The US House has overwhelmingly passed a bill to permit the government to borrow enough money to avoid a first-time default for at least four months, defusing a looming crisis setting up a springtime debate over taxes, spending and the deficit.
The House passed the measure on a bipartisan 285-144 vote as majority Republicans back away from their previous demand that any increase in the government's borrowing cap be paired with an equivalent level of spending cuts.
Senate Majority Leader Harry Reid, D-Nev., said the chamber would immediately move to advance the legislation to the White House, which has announced Obama would sign it.
The measure would suspend the US$16.4 trillion (NZ$19.4 trillion) cap on federal borrowing and reset it on May 19 to reflect the additional borrowing required between the date the bill becomes law and then. The amount of borrowing required depends on the tax receipts received during filing season, but over a comparable period last year the government ran deficits in the range of US$150 billion.
The measure also contains a provision that slaps at the Senate, which hasn't debated a budget since 2009, by withholding the pay for either House or Senate members if the chamber in which they serve fails to pass a budget plan. Sen. Patty Murray, D-Wash., announced early today (NZ time) that the chamber would indeed debate a budget this year but maintained the GOP's "no budget, no pay" move had nothing to do with the decision.
US President Barack Obama vows not to negotiate over the debt ceiling as he did in the summer of 2011, though he promises further action on the budget. Today's developments mark a shift of the budget debate away from failed head-to-head talks between Obama and Boehner
The idea driving the move by GOP leaders like Speaker John Boehner, R-Ohio, is to re-sequence a series of upcoming budget battles, taking the threat of a potentially devastating government default off the table and instead setting up a clash in March over automatic across-the-board spending cuts set to strike the Pentagon and many domestic programs. Those cuts — postponed by the recent "fiscal cliff" deal — are the punishment for the failure of a 2011 congressional deficit-reduction supercommittee to reach an agreement.
This "no budget, no pay" idea had previously been regarded by many as a gimmick but has been given new life by Boehner as a "reform" to pair with an increase in the so-called debt limit. Boehner previously had insisted that any increase in borrowing authority to avoid lapses in payments to contractors, unemployment benefits or Social Security checks — and possibly even interest payments on US Treasury obligations — be matched dollar for dollar with spending cuts. Many Republican speakers preferred to focus on the pay provision.
"This is not a gimmick," said Rep. Michael Fitzpatrick, R-Pa. "For the past almost going on now four years, our colleagues in the Senate have failed in their most basic responsibility of governance, which is to pass a budget."
"All we're saying is 'Congress follow the law. Do your work. Budget,'" said House Budget Committee Chairman Paul Ryan, R-Wis. "And the reason for this (debt) extension is so that we can have the (budget) debate we need to have."
Boehner promises that the GOP blueprint will project a balanced budget at the end of a 10-year window.
"Balancing the budget over the next 10 years means that we save the future for our kids and our grandkids," Boehner said. "It also means that we strengthen programs like Social Security and Medicare and Medicaid that can't continue to exist in their current form without some kind of controls."
But the White House weighed in with a statement that the administration would not oppose the debt measure, even though Obama just last week dismissed incremental increases in the debt ceiling as harmful to the economy.
It also appeared virtually certain that Senate Democrats would accept the bill even though they would prefer a longer-term solution to the debt issue and believe that the "no budget, no pay" provision is silly.
While the measure permits an undetermined amount of additional borrowing through May 18, the actual date in which the government might be at risk of defaulting on its obligations would be several weeks later. That's because the government would retain the ability to juggle its books through what the Treasury Department calls "extraordinary measures."
With the debt battle averted, the next fight comes in March over across-the-board cuts that would pare US$85 billion from this year's budget. They were delayed from Jan. 1 until March 1 and reduced by US$24 billion by the recently enacted tax bill. Defence hawks are particularly upset, saying the Pentagon cuts would devastate military readiness and cause havoc in defence contracting. The cuts, called a sequester in Washington-speak, were never intended to take effect but were instead aimed at driving the two sides to a large budget bargain in order to avoid them.
But Republicans and Obama now appear on a collision course over how to replace the across-the-board cuts. Obama and his Democratic allies insist that additional revenues be part of the solution; Republicans say further tax increases are off the table after the 10-year, US$600 billion-plus increase in taxes on wealthier earners forced upon Republicans by Obama earlier this month.
"We are not going to raise taxes on the American people," Boehner told reporters Tuesday.
According to the latest calculations, which account for the recent reduction of this year's sequester from US$109 billion to US$85 billion, the Pentagon now faces a 7.3 per cent across-the-board cut, while domestic agency budgets would absorb a 5.1 per cent cut. The calculations are not official but were released Tuesday by Richard Kogan, a budget expert with the Center on Budget and Policy Priorities think tank.
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