The Senate defeated a Democratic proposal to raise the debt ceiling today as lawmakers closed in on a deal that would be acceptable to both parties.
By a vote of 50 to 49, Senate Majority Leader Harry Reid’s plan fell short of the 60 votes needed to advance in the 100-member body.
Elements of Reid’s plan are likely to surface in the bipartisan deal which could be completed this afternoon. The Senate is poised to move quickly once that deal is reached.
“The arrangement that is being worked on with the Republican leader and the administration and others, is not there yet,” Reid said on the Senate floor after the vote. “We're hopeful and confident it can be done.”
Reid told lawmakers not to wander too far from the Capitol in case he calls another vote. “I would not suggest a ballgame,” he said.
Under normal Senate rules, a final vote on any deal could be delayed until Wednesday, one day past the deadline set by the treasury department to ensure the United States does not default on its obligations.
But any deal could include provisions to ensure that Congress acts before then, a Democratic aide said.
The tentative framework includes immediate spending cuts of $1 trillion and creation of a special committee to recommend additional savings of up to $1.8 trillion later this year. The new panel would have to act before the Thanksgiving congressional recess in late November and Congress would have to approve its recommendations by late December or government departments and programmes, including defence and Medicare, would face automatic, across-the-board cuts, the person said.
No more than four per cent of Medicare would be subject to cuts, and beneficiaries would be unaffected as reductions would apply to providers, the person said. Social Security would be untouched.
CONSTITUTIONAL AMENDMENT
The framework also calls for Congress to vote on a balanced budget amendment to the Constitution, the person said. Amendments require two-thirds majorities to pass, and if enough Democrats oppose the measure it would have little chance of winning approval.
White House officials familiar with the talks cautioned after reports of the framework surfaced last night that no final agreement has been reached among those involved in negotiations and that negotiations were continuing.
The prospective agreement wouldn’t include increased net revenue, a sticking point for Republicans who’ve been adamant that any deal with tax increases couldn’t pass the Republican- run House.
Democrats, including those who run the Senate, have been insistent that any deal must be a “balanced approach” that includes revenue, raising questions about whether Obama would find substantial support from his party for the plan.
Obama and congressional leaders yesterday kick-started the new push to prevent a US government default on its debt after several previous efforts in recent weeks had fallen short. As the day progressed, Republicans and Democrats expressed greater optimism a deal may be within reach before August 2, the date treasury department officials have said they will run out of options for avoiding default without a debt limit increase.
Financial markets were restrained in reacting to the impasse on a debt deal through July 29.
Treasuries rallied, sending yields on 10-year notes to the lowest level since November. The yield on 10-year Treasury notes declined 15 basis points to 2.79 per cent in New York.
Stocks fell as economic growth trailed forecasts. The Standard & Poor’s 500 Index slipped 0.7 per cent and tumbled 3.9 per cent this week for its worst slide in a year.
Senate Majority Leader Harry Reid last night said he was “confident that reasonable people from both parties should be able to reach an agreement.”
Reid, in remarks on the Senate floor before details of the framework emerged, cautioned that “there are many elements to be finalised and there is still a distance to go before any arrangement can be completed.” Still, the Nevada Democrat said, “I am glad to see this move toward cooperation and compromise.”
‘MORE OPTIMISTIC’
Earlier Senate Minority Leader Mitch McConnell, a Kentucky Republican, said he was “more optimistic” and that negotiators have “got a chance of getting there.” House Speaker John Boehner, an Ohio Republican, also voiced confidence an agreement could be reached.
Obama has been demanding an increase in the $14.3-trillion debt limit that lasts through the 2012 election, when he is seeking another term.
Reid moved last night to give the negotiations more breathing room, pushing forward by 12 hours a planned test vote today on a pending measure he has to raise the debt ceiling and cut government spending. The planned 1 am vote was rescheduled for 1 pm at the Capitol.
The House earlier yesterday held a symbolic vote rejecting the Reid plan, 246-173. The vote was scheduled after the Senate voted down on July 29 a Boehner debt ceiling plan that had passed the House earlier in the day.
LOWER PROFILE
Since direct talks between Obama and Boehner on a so-called “grand bargain” that would revamp the government’s finance as part of a debt ceiling increase broke down on July 22, Obama had kept a lower profile, looking to congressional leaders to hammer out a deal he can sign into law.
The president has warned of potential disruptions if the borrowing authority isn’t upped by August 2, including missed checks to Social Security recipients and a downgrade of the US credit rating if Congress allows the government to crash into the debt ceiling.
Yesterday he summoned Pelosi and Reid to the White House. Pelosi said they talked about “what our priorities are.” He spoke by phone with McConnell after a similar conversation with Boehner the day prior. McConnell also spoke multiple times yesterday with Vice President Joe Biden as part of the search for a deal, said John Ashbrook, a spokesman for McConnell.
Republicans had been putting the onus on Obama to take the lead in the closing hours of the standoff. “The only way we’re going to get an agreement before Tuesday is to have an agreement with the president of the United States,” said McConnell.
SECOND ROUND
A compromise has appeared to hinge on guaranteeing a second round of spending cuts beyond the roughly $1 trillion in overlapping savings in Reid’s plan and one by Boehner that the House, solely with Republican support, passed July 29. The second round of cuts most likely involve rewriting US laws on entitlements and taxes, something the tentative framework would assign to the new joint congressional committee.
Such a mechanism is called a “trigger,” and it would force the across-the-board spending cuts if Congress failed to approve the committee’s recommendations.
Senator Olympia Snowe, a Maine Republican, said the trigger is essential to a deal. “You have to have it,” she said. “That does tie to whether or not Treasury securities are downgraded by the ratings agencies,” she said.
Boehner’s measure would have required congressional approval of a constitutional amendment to balance the budget and forced another debt-limit vote by lawmakers in about six months to continue the nation’s borrowing authority beyond early 2012.
NO TAX INCREASES
Reid said his plan aims to attract bipartisan support because it includes no tax increases and would cut spending by the same amount as the debt-limit boost.
Republicans have said the Democrats’ plan is unacceptable in part because it doesn’t ensure long-term deficit reduction, including cuts to entitlement programmes. They also said it relies on a budget “gimmick” by counting as deficit reduction plans to bring troops home from Iraq and Afghanistan.
The Treasury is preparing contingency plans to pay the government’s obligations should Congress fail to raise the borrowing limit in time. White House press secretary Jay Carney said Treasury officials may reveal the plans this weekend.
