House Speaker John Boehner revised his plan to raise the U.S. debt ceiling as he gained support among fellow Republicans for a proposal which Senate Democrats said will not pass their chamber.
Republican leaders were moving ahead with plans to vote on the measure tomorrow, less than one week before a potential U.S. default Aug. 2, and sought to ease party members’ concerns that it wouldn’t cut spending enough. The Congressional Budget Office said Boehner’s new plan would cut $915 billion in spending over a decade, still short of the $2.2-trillion Senate plan.
The urgency of the debate was reflected in rhetoric on Capitol Hill as well as market reaction to the appearance of what presidential adviser Gene Sperling termed a “stalemate.”
Boehner, when asked by radio host Laura Ingraham whether he told members at a closed-door meeting today to get “your A-word in line” behind his debt bill, said: “I sure did. Listen, this is time to do what is doable.”
Boehner said his bill is “the best opportunity we have to hold the president’s feet to the fire.” Senate Majority Leader Harry Reid called his alternative “the only true compromise.”
The Treasury Department has said Congress must act by Aug. 2 to raise the nation’s $14.3 trillion debt ceiling or risk default.
U.S. stocks fell, dragging the Standard & Poor’s 500 Index down the most in almost two months. The S&P 500 slipped 2 percent, its biggest decline since June 1, to 1,304.89 at 4 p.m. in New York. The Dow Jones Industrial Average retreated 198.75 points, or 1.6 percent, to 12,302.55.
Treasury yields, which dropped yesterday on speculation lawmakers would reach an accord on the nation’s debt ceiling, rose today as the political stalemate continued.
Rates on Treasury bills set to mature just after the Aug. 2 debt-ceiling deadline rose to the highest level in five months. The notes sold today, which will be issued a day before the debt cap is reached, drew a yield of 1.580 percent, compared with the average forecast of 1.547 percent in a Bloomberg News survey of nine of the Federal Reserve’s primary dealers.
“The market is saying, ‘we need a deal here,’” said Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities Inc. in New York.
Boehner’s plan would promise another debt-limit showdown in the 2012 election year unless Republicans and Democrats agree by the end of this year to reduce deficits. President Barack Obama and congressional Democrats insist on extending the nation’s borrowing authority through the 2012 elections, saying continued uncertainty would harm financial markets.
An analysis by the nonpartisan CBO of Boehner’s revised plan said it would cut spending by $915 billion, compared with $850 billion for his original plan. This still was less than the $1.2 trillion advertised by party leaders for an initial round of cuts, which prompted leaders to cancel today’s scheduled House vote on the bill.
The additional savings in Boehner’s revision come from bigger cuts in so-called “discretionary” spending. The revised plan, which also calls for a $900 billion debt-limit increase, meets Republican demands that any increase be coupled with commensurate budget cuts. Additional increases in the debt ceiling would be contingent on savings produced by a proposed budget-cutting committee, under the two-step plan.
‘Working Through It’
“We’re working through it,” said House Rules Committee Chairman David Dreier. Among opponents, “some have said they’ve changed their position, some have said they’re rethinking their position,” he said.
Dreier, a California Republican, said he expects a new version to come before his panel today, setting up a vote on the House floor tomorrow. The White House said Obama would veto the bill, and Reid, a Nevada Democrat, said it won’t clear the Senate. Reid is pushing a competing proposal that would raise the debt limit through 2012.
“We like our bill, we’re going to stick with it until somebody comes up with a better idea,” Reid said. “Magic things can happen here in Congress in a very short period of time under the right circumstances.”
The CBO said today that Reid’s plan would cut $2.2 trillion over 10 years, shy of its $2.7 trillion target. The savings also fall below $2.4 trillion needed to meet Republican demands that a debt-limit extension be accompanied by an equal amount of savings. Reid said his plan can be “tweaked” to meet its goal.
No Winner Picked
Standard & Poor’s President Deven Sharma declined to pick a winner among lawmakers’ deficit-reduction plans, telling a House panel that decisions on whether to downgrade the nation’s debt will hinge on the long-term impact of any final measure.
“We are waiting for what the final proposal is,” before deciding whether keep U.S. debt at the firm’s highest ratings level, Sharma said at the hearing, called to review the performance of credit-ratings firms since last year’s passage of the Dodd-Frank Act.
A U.S. default would be “devastating” to consumers who would be affected by higher interest rates, said Michael Duke, president and chief executive officer of Wal-Mart Stores Inc.
“A default and the ripple effect would be impactful,” Duke told the Senate Finance Committee. He said both the reality and the perception of a default would hurt the U.S. economy.
Reid, McConnell Consult
Reid and McConnell are consulting on what it would take to push legislation through by Aug. 2, said Richard Durbin of Illinois, the Senate’s second-ranking Democrat.
Typically, “a lot of it will happen in private meetings where efforts will be made to reach an agreement and a consensus and then bring it to the floor and sell it to the members,” Durbin said.
Representative Tom Reed, a first-term Republican from New York, said he was up through the middle of the night trying to decide how he will vote on Boehner’s proposal. He said he decided around 4 a.m. to back the speaker after saying yesterday he would oppose the plan.
“I’m a firm yes,” Reed said. “We’ve been looking at this real hard. This has been a very stressful period of time. It’s not exactly what I’m looking for, it’s not what we came to Washington to do, but it’s a step in the right direction.”
At least six members said during today’s meeting of House Republicans they were leaning toward supporting the bill after saying yesterday they would oppose it, according to a Republican aide who spoke on condition of anonymity.
At the session, House Budget Committee Chairman Paul Ryan explained that CBO estimated less savings than was promised because it used a different starting point than leaders anticipated, said Representative Scott Garrett of New Jersey.
House Majority Leader Eric Cantor told reporters that Republican members understand the plan “puts a check on Obama.”
“It doesn’t allow him the blank check that the Reid bill would allow,” said Cantor of Virginia. “That’s why members are rallying around this plan.”
Republicans are under pressure from fiscally conservative advocacy groups who say the plan would do too little to control federal spending. Several such organizations, including the Club for Growth, Heritage Action and the Tea Party-affiliated FreedomWorks, oppose the plan and are pressuring lawmakers to do the same.
“We can hold the line,” Representative Steve King, an Iowa Republican and an opponent of the plan, told a group of Tea Party advocates who rallied outside the Capitol.
‘Tea Party Hobbits’
Still, Senator John McCain of Arizona, the 2008 Republican presidential nominee, criticized what he called “Tea Party hobbits” on the Senate floor, saying they appear to believe that the public would blame a government default on Obama and not on Republicans.
Three investment firms -- BlackRock Inc., Loomis Sayles & Co. and Franklin Templeton Investments -- said the U.S. faces losing its AAA credit rating as the debate continues.
“Our guess is, when push comes to shove, the debt ceiling will be raised,” said Bob Doll, chief equity strategist at New York-based BlackRock, which manages $3.66 trillion. “What goes along with that is very difficult to tell, and that’s why the threat of a downgrade still exists,” Doll said in an interview today on Bloomberg Television.
Those warnings have convinced some Republicans to back the plan, said Arizona Representative Jeff Flake, a Republican who said he is considering supporting the bill after saying he opposed it yesterday.
“It may be the last train leaving the station and that’s weighing on people’s minds,” Flake said.