House Speaker John Boehner, battling resistance from within his own party as he intensifies a debt-ceiling standoff with President Barack Obama, worked to salvage his plan to tie the nation’s borrowing power to spending cuts and budget controls.
With less than a week before a possible default, the Republican-led House remained on a collision course with the Senate and White House.
Even as he hunted for votes to pass his two-step proposal for raising the debt-limit -- which the White House said Obama would veto -- Boehner was forced to postpone today’s scheduled action on it. That followed an analysis by Congress’s official budgetary scorekeeper that fueled fiscal conservatives’ concerns the measure wouldn’t slash enough from federal spending.
“We’re going to have some work to do to get it passed, but I think we can do it,” Boehner, an Ohio Republican, said. His proposal was devised after his debt-reduction negotiations with Obama and congressional Democrats broke down.
Adding to Boehner’s woes, Republican presidential candidate Michele Bachmann, a Minnesota congresswoman who has said she won’t back raising the debt ceiling, opposed Boehner’s plan. “The premise is wrong that we begin with increasing the debt ceiling,” she told a news conference yesterday in Ankeny, Iowa.
Ten-year Treasury yields were one basis point lower at 2.94 percent as of 6:55 a.m. today in New York, while the dollar slumped to record lows against the Australian and New Zealand currencies.
The MSCI Asia Pacific Index climbed less than 0.1 percent today, while futures contracts on the Standard & Poor’s 500 Index declined 0.1 percent.
Gold for immediate delivery rose 0.2 percent to $1,622.15 an ounce by 11:19 a.m. in London after touching an all-time high of $1,625.70.
House Republican leaders implored their rank-and-file to stick together. About 20 Republicans have publicly said they oppose the measure or were leaning toward voting “no,” leaving little wiggle room for passing the legislation. The bill needs 217 votes to pass the House, and Republicans hold 240 seats, meaning they can afford only 23 defections.
No Democrats plan to support the plan, according to a Democrat familiar with the negotiations.
White House Chief of Staff Bill 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.
‘The Worst Thing’
“With the difficult economy, the worst thing we can have, once again, is another one of these crises,” he said. Daley also said Boehner’s plan won’t pass Congress, and he said Obama won’t seek to use his executive authority to unilaterally raise the debt ceiling.
Boehner’s measure had been designed to raise the debt ceiling $900 billion while cutting $1.2 trillion in spending over a decade, then tie a subsequent, $1.6 trillion borrowing increase early next year to enactment of a package slicing $1.8 trillion from the long-term debt.
Yet the Congressional Budget Office reported that the measure would only cut $850 billion in spending, violating Boehner’s oft-stated promise that any debt-limit boost be smaller than the cuts accompanying it. The CBO didn’t count the $1.8 trillion in debt savings, saying it couldn’t predict whether the joint congressional committee the measure establishes would be able to produce them.
Republicans already were struggling to cobble together enough support to force the measure through the House, most likely without any Democratic votes. Some fiscal conservative groups and lawmakers were in open revolt, saying the plan would do too little to slice the debt and bring federal spending under control.
Senate Majority Leader Harry Reid called Boehner’s plan “dead on arrival” in his chamber, where Democrats are moving to advance a rival proposal whose prospects were also uncertain.
The Boehner plan would promise another debt-limit showdown in the 2012 election year unless Republicans and Democrats agree by the end of this year end to reduce deficits.
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.”
The president, who wants a $2.4 trillion boost in the $14.3 trillion debt ceiling -- enough to last until after the November 2012 elections -- has said the two-stage approach is unacceptable. It would leave uncertainty in the markets and jeopardize the fragile economy, he maintains. His advisers would recommend he veto the House bill, according to a statement yesterday by the White House Office of Management and Budget.
The Treasury Department has said Congress must act by Aug. 2 to raise the debt ceiling or the nation will default. That would take a compromise that hasn’t materialized in months of bipartisan negotiations.
Treasuries remained higher as speculation that lawmakers would reach a deal in time to avoid a default boosted investor demand at yesterday’s auction of $35 billion in two-year notes.
In a closed-door meeting at party headquarters near the Capitol yesterday, Representative Kevin McCarthy of California, the third-ranking Republican in charge of counting votes, sought to rally lawmakers behind the bill by playing a clip of the 2010 movie “The Town,” in which the film’s protagonist, a mobster and bank robber, asks a fellow criminal to help him with something difficult, according to a Republican familiar with the meeting.
“I can’t tell you what it is, you can never ask me about it later, and we’re gonna hurt some people,” the robber says in the scene. His compatriot simply responds, “Whose car we takin’?”
The meeting’s central message was that Republicans must band together, whatever their misgivings, to maintain their leverage in the debt-limit fight, Representative Jack Kingston of Georgia said. “We need your votes in order to stay in the game,” Kingston said the leaders told Republicans.
At the same session, Majority Leader Eric Cantor of Virginia told House Republicans that he understood the debt limit vote was difficult, yet the alternatives to Boehner’s plan are worse, according to a Republican official familiar with his remarks.
Cantor said its defeat would leave lawmakers facing the choice of a default or legislation that would hand Obama unilateral authority to raise the debt ceiling without making any spending cuts, Kingston said.
Still, there is growing uneasiness among some Republicans about Boehner’s plan. Several conservative organizations, including the Club for Growth, Heritage Action, and the Tea Party-affiliated FreedomWorks, are opposing the plan and pressuring lawmakers to do the same. They said the measure fell short because it doesn’t make congressional passage of a balanced budget amendment to the Constitution a prerequisite to raising the debt ceiling.
“The real key is not raising the debt ceiling, it’s taking care of the long-term, getting a solution to the debt crisis, and I’m not sure this qualifies,” Representative Paul Gosar of Arizona, a first-term Republican, said in an interview. “This isn’t reforming the process.”
‘Can’t Condone That’
Gosar said he is disappointed with the amount by which CBO said spending would be cut in its first year, which he described as “a lousy $7 billion,” and was reluctant to vote for another budget-trimming deal like the one reached in April that ultimately cut far less than was promised. “I learned my lesson with” that measure, Gosar said, “and I can’t condone that.”
The amount of spending reductions in the legislation “wouldn’t tell S&P, Moody’s or my mother-in-law that we’re serious,” Representative Louie Gohmert of Texas told reporters. The joint committee the bill would create to propose more deficit-reduction measures “allows us to punt our responsibility of doing the serious work of cutting,” he said.
Republican leadership aides worked into last night trying to revamp the measure to address lawmakers’ concerns. Meanwhile, leaders scheduled closed-door sessions both to give lawmakers tutorials on the bill and to allow them to vent their concerns.
“There’s evolution in the plan even as we speak, and we’re all waiting to see what the final product is,” said Representative Bill Cassidy of Louisiana, emerging from one such meeting last night. He said while the smaller-than-expected spending-cut estimate concerned him, “it actually gave me some encouragement, too, because now they’re going back and retooling. Frankly, that’s a good thing.”
Some Republicans said they viewed the measure as the best outcome in a flawed process. “Does it have everything that I want in it?” Republican Representative Allen West of Florida told reporters. “Absolutely not, but it is the 70-, 75-percent plan that we can go forward with.”
And business groups leaned on lawmakers to approve it.
“This legislation is critical,” R. Bruce Josten, the top lobbyist for the U.S. Chamber of Commerce, wrote in a letter to lawmakers announcing his organization would count the bill as a key vote. “Default on debt obligations is not an acceptable option. The time for Congress to act is now.”
If not resolved, the political wrangling could cost the U.S. its AAA rating, adding $100 billion a year to government costs while dragging down economic growth, according to Wall Street bond dealers.
A U.S. credit-rating cut would likely raise the nation’s borrowing costs by increasing Treasury yields by 60 to 70 basis points over the “medium term,” JPMorgan’s Terry Belton said on a conference call hosted by the Securities Industry and Financial Markets Association. Standard & Poor’s, which has given the U.S. a top ranking since 1941, reiterated on July 21 that the chance of a downgrade is 50 percent in the next three months and may happen as soon as August.
“That impact on Treasury rates is significant,” Belton, global head of fixed-income strategy at JPMorgan, said during the call. “That $100 billion a year is money being used for higher interest rates, and that’s money being taken away from other goods and services."
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 budget-deficit problem.
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.