The Republican-led U.S. House plans a vote today to temporarily suspend the nation’s borrowing limit, removing the debt ceiling for now as a tool for seeking deeper spending cuts.
Senate Majority Leader Harry Reid said his chamber will pass the House measure unchanged and send it to President Barack Obama. “We believe strongly that this is a way forward,” Reid, a Nevada Democrat, told reporters at a news conference.
Republicans plan to use two other approaching deadlines -- the March 1 start of automatic spending cuts and the need to pass a bill to fund the government by the end of March -- to extract spending reductions from Obama and congressional Democrats.
The revised strategy eliminates the risk that House Republicans would be blamed for a potential default. By focusing on the other deadlines, Republicans said they aren’t giving up their fight for cuts to federal programs.
“The problem with the debt ceiling is if we do not agree on that, then federal checks don’t go out, the military doesn’t get their pay,” Representative John Fleming, a Louisiana Republican, said in an interview. “What we’ve chosen to do is push that back behind the other two events.”
The House bill would temporarily suspend the government’s $16.4 trillion borrowing limit until May 19. At that point, the measure would allow the nation’s borrowing authority to automatically be increased to accommodate the amount the U.S. Treasury borrowed during those three months.
Senator Richard Durbin of Illinois, the chamber’s second-ranking Democrat, said the Senate probably won’t act before next week on the House measure.
The House debt-ceiling plan is accompanied by a prod to lawmakers on the budget. It says the House and the Senate each must adopt a budget resolution for the next fiscal year by April 15. If not, the pay for members of the chamber that doesn’t act will be withheld and placed in an escrow account until they adopt one -- or, at the latest, until the end of the 113th Congress.
Reid said the Senate plans to pass a budget this year.
New York Senator Charles Schumer said that while Democrats would prefer a longer debt limit increase, House Republicans’ decision “showed that the Republicans are in full-on retreat on fiscal policy.”
“They blinked,” Schumer said. “Gambling with default was never a sound plan by Republicans.”
The Obama administration said it welcomes the House vote on lifting the nation’s debt ceiling through mid-May as a de-escalation of the fiscal debate.
The measure “lifts the immediate threat of default and indicates that congressional Republicans have backed off an insistence on holding the nation’s economy hostage to extract drastic cuts in Medicare, education and other programs,” the Office of Management and Budget said in a statement yesterday.
The debt limit has been raised periodically since its creation in 1917, with Congress increasing or revising it 79 times, including 49 times under Republican presidents, since 1960.
Enactment of the legislation could allow the Treasury to continue borrowing for several months and delay the need for a permanent increase in the debt ceiling until late summer.
Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey, told Bloomberg BNA in an e-mail that “our very tentative estimates suggest” that the Treasury “might not need another permanent increase until August.” Analysts at New York-based RBC Capital Markets LLC concurred, telling clients in a daily research note that “under this deal the drop-dead date might slide until August.”
The Treasury Department has said that it expects to run out of emergency measures to prevent a breach of the current debt limit between mid-February and early March.
Investors in U.S. Treasury bonds, who most directly bear the risk of a government default, haven’t shown alarm. The 10-year yield fell three basis points, or 0.03 percentage point, to 1.81 percent at 10:47 a.m. in New York today, according to Bloomberg Bond Trader prices.
The last time Congress fought over raising the ceiling, Obama signed an increase on Aug. 2, 2011, the day the Treasury Department warned that U.S. borrowing authority would expire.
The vote on the debt ceiling would clear the way for House Republicans to focus on the debate to replace about $1.2 trillion in automatic spending cuts, half of which would come from defense. Congress delayed the start date of the automatic cuts, known as sequestration, to March 1.
Republicans said they would be willing to let the automatic cuts take effect if Obama doesn’t agree to other spending reductions to replace them.
“The cuts are going to happen anyway,” Fleming said. “The president can’t stop the cuts from happening. All he can do is hopefully work with us to get the cuts in a better place. So if we have to we’ll let the cuts go into effect.”
Even if Democrats don’t agree to restructure sequestration to fall less heavily on defense, the cuts may go forward, said Representative Tom Cole, an Oklahoma Republican.
“We hope we can negotiate something different, but we would let them go ahead and happen,” he said in an interview.
When the automatic cuts take effect, discretionary spending would come down “dramatically,” House Speaker John Boehner, an Ohio Republican, told reporters yesterday. That could prompt Democrats to “get serious” about agreeing to cuts to entitlement programs, he said.
After dealing with the automatic cuts, the House is expected to take up its budget resolution and then turn to a bill to fund the government through Sept. 30, according to Fleming. The government is being funded through a stopgap measure that expires March 27.
Republican lawmakers said they wield leverage with the automatic spending cuts akin to that Obama had with the expiration at the end of last year of the tax cuts initially enacted during George W. Bush’s presidency.
Like the tax cuts, the automatic spending reductions will take place without action by Congress, Cole said.
House Republicans were told by their leaders at the party’s policy retreat near Williamsburg, Virginia, last week that they would push for a balanced budget in 10 years. By letting the automatic spending cuts take effect, the cap on discretionary spending would be set at less than $1 trillion for 2013 and 2014.
Keeping spending at that level for two consecutive years would enable the budget to reach balance after a decade, said Representative Lynn Westmoreland, a Georgia Republican.
“They used these numbers to calculate it would balance in 10 years,” he told reporters.
Representative Raul Labrador, an Idaho Republican, said he had no problem postponing the debt-limit fight if party leaders “make the commitment that we are going to be on a path to balance in 10 years.”
If leaders “are willing to fight with us on that, I think we can stand with them,” Labrador said at an event sponsored by the Heritage Foundation, a Washington policy center that advocates for smaller government.
House Budget Committee Chairman Paul Ryan of Wisconsin said earlier today that Republicans want to force “a big down payment on the debt crisis” during the debate on spending cuts and extending the government’s borrowing authority.
“We have to set our expectations accordingly” and “fight for those things” Republicans stand for “in a realistic way,” Ryan said today at a breakfast sponsored by the Wall Street Journal.