House Speaker John Boehner and Senate Majority Leader Harry Reid attacked each other’s plans for Congress to lift the U.S. $14.3 trillion debt ceiling and avert default before an Aug. 2 deadline.
President Barack Obama plans to address the nation from the White House at 9 p.m. Washington time on the partisan standoff, with Boehner responding in a separate appearance.
Boehner’s two-step plan would raise the U.S. borrowing limit by up to $1 trillion, with larger spending cuts, and require a new vote on more reductions before an additional $1.6 trillion debt-limit increase next year. It could be voted on in the House within two days. Obama and Senate Democrats oppose a short-term extension, which could lead to another debt standoff next year.
By contrast, Reid’s proposal would cut $2.7 trillion in spending and give Obama the full $2.4 trillion in additional borrowing authority he seeks, enough to get through the 2012 elections.
The high-stakes standoff is already starting to rattle investors. Reid, a Nevada Democrat, said he hopes Republicans “will still know a good deal when they see it.”
Asked whether his plan can get the 60 votes needed to overcome a filibuster by opponents, Reid said, “I would hope so.” In the House, some Republicans are balking at Boehner’s plan.
$1.2 Trillion in Cuts
The 10-year plan introduced by Reid includes $1.2 trillion in cuts to defense and non-defense discretionary spending -- programs whose budgets are set in Congress’s appropriations process.
The plan would include $1 trillion in savings from winding down the wars in Iraq and Afghanistan. It would include $100 billion in mandatory program savings, including $30 billion in Fannie Mae and Freddie Mac changes, $40 billion in savings from eliminating waste and fraud, $15 billion from spectrum auction sales and telephone universal service changes and $10 billion to $15 billion in cuts in agriculture subsidies.
Interest savings from cutting projected spending would produce $400 billion. The proposal would create a bipartisan committee of 12 members to recommend future savings, with a guaranteed vote in Congress. The committee would produce recommendations to be voted on by Congress this year.
White House press secretary Jay Carney called Reid’s plan “a responsible compromise.”
If Republicans “refuse this offer, it simply means they want to default,” said Senator Chuck Schumer, a New York Democrat.
Boehner’s plan would require $1.2 trillion in spending cuts in the first phase and up to $1.8 trillion in the second step. A committee would be created to identify cuts, and Congress would be required to vote by the end of this year on a constitutional amendment requiring a balanced budget.
Reid called Boehner’s plan a “non-starter” because the two-step process for approving debt-limit increases wouldn’t give financial markets the assurances they need. Republicans are more interested in “trying to embarrass the president” than doing what is right for the country, Reid said.
Boehner met with House Republicans and told a news conference afterward that Reid’s plan is “full of gimmicks.”
Under Boehner’s proposal, Congress could face a replay of the debt-ceiling drama early next year. The measure would tie the second installment of borrowing authority to enactment of a deficit-cutting package to cut up to $1.8 trillion from the deficit. If the debt-reduction plan stalled in Congress, Obama would face another debt deadline in February or March.
The $1.2 trillion in spending cuts over the next decade would be achieved through statutory caps on discretionary spending. If the caps were exceeded, there would be across-the-board cuts.
House Republican leaders sought to persuade their members to pass what Boehner called a “less than perfect” plan.
“It does ensure that spending cuts will be greater than the hikes in the debt limit,” Boehner said.
Representative Tom Cole of Oklahoma said fellow Republicans should back Boehner’s plan to strengthen the speaker’s hand at the negotiating table.
We would “be undercutting ourselves not to give him the votes he needs to be effective in the negotiation,” Cole said. The number of Republicans who would oppose any type of debt-limit increase had shrunk “pretty dramatically” since earlier this year, he said.
‘Received Very Well’
Freshman Representative Allen West, a Florida Republican, said Boehner’s plan was “received very well” at a meeting with lawmakers and that he planned to vote for it.
Some Republicans said the measure wouldn’t cut 2012 spending enough. Others said the debt limit should be raised only if Congress passes a balanced-budget constitutional amendment and sends it to the states for ratification.
“There is a significant number that have real problems with this bill,” said Ohio Representative Jim Jordan, chairman of the fiscally conservative Republican Study Committee.
“I want a solution, not a deal,” said Utah Republican Jason Chaffetz. “I am as ‘no’ can you can possibly be” without congressional passage of a balanced-budget amendment.
Texas Republican Mike Conaway said he would push for a vote on a balanced-budget amendment later this week.
Gang of Six
Democratic Senator Mark Warner, who helped write a bipartisan “Gang of Six” $3.7 trillion deficit-cutting plan, said he is concerned Boehner’s plan falls short and won’t satisfy credit rating agencies, such as Standard & Poor’s.
Warner of Virginia said in an interview on Bloomberg Television that Standard & Poor’s said “if we simply kind of lurch along with these short-term debt extensions, that could lead to a downgrade.”
Senator Jon Kyl of Arizona, the No. 2 Republican leader, said leaders in both parties recognize it isn’t ideal for both chambers to move rival bills that may not have enough support to pass.
“If we can reach an agreement before there is a vote, that would be a good thing,” Kyl said after a meeting of Senate Republicans. “I don’t know that we can. But then again, both proposals might be modified a little bit or you could get bipartisan agreement.”
U.S. stocks fell. The Standard & Poor’s 500 Index fell 0.6 percent to 1,337.43 at 4 p.m. in New York, after losing as much as 1 percent.
Treasury two-week yields reached a two-week high after Mohamed A. El-Erian, whose Pacific Investment Management Co. runs the world’s biggest bond fund, said the U.S. may lose its AAA debt rating even if lawmakers reach a plan to avoid a default.
The cost of insuring U.S. debt rose, sending credit-default swaps on Treasuries up three basis points to 56.15, approaching the highest in 17 months, according to CMA Analytics.
Two-year Treasury yields increased two basis points to 0.42 percent and 10-year yields added four points to 3.01 percent. It is still below the 10-year average of 4.06 percent.
El-Erian said in an interview today on Bloomberg Television that it will be a “big, big mess” if the U.S. defaults, spurring a sell-off in equities, the U.S. dollar and commodities excluding gold. El-Erian is the Newport Beach, California-based chief executive officer and co-chief investment officer at Pimco.
‘No Other Country’
“Remember there is no other country that can step in to replace the U.S.,” he said. “The U.S. is the supplier of the reserve currency. The U.S. is the provider of a financial system that intermediates other people’s savings and investments. The U.S. is a AAA. The question is whether the U.S. can maintain a AAA.”
This year’s vote would be the 101st time since 1940 that the debt limit has been changed. Congress last raised the federal debt limit by $1.9 trillion in February 2010. The then Democratic-controlled House approved the increase by a vote of 233-187. The Democratic-run Senate approved the increase in January 2010 by a vote of 60-39.