(Corrects figure on budget deficit as a percentage of GDP in 25th paragraph. For more on the U.S. government shutdown, see EXT2.)
Oct. 7 (Bloomberg) -- President Barack Obama reiterated that he won’t negotiate with Republicans over the partial government shutdown and the U.S. debt limit as Senate Democrats began preparing for a test vote on a clean debt-ceiling bill.
Many U.S. government services have been shuttered for a week and the country is 10 days away from running out of borrowing authority. Republicans are insisting on changing the 2010 Affordable Care Act, while Obama refuses to engage in discussions about policy conditions tied to opening the government or raising the debt limit.
“We’re not going to negotiate under the threat of economic catastrophe,” Obama said today during a visit to the Federal Emergency Management Agency in Washington.
Senate Democrats are considering a strategy that would allow Obama to raise the debt ceiling without requiring any Republican to vote in favor of a debt-limit increase, said Senator Richard Durbin of Illinois, the second-ranking Democrat. A test vote on the proposal could occur as soon as Oct. 11 as the debates over the government shutdown and the debt limit have merged.
“Washington remains paralyzed in a staring contest with neither side appearing to blink anytime soon, and it seems highly likely that the federal government will stay closed through the week,” said Chris Krueger, a Washington analyst for Guggenheim Securities LLC.
Signaling Republicans are losing political ground during the standoff, an ABC News/Washington Post poll showed 70 percent disapprove of Republicans’ handling of the budget impasse, up 7 percentage points from a week ago. Fifty-one percent disliked Obama’s approach, little changed from earlier.
The method of giving Obama the authority to raise the debt ceiling barring congressional disapproval was first proposed by Senate Minority Leader Mitch McConnell, a Kentucky Republican, in 2011.
The new proposal could allow Obama to increase the nation’s debt limit unless Congress objected by a two-thirds vote in each chamber.
A one-year increase, pushing the issue past the 2014 election, probably will be in the Senate plan, Durbin said. Gene Sperling, director of the president’s National Economic Council, said that while the administration prefers a long-term boost in the debt limit, it wouldn’t rule out a temporary one.
“I’d be more in favor of long term because what does short term buy us?” Durbin said. “It buys us Thanksgiving in Washington.”
If it succeeds, the Senate Democrats’ idea could provide a path out of the debt-ceiling deadlock by giving both parties what they want. Obama would get an increase in the nation’s $16.7 trillion debt ceiling without negotiating with Republicans, and Republicans could say they objected to Obama’s attempts to raise the borrowing limit.
For the Democrats’ plan to work, at least some Republicans would have to agree. Giving Obama the authority would require at least six Senate Republicans’ support on procedural votes. Durbin said Democrats haven’t started talking to Republicans yet about their proposal.
“We hope they understand the economic crisis we would be avoiding if we can pass it,” Durbin said. “We haven’t quite reached the point yet where we have any commitments.”
In the House, Speaker John Boehner would have to allow a vote on the plan and at least 16 Republicans would have to support it.
After Obama gets the authority, Congress could have votes to disapprove the increase, Republicans could vote no and the increase would still happen.
After McConnell proposed the idea in 2011, it became part of the Budget Control Act passed in August of that year. That’s the process Obama then used to raise the debt limit. For example, the House voted to disapprove of his action on Jan. 18, 2012, in a 239-176 vote that failed because it lacked the two-thirds majority.
“We are not going to pass a clean debt limit,” Boehner, an Ohio Republican, said yesterday in an interview on ABC’s “This Week” program. “The votes are not in the House to pass a clean debt limit.”
Investor concern that U.S. politicians will fail to avert a default has roiled global markets. The Standard & Poor’s 500 Index fell 0.9 percent today to 1,676.12 at 4 p.m. in New York, the lowest level in almost a month.
The 10-year Treasury yield fell 1.5 basis points to 2.63 percent. With default possible in the next few weeks, the difference in rates between one- and three-month bills reached 13.2 basis points, the biggest since September 2008. The bill maturing Oct. 24 climbed to as high as 0.18 percent, while rates on three-month bills touched 0.03 percent.
The U.S. should prevent a default and ensure the security of China’s investment in Treasuries, Chinese Deputy Finance Minister Zhu Guangyao told a briefing arranged by the Chinese Foreign Ministry, Xinhua reported. China was the biggest overseas holder of U.S. debt at the end of July with $1.28 trillion, according to Treasury Department data.
Boehner said on ABC he doesn’t intend to let the government default and he has told his members the same thing behind closed doors, even if it involves relying on Democratic votes, according to aides and lawmakers.
Treasury Secretary Jacob J. Lew, who appeared yesterday on four of the major Sunday television talk shows, said the administration would be willing to negotiate only after the partial shutdown comes to an end and the debt ceiling is increased. He also warned of the dangers of default.
Lew is scheduled to testify before the Senate Finance Committee on Oct. 10 on the debt limit.
The U.S. will run out of borrowing authority on Oct. 17 and will have about $30 billion in cash after that. The country would be unable to pay all of its bills, including benefits, salaries and interest, sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.
Unlike past fiscal feuds, this dispute is more about Obama’s Affordable Care Act, his signature health-care law, and less about the amount of spending. The U.S. budget deficit in June was 4.2 percent of gross domestic product, down from 10.1 percent in February 2010 and the narrowest since November 2008, when Obama was elected to his first term, according to data compiled by Bloomberg from the Treasury Department and the Bureau of Economic Analysis.
Boehner said Obama needs to start a conversation about the drivers of the country’s debt -- entitlement programs such as Medicare and Social Security -- before he could pass a measure increasing the debt ceiling.
In divided government, “Negotiation isn’t a luxury,” McConnell said today. “It’s a necessity.”
Boehner has been holding regular closed-door meetings with his members, asking them to stick together as they close in on the debt-ceiling deadline. The House has passed smaller funding bills for specific parts of the government, including the National Institutes of Health and national parks.
House Republicans have rebuffed calls from Democrats to put a “clean” bill on the floor to fund the government at the level it was before the partial shutdown and Boehner said there aren’t enough House members who support it.
“Have a vote,” Senate Majority Leader Harry Reid said today. “That would settle the question for a long, long time, wouldn’t it?”
Senator Rob Portman, an Ohio Republican, is meeting with Democrats and Republicans to gain support for a plan that would open the government through Sept. 30, 2014 without delaying major parts of the health law, said a person familiar with Portman’s plan who spoke on condition of anonymity.
The plan would call for $600 billion in spending cuts over the next decade, a process for significant, revenue-neutral tax code changes and an income-verification requirement for health-insurance subsidies.
To contact the reporters on this story: Richard Rubin in Washington at firstname.lastname@example.org; Kathleen Hunter in Washington at email@example.com; Margaret Talev in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jodi Schneider at email@example.com