Senate Stops Long Debt-Cap Raise as Republicans Mull Move

The Senate blocked a Democratic plan to push the next fight over raising the debt limit until 2015 as lawmakers struggled to find a path to prevent a U.S. default and end the 12-day government shutdown.

The 53-45 vote fell short of the 60 votes needed to advance the measure as Republicans rejected Senate Majority Leader Harry Reid’s approach.

The vote came just hours after House Speaker John Boehner told fellow Republicans that President Barack Obama rejected his latest fiscal offer. Reid and Senate Minority Leader Mitch McConnell are talking to each other and Reid rejected the Republicans’ first offer because it ties conditions to the debt limit, said a Democratic aide speaking on condition of anonymity to discuss the private meeting.

“It’s been clear to me for a while we can’t wait for the House to save us,” said Richard Durbin of Illinois, the second-ranking Senate Democrat. “We have to find our own bipartisan path forward, and we haven’t done that yet.”

The emerging Senate talks have been focusing on a plan from Republican Susan Collins of Maine and Democrat Joe Manchin of West Virginia, which faces obstacles in both parties and both chambers of Congress.

That plan would delay a tax on medical devices for two years, while making up lost revenue through pension-rule changes and extend government funding for six months. It would push the next debt-limit fight to the end of January and give agencies more flexibility to allocate funds, said two Senate aides with knowledge of the proposal who sought anonymity to discuss the private talks.

Budget Talks

The plan would require the Obama administration to verify income levels for enrollment in health-care benefits, and set a mid-January deadline for longer-term budget talks, they said.

The detailed text of Collins’ proposal could be released as soon as today, said a Democratic aide familiar with the plan who spoke on condition of anonymity to discuss the proposal.

“I think elements of my plan will be in the final compromise that brings an end to this impasse,” Collins told reporters as she entered a meeting of fellow Senate Republicans today.

For the past two days, the prospects for a potential deal had focused on talks between Boehner and Obama that would push the lapse of borrowing authority to Nov. 22 from Oct. 17. Republicans also wanted to attach policy conditions to a separate spending bill that would end the government shutdown.

Reid, a Nevada Democrat, said talks between the White House and House Republicans were “done.”

The White House today declined to comment on the budget situation.

Talks Continuing

Boehner also told members that talks are continuing with the White House, according to another person in the room who sought anonymity to discuss the private meeting.

Still, Representative Bill Flores of Texas said the president “is not talking to us.” He said Obama “is trying to talk to the Senate Republicans and trying to split them up so” that Reid “can jam a deal together.”

House Republicans oppose several aspects of Collins’ plan. They want a larger dent in the 2010 health care law such as a delay of the mandate for individuals to purchase health insurance. Representative Hal Rogers, chairman of the House Appropriations Committee, also rejected the idea of a six-month spending bill.

Obama has insisted that he wouldn’t accept policy conditions attached to a debt-limit increase or a spending bill, though Jay Carney, the White House press secretary, hedged on the spending bill yesterday.

President’s ‘Concerns’

“The president has a number of concerns” about Boehner’s proposal, Carney told reporters yesterday after Boehner and Obama spoke by telephone about the speaker’s offer.

Extending the debt ceiling for a short period while budget talks occur may lead to a replay of the same brinkmanship the U.S. is experiencing now, Carney said.

The emerging Senate plan has no chance in the House, said Representative John Fleming of Louisiana after a party meeting today. He said there was “no reason” for the House to pass a short-term debt-limit increase. The House completed voting today and isn’t scheduled to return until late on Oct. 14.

“Every offer we’ve made they just flat turned us down without any counter-offer,” Fleming said. “Our level of expectations for the president has gradually dropped over the years to a point where we don’t expect anything from President Obama.”

Shifting Position

White House officials opened the door to talks on ending the government shutdown, even as they held firm on raising the debt ceiling without conditions. When asked whether the White House was shifting its position, Carney said the administration was “encouraged” by “constructive signs coming from the Republicans.”

The indications of progress bolstered financial markets yesterday. U.S. shares rallied for a second day following the biggest jump since January and gold plunged to a three-month low while the yen weakened and oil slid. The Standard & Poor’s 500 Index rose 0.6 percent to 1,703.20 yesterday in New York after jumping 2.2 percent the previous day.

The rate on $93 billion in Treasury bills due Oct. 24 was at 0.26 percent, according to Bloomberg Bond Trader data, after climbing as high as 0.50 percent on Oct. 10. It was zero as recently as Sept. 19. The rate on bills due Nov. 29 was at 0.16 percent, the highest since the security was issued.

The shutdown has led to hundreds of thousands of federal employees being furloughed or receiving partial paychecks. It has also closed federal services such as national parks.

Medical-Device Tax

The medical device tax is potentially attractive to lawmakers in both parties. It has drawn opposition from Democrats who represent states with device makers, including Massachusetts and Minnesota.

Republicans could say they made a change to Obamacare, because the medical-device tax was passed as part of the 2010 law. Obama could say he didn’t negotiate on the principles of the health-care law, because eliminating the tax wouldn’t end the individual mandate or other main components of the Patient Protection and Affordable Care Act.

Durbin said he was open to changes in the device tax, though he had concerns about other industries taxed in the law seeking similar treatment.

“I don’t want to pay dearly for short-term relief,” he said. “Open the government first, pay our bills. Then we negotiate.”

Oct. 17

If the U.S. fails to raise the debt limit by Oct. 17, the government will have $30 billion plus incoming revenue to pay its bills. It would start missing scheduled payments, including benefits, salaries and interest, between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

Republicans, who have called for defunding or delaying Obamacare, have reduced their demands over the past few weeks. The House “has demonstrated an incredible amount of flexibility,” Representative Peter Roskam of Illinois said on Bloomberg Television’s “Capitol Gains” airing this weekend. He is the House Republicans’ chief deputy whip.

A deal built around repealing the medical-device tax would be a “hollow victory” and further divide Republicans, said Representative Tim Huelskamp of Kansas, one of the House Republicans still pushing to dismantle the health-care law.

“It would still fund 98 percent of Obamacare,” Huelskamp said of the latest Republican proposal. “That won’t be sufficient for conservatives and will be seen as capitulating to the left.”

Any prospective deal faces questions, including whether Boehner can come to an agreement with Obama and not lose the support of his hardline members. They’ve sought to use the debt ceiling and government shutdown to force curbs on Obamacare and federal spending.

Before it's here, it's on the Bloomberg Terminal.