pay the government’s obligations should Congress fail to raise the borrowing limit in time. White House press secretary Jay Carney said Treasury officials may reveal the plans this weekend.

Resolving Uncertainty

Federal Reserve Bank of St. Louis President James Bullard said a resolution of the debt-ceiling impasse may remove a key unknown that has restrained economic growth in the U.S. “Once this last uncertainty is resolved, the path to faster growth may be open,” Bullard said, according to prepared remarks for a speech today in Jackson Hole, Wyoming.

Carney reiterated that Obama would accept a short-term debt ceiling extension of a few days only if needed to finish work on legislation lifting the limit for a longer period.

House Republican leaders revised their bill after failing to win enough support for a vote last night.

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Today, with the vote-clock ticking, Majority Whip Kevin McCarthy, a California Republican, approached two freshmen who hadn’t voted. Representative Sean Duffy of Wisconsin told Kevin Yoder of Kansas: “Go vote, please go vote.” Yoder went and cast his vote. McCarthy returned to prod Duffy, who said with a smile that he had voted. He hadn’t. Duffy waited for a few minutes, watching the close vote-count, then cast his yes.

Bachmann Opposes

Republican presidential candidate Michele Bachmann of Minnesota was among the 22 House Republicans to vote against Boehner’s bill. The freshman Republicans who voted against the plan included Mick Mulvaney of South Carolina .

“I have never believed the threat that this country will default on its debt as a result of any failure to raise the debt ceiling,” Mulvaney said in a statement.

The House plan would allow a debt-limit increase now and require Congress to work out a second increase agreement within months. The second debt-limit increase would occur only if a balanced-budget constitutional amendment is passed by Congress and sent to the states.

Representative Mo Brooks, an Alabama Republican, said the decision to include the balanced-budget amendment turned 10 to 20 Republican votes in favor of the measure.

‘Clock Running’

Democrats who control the Senate oppose the balanced budget agreement, and Reid said today he asked Republican leader Mitch McConnell of Kentucky to meet with him and “negotiate in good faith knowing the clock is running down.”

Senate Democrats, working to break the impasse, are trying to devise a strict enforcement mechanism to guarantee future deficit savings, according to Democratic officials.

Behind the scenes, officials said, talks on a potential deal centered on how to force future deficit-cutting by Congress, by setting up consequences — such as automatic spending cuts or tax increases, or some combination of the two - - if the savings aren’t achieved.

“If we need to put in place some kind of enforcement mechanism to hold us all accountable for making these reforms, I’ll support that, too, if it’s done in a smart and balanced way,” Obama said.

Overlapping Plans

Overlap exists between Boehner’s plan and Reid’s. Reid dropped Democrats’ insistence on tax increases. Both proposals take as their starting points a cut of close to $1 trillion in discretionary spending over 10 years, and both establish bipartisan congressional committees to recommend future savings leading to a guaranteed up-or-down vote by year’s end.

Senator Scott Brown, a Massachusetts Republican, said his staff has been working with Reid’s staff to put “more teeth” in the joint committee plan.

Senator Lisa Murkowski, an Alaska Republican, said “absolutist” lawmakers aligned with the Tea Party have put the U.S. “on the brink.”

“I am really worried about where we are standing, and I think part of that has come about because you have individuals that say, ‘It is my way or the highway,’” Murkowski said today in an interview at Bloomberg’s Washington office. “That is not how you govern.”

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House Speaker John Boehner (R-OH) (C) walks back to his office while the House of Representatives votes on the Budget Control Act at the U.S. Capitol July 29, 2011 in Washington, DC