The House of Representatives planned to vote today on a debt-limit increase proposal that confronts unified Democratic opposition in the Senate, setting the stage for a congressional showdown to avert a U.S. default.
House Speaker John Boehner of Ohio gained support among fellow Republicans for his plan to raise the debt ceiling after reworking the legislation to cut $917 billion over 10 years, more than his original approach. All 51 Senate Democrats and two independents signed a letter yesterday pledging to oppose the measure.
As congressional leaders continued to wrangle with less than a week before a potential U.S. default on Aug. 2, stock markets showed jitters. The Standard & Poor’s 500 Index fell 2 percent yesterday, the biggest drop in almost two months, and the cost of insuring against a U.S. default climbed to the highest level since February 2010.
Senate Majority Leader Harry Reid held out hope for a deficit-cutting compromise. “Magic things can happen here in Congress in a very short period of time under the right circumstances,” the Nevada Democrat told reporters.
The struggle to resolve the impasse helped send European stocks down, with the Stoxx 600 Index falling 0.9 percent at 11:03 a.m. in London. Standard & Poor’s 500 Index futures were little changed after a three-day slump in the U.S. stock gauge. The yen rose toward a four-month high against the dollar. Gold traded within 1 percent of a record.
Reid and his Republican counterpart, Minority Leader Mitch McConnell of Kentucky, maintained a private dialogue on developing a path to a debt-limit increase in the Senate, where bipartisan support is needed to gain the 60 votes necessary to ensure a vote on controversial legislation.
There is already considerable overlap between Boehner’s plan and one that Reid offered on July 25.
Reid dropped Democrats’ insistence on tax increases. His and Boehner’s proposals take as their starting points a cut of close to $1 trillion in discretionary spending cuts over 10 years, and both establish bipartisan committees to recommend future savings, with the results guaranteed a congressional vote.
The two sides are divided over a Republican demand for a second debt-limit vote tied to another $1.8 trillion in budget cuts that likely would come early next year, just as 2012 election campaigns are gearing up. Democrats would extend the debt ceiling until 2013 while making $2.2 trillion in total spending cuts, including $1 trillion from winding down the Iraq and Afghanistan wars, a savings Republicans criticized as a gimmick.
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.
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 to keep U.S. debt at the highest ratings level, Sharma said. The hearing was called to review the performance of credit-ratings companies since last year’s passage of the Dodd- Frank financial-sector overhaul law.
‘I Sure Did’
Boehner and Republican leaders worked behind the scenes to corral Republican votes for his plan. Radio host Laura Ingraham, alluding to a part of the anatomy, asked Boehner whether he told members at a closed-door meeting yesterday to get “your A-word in line” behind his debt bill.
“I sure did,” Boehner replied. “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.”
Republicans are under pressure from fiscally conservative advocacy groups who say the plan would do too little to control federal spending. Several 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.
Democrats aren’t likely to make up for any defections. House Democratic Whip Steny Hoyer of Maryland said there won’t “be very many if any” Democratic votes for the plan.
No Democratic Support
So far no Democrat has publicly come out for it. That means Boehner can lose no more than 23 of the 240 House Republicans to get the 217 votes to pass his plan in the 433 member chamber. Two seats are vacant.
As of last night, 17 Republicans had said they planned to oppose the plan, and five others categorized themselves as leaning in that direction.
The pressure on members was intense. Representative Tom Reed, a first-term Republican from New York, said yesterday 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 earlier 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 yesterday’s meeting of House Republicans they were leaning toward supporting the bill after previously saying they would oppose it, according to a Republican aide who spoke on condition of anonymity.
Even so, some opponents in the party predicted they would prevail.
“We can hold the line,” Representative Steve King, an Iowa Republican and a foe of the plan, told a group of Tea Party advocates who rallied outside the Capitol.
Senator John McCain of Arizona, the 2008 Republican presidential nominee, took to the Senate floor to criticize what he called “Tea Party hobbits.” He said they appear to believe the public would blame a government default on Obama, not Republicans.
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
Treasury Rates Rise
Rates on Treasury bills set to mature just after the Aug. 2 debt-ceiling deadline rose yesterday to the highest level in five months. Five-year notes auctioned yesterday, 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.
Rates on Treasury six-month bills due Aug. 4 touched 0.16 percent yesterday, the highest level since February, according to Bloomberg Bond Trader data. Yields on the benchmark five-year note fell two basis points to 1.54 percent today. Two-year note yields also declined two basis points, to 0.43 percent.
“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.