Debt-Limit Deal to Get Congress Vote Today

 

Congressional leaders, leaving no extra time before a default threatened for tomorrow, are racing to push through a compromise sealed with President Barack Obama last night to raise the U.S. debt limit by at least $2.1 trillion and slash government spending by $2.4 trillion or more.
The House plans votes today and the Senate may follow suit to consider the agreement reached during a weekend of negotiations that capped a months-long struggle between Obama and Republicans over raising the $14.3 trillion debt ceiling.
Both parties were working to sell the deal to their rank and file -- meeting resistance from some Democrats who fault it for failing to increase taxes and from a faction of Republicans who say it’s insufficient to rein in the debt.
House Republicans plan to discuss the measure in a party caucus at 12:30 p.m., according to a congressional aide. Vice President Joe Biden plans to attend meetings of the House and Senate Democratic caucuses to rally support.
Representative Steny Hoyer, the second-ranking Democrat in the House, said a majority of House Republicans must vote for the measure if it is to pass. The Maryland Democrat, appearing on Bloomberg Television, said leaders have missed an opportunity for a more “balanced” agreement, yet the nation cannot afford to default on its obligations.

At Least 121

“The Republicans are going to have to offer a very substantial number of votes” to pass the measure, Hoyer said, adding that he expected “at least 121.”
“The leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default,” Obama said in an appearance in the White House briefing room last night as congressional aides were drafting the legislative language. “This compromise does make a serious down payment on the deficit-reduction we need. Most importantly, it will allow us to avoid default.”
U.S. stocks rose. The Standard & Poor’s 500 Index rose 0.9 percent to 1,303.43 at 9:37 a.m. in New York. The Dow Jones Industrial Average gained 96.95 points, or 0.8 percent, to 12,240.19.
Treasuries pared losses. Yields on two-year debt touched the lowest level since July 19. Ten-year notes earlier fell the most in more than one week.
The yield on the benchmark 10-year note climbed one basis point to 2.80 percent as of 8:35 a.m. in New York, according to Bloomberg Bond Trader prices. The security yielded 2.77 percent at the end of last week, the least since Nov. 30.

Two-Year Notes

Yields on two-year notes were little changed at 0.36 after touching 0.35 percent. Thirty-year bonds yielded 4.15 percent, three basis points more than their previous close.
Credit-default swaps on Treasuries dropped eight basis points to 53, the biggest retreat since February 2010.
“The threat of default is now for certain off the specter of this economy, no longer a headwind” for the U.S. economy, Gene Sperling, director of the National Economic Council, said today on Bloomberg Television.
The Treasury Department has said it will reach the borrowing limit and run out of options for avoiding default tomorrow without action by Congress to raise the debt ceiling. Congressional leaders expressed optimism they would avoid that risk -- however narrowly.
Senate Majority Leader Harry Reid, a Nevada Democrat, said he was relieved to announce “a historic bipartisan compromise that ends this dangerous standoff,” adding that Republicans and Democrats would have to unite to push it through.

Not ‘Greatest’

House Speaker John Boehner of Ohio told fellow Republicans in a conference call around the same time that the deal wasn’t the world’s greatest, yet showed that their party had changed the debate in Washington, according to an official familiar with the conversation.
Senator Jim DeMint, the South Carolina Republican who co- founded the Senate’s Tea Party Caucus, said he won’t try to block action on the debt-ceiling increase.
DeMint, a fiscal conservative known for using Senate procedures to stymie legislation he opposes, said he may seek to slow consideration of the bill while he studies the details.
“If they throw it on the floor and want us to vote an hour later, that isn’t going to happen,” DeMint said in an interview.

Learning the Details

Lawmakers who were to vote within hours on the measure were just learning its details. It would raise the debt ceiling in two installments, sufficient to serve the nation’s needs into 2013. The framework, as detailed by officials in both parties, would cut $917 billion in spending over a decade, raise the debt limit initially by $900 billion and assign a special congressional committee to find another $1.5 trillion in deficit savings by late November, to be enacted by Christmas.
If Congress met that deadline and deficit target, or voted to send a balanced-budget constitutional amendment to the states, Obama would receive another $1.5 trillion borrowing boost.
In the case of Congress failing to take either step, or not producing debt savings of at least $1.2 trillion, the plan allows the president to obtain a $1.2 trillion debt-ceiling extension. Still, that would trigger automatic spending cuts across the government -- including in defense and Medicare -- to take effect starting in 2013. The Medicare cuts would only affect provider reimbursements, not benefits.

$400 Billion

An initial $400 billion increase in borrowing authority couldn’t be blocked under the deal. While Congress would get a chance to avert both debt-limit increases through disapproval resolutions, there’s little chance opponents could muster the two-thirds majorities needed in both chambers to override Obama’s veto.
Senate Minority Leader Mitch McConnell, a Kentucky Republican, said the agreement wouldn’t be final until members of his party had the chance to evaluate it. “But at this point, I think I can say with a high degree of confidence that there is now a framework to review that will ensure significant cuts in Washington spending,” and that there would be no default, he said.
Representative Marsha Blackburn, a Tennessee Republican, said today she was reserving judgment until the Congressional Budget Office weighed in with its savings estimate.
“We don’t any more budget tricks, we don’t want any more accounting gimmicks,” Blackburn said on Bloomberg Television.

Concessions

In the final stage of negotiations, both sides made concessions. Republicans dropped their insistence on withholding some of the borrowing authority until future spending cuts had been made and a balanced budget amendment to the Constitution had been passed by both chambers of Congress. Those terms were included in a bill the House passed narrowly and along party lines July 29, only to see the measure defeated in the Senate less than 24 hours later.
The White House agreed to forgo an automatic tax increase, a sticking point for Republicans, as one of the consequences to kick in if no debt-reduction law was enacted by Christmas.
Even so, Obama has an opportunity to increase revenue in the future if he opts to allow the tax cuts enacted under George W. Bush to expire as scheduled in 2013. Even if Obama lost his re-election campaign next year, he could veto legislation to extend those cuts before leaving office -- producing an estimated $3.5 trillion.
White House officials said the enforcement mechanisms will help them press Obama’s agenda as further deficit reductions are made, including additional tax revenue.

Automatic Cuts

The automatic spending cuts would include deep reductions in the defense budget, which Republicans oppose. That measure preserves leverage for Democrats in committee negotiations, the officials told reporters on condition of anonymity.
Because any spending cuts would be delayed until 2013, timed to coincide with the expiration of the Bush tax cuts, Republicans would have an added incentive to agree to overhaul taxes, which Democrats want to use for raising revenue.
Republicans argue that while the super-committee could propose tax increases, it wouldn’t likely do so, because the rules of the deal require that it assume -- as the Congressional Budget Office does -- the Bush tax cuts expire as scheduled at the end of 2012. That would mean that to count any new revenue toward deficit reduction, the committee would need to both erase the Bush tax reductions and then generate additional revenue on top of that.

Balanced-Budget Amendment

In addition to guaranteeing a vote on the balanced-budget constitutional amendment between October and the end of the year, the agreement could give Republicans a chance to renew their push for the measure at the height of 2012 campaigns.
If Congress failed to enact the deficit-reduction package, it would either have to transmit the amendment to the states or automatic spending cuts would be trigged. Republicans could argue that the amendment -- which takes a two-thirds vote in both houses to be sent for ratification to the states -- was the only alternative to painful spending reductions.
Some Democrats said they wanted no part of a deal that would omit any tax increase while cutting deeply into government spending and threatening still more reductions to safety-net programs such as Medicare.
“This deal does not even attempt to strike a balance between more cuts for the working people of America and a fairer contribution from millionaires and corporations,” Representative Raul Grijalva, the Arizona Democrat who leads the Progressive Caucus, said in a statement. “I will not be a part of it.”

No Backing

House Minority Leader Nancy Pelosi of California offered no backing for the measure in a statement last night, nor promised any Democratic votes. With a morning gathering of Democrats planned behind closed doors, she said, “I look forward to reviewing the legislation with my caucus to see what level of support we can provide.”
Some Republicans also voiced disappointment with the measure. Senator Ron Johnson of Wisconsin said he was “highly concerned” about the size of the deficit narrowing being discussed, calling it too small to make a real difference in reining in the debt.
“I’m afraid this is not going to fix the problem, and that’s the one reason I came here,” said Johnson, a first- termer elected with Tea Party support.
While the compromise will probably assuage immediate concerns about a default in financial markets, “this relief will be short,” said Mohamed A. El-Erian, chief executive officer of Pacific Investment Management Co., the world’s largest manager of bond funds.

Standard & Poor’s

If S&P “sticks to what it said, it will downgrade” the U.S. debt following the deal, El-Erian said in an interview on ABC News “This Week.” The ratings company warned that the U.S. may lose its top AAA sovereign grade depending on the contents of the debt deal.
Peter Orszag, vice chairman of global banking at Citigroup Inc. and former director of the Office of Management and Budget in the Obama administration, told Bloomberg Television today that there was a “real risk” of a ratings downgrade.
Sperling said credit rating services were closely watching whether increases in the debt ceiling would be dependent on multiple votes in Congress over a period of several months. That prospect is no longer the case, he said.
“We’ve taken that cloud of uncertainty from default off our economy, not only for the rest of this year but for the rest of next year as well,” he said.