A House vote on Speaker John Boehner’s two-step plan to raise the U.S. debt ceiling was postponed amid growing Republican opposition to the measure that the Obama administration has threatened to veto.
The plan, which would cut $3 trillion in government spending, was faced with new questions about its impact. House Rules Committee Chairman David Dreier, a California Republican, said he adjourned his panel tonight “to ensure the product we have is in full compliance” with the pledge Boehner has made to cut spending more than the increase in borrowing authority.
The latest development cast new doubt on whether lawmakers and Obama could agree on a plan raising the nation’s debt limit before an Aug. 2 deadline when the U.S. could default on some of its obligations. The House vote had been scheduled for tomorrow and was called off late today.
House Majority Leader Eric Cantor, a Virginia Republican, said the plan would be voted on July 28.
President Barack Obama’s Office of Management and Budget said it “strongly opposes” the measure and would recommend a veto if it were passed by Congress.
The Congressional Budget Office earlier today estimated that it would save less than advertised. Boehner’s plan is intended to make $1.2 trillion in spending cuts in a first phase and up to $1.8 trillion in a second step, with those cuts to be proposed by a special congressional committee. CBO said today the first phase would save about $850 billion and couldn’t score the second.
Boehner, facing opposition within his own party, is trying to round up votes to pass the measure in the Republican-run House with one week left to avert a potential default. The plan could lead to another debt-limit standoff next year.
Senate Majority Leader Harry Reid, a Democrat, is seeking support for an alternative $2.7 trillion plan providing the debt-limit increase that Obama seeks to get through the 2012 elections. The Obama administration voiced confidence that lawmakers will reach an agreement in the remaining days.
Treasuries remained higher as speculation that lawmakers will agree to raise the debt limit in time to avoid a default boosted investor demand at today’s auction of $35 billion in two-year notes.
White House Chief of Staff William Daley, a former JPMorgan Chase & Co. executive, said on Bloomberg Television that a rise in U.S. Treasuries is a “good sign” that markets aren’t overreacting to the political impasse over raising the federal debt ceiling.
Daley also said Boehner’s plan won’t pass Congress and he expects Reid will win enough support to get Senate passage of his proposal. Obama won’t seek to use his executive authority to unilaterally the raise debt ceiling, Daley said.
Boehner, an Ohio Republican, said today his plan can pass both chambers of Congress.
“We are going to have some work to do to get it passed, but I think we can,” Boehner told reporters after a meeting of House Republicans. The House plans to vote in two days on a constitutional amendment to require a balanced federal budget.
House Majority Leader Eric Cantor, a Virginia Republican, told House Republicans at the closed-door meeting that if they fail to hang together to push through Boehner’s measure, they would be left with something much weaker, with no guarantee of spending cuts or deficit controls, said Representative Jack Kingston, a Georgia Republican.
Kingston said Cantor told members that a defeat of Boehner’s plan would likely lead to passage of a proposal by Senate Minority Leader Mitch McConnell of Kentucky and Reid of Nevada to hand Obama $2.4 trillion in borrowing authority without requiring that any cuts be made.
‘Dead on Arrival’
Reid said Boehner’s plan “is dead on arrival in the Senate” because the two-step process wouldn’t give financial markets needed assurances. He said credit-rating services have said his proposal for a longer-term increase of the debt limit wouldn’t lead them to lower the government’s credit rating.
Standard & Poor’s issued a statement saying it hasn’t commented on any of the proposals and “any statement to the contrary is inaccurate.”
Senator John Kerry, a Massachusetts Democrat, said House passage of Boehner’s plan would “send a dramatic, stupid message of incompetence to the world and drag the United States of America down with it.”
The CBO’s estimate of Boehner’s plan savings of $850 billion over the next 10 years includes $695 billion in discretionary cuts -- programs whose budgets are set in Congress’s appropriations process -- and $20 billion in mandatory savings.
The remainder would come from the reduced cost of making interest payments on the debt. The agency didn’t give Republicans credit for savings that may come a special panel they propose creating that would be charged with finding another $1.8 trillion in cuts. That’s because CBO can’t predict whether the panel would ultimately be able to agree on any cuts.
Boehner spokesman Michael Steel said in a statement that congressional staff are “looking at options to rewrite the legislation to meet our pledge.”
Jack Lew, director of the White House Office of Management and Budget, said in an interview on Bloomberg Television that he doesn’t think Boehner’s plan can pass Congress. That will force leaders to negotiate a compromise in the next few days, Lew said. “This is a crisis that can be avoided, and it’s a crisis that Washington would create,” Lew said.
A poll by the Pew Research Center for the People & the Press showed the American people also want a compromise and most think a deal will be reached before the deadline.
Almost 7 in 10 respondents say that lawmakers who share their views on the issue should compromise, even if it means an outcome they disagree with, according to Pew Research Center President Andy Kohut. The poll was conducted July 20-24.
Obama has pressed for a “balanced” solution to the debt-ceiling debate, including both new revenue and cuts in spending. House Republicans say they won’t accept taxes. The co-chairmen of the bipartisan deficit commission that Obama appointed last year recommended a mix of revenue and spending cuts as the only meaningful way to address the long-term problem of budget deficits.
The percentage of taxes as a percentage of the nation’s gross domestic product, at 15 percent, is at its lowest point since 1950.
A $3.7 trillion deficit-cutting plan by a bipartisan group of Senators known as the “Gang of Six,” also called for spending cuts combined with a tax overhaul that would raise $1 trillion.
Reduced government spending could subtract 1.5 percentage points to 2 percentage points from growth in 2012, a drag that will make it difficult to reduce 9.2 percent unemployment, say economists at Bank of America Merrill Lynch, JPMorgan Chase & Co. and Deutsche Bank AG.
One fiscally conservative group, Grover Norquist’s Americans for Tax Reform, supports the Boehner proposal while another, the Club for Growth, urged lawmakers to reject it. The Club for Growth issued a statement “strongly” opposing the Boehner plan because it “doesn’t fix our fiscal mess.”
The group favors a proposal passed by the House last week that would condition a debt increase on passage of a constitutional amendment to balance the budget. The plan was rejected in the Senate.
Meanwhile, the U.S. Chamber of Commerce, the nation’s biggest business lobbying group, endorsed Boehner’s approach. “A default on the obligations of the United States would most assuredly cause severe, immediate and pervasive economic harm” to the nation, the chamber said in an e-mailed statement.
White House press secretary Jay Carney said the administration still believes Congress will act to raise the debt limit before the Aug. 2 deadline.
“We are pushing this to the last minute, and that should not be the case,” Carney told reporters.
Treasury Secretary Timothy Geithner “has exercised all the wiggle room available to him, and that runs out on Aug. 2,” Carney said. “That’s not a guess. It’s not a political opinion. It is the judgment of career analysts at the Treasury Department.”
Boehner and Reid’s latest plans narrowed some of the differences in the approaches by the two parties.
Reid dropped Democrats’ insistence on tax increases. His and Boehner’s proposals take as their starting points $1.2 trillion in discretionary spending cuts over 10 years and both establish bipartisan committees to recommend future savings, with a guaranteed vote in Congress.
In a televised address from the White House, Obama last night urged Americans to contact their lawmakers to support his plan for a “balanced” approach.
House members and operators were “deluged” with calls and e-mails today, said Kyle Anderson, a Democratic spokesman for the House Administration Committee. Dan Weiser, communications director for the House chief administrative officer, said in an interview that calls to House offices peaked at 40,000 an hour, above normal hourly volume of 20,000.
Failure to increase the debt limit quickly would act as a new tax on the economy, Alice Rivlin, a White House budget director under President Bill Clinton, said today.
“It would throw the economy into a deep recession,” she said in an interview on Bloomberg Television. Investors “really believe we’re going to solve this problem.”
The two sides are divided over a Republican demand for a second debt-limit vote tied to another $1.8 trillion in budget cuts that likely would come early next year, just as 2012 election campaigns are gearing up. Democrats would extend the debt ceiling until 2013 while making $2.7 trillion in spending cuts, which includes $1 trillion from winding down the Iraq and Afghanistan wars, a savings Republicans criticized as a gimmick.
Obama endorsed Reid’s proposal as “a much better path,” though it doesn’t include the tax revenue increase that the president said is needed to address the deficit. He criticized Boehner’s plan as “kicking the can further down the road.” He said the two sides need to arrive at “a fair compromise.”
Thirty-year bond yields dropped four basis points, or 0.04 percentage point, to 4.28 percent at 4:33 p.m. in New York, according to Bloomberg Bond Trader prices. The yields rose earlier to 4.34 percent, approaching the highest level since July 8. The 4.375 percent securities due in May 2041 gained 21/32, or $6.56 per $1,000 face amount, to 101 19/32.
The current two-year note yield declined two basis points to 0.39 percent. Ten-year yields fell five basis points to 2.95 percent after earlier rising to 3.04 percent.
U.S. stocks declined. The S&P 500 dropped 0.4 percent to 1,331.94 at 4:33 p.m. in New York. The Dow Jones Industrial Average lost 91.50 points, or 0.7 percent, to 12,501.30. The S&P 500 fell 0.6 percent yesterday.
Reid and Boehner confront challenges in their own chambers. Reid needs at least some Republican support to get the 60 votes necessary to overcome a filibuster. Boehner’s Republican majority in the House is undercut by members of the party who oppose any debt increase or want deeper spending cuts.
“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. He said as of today there isn’t enough Republican support for passage without some Democratic votes.
Representative Jeff Flake, an Arizona Republican, said he was leaning against the Boehner proposal. He said he was concerned that it sets spending levels for this year higher than those in the House-passed budget. “It’s pretty slim on the cuts,” he said.