Both houses of the U.S. Congress were lining up votes on Monday on a bitterly fought agreement with President Barack Obama to raise the limit on U.S. borrowing and forestall an unprecedented American default.
The deal was struck late on Sunday after weeks of outright partisan warfare. Mr. Obama said the plan cuts domestic spending to percentage levels not seen in more than 50 years. But many of the tea party-backed Republican first term members of the House of Representatives and their liberal Democratic counterparts remained deeply dissatisfied with the measure.
While it was widely expected the plan, crafted to thread the needle between the philosophically opposite ends of the political spectrum, would pass, there were still no guarantees. Tuesday is the deadline to avoid a U.S. default on payments to investors in Treasury bonds, recipients of Social Security pension checks, those relying on military veterans’ benefits and businesses that do work for the government.
The deal aims to prevent a downgrade of America’s credit rating, and news of the agreement buoyed global investors as world stock markets jumped on Monday. Futures trading ahead of the market opening in New York rebounded after last week’s dramatic declines.
Shortly after Senate Majority Leader Harry Reid and his Republican counterpart, minority leader Mitch McConnell, endorsed the plan on the Senate floor on Sunday night, Mr. Obama went to the White House press room to add his support for the deal. It meets one of his key demands, raising borrowing power sufficiently to keep the partisan poison pill from returning to the national agenda until after the 2012 election. It does not include any tax increases that Mr. Obama had pressed hard to include.
House Speaker John Boehner, in a conference call with Republican members of the lower chamber, said the deal was a good one that met the demands of all Republicans.
Bowing to the still unknown outcome of congressional action, Mr. Obama said important votes remained to be taken but that leaders of both parties in both houses of Congress were agreed to a plan that would initially cut about $1 trillion from U.S. spending.
“Is this the deal I would have preferred? No.” said Mr. Obama.
But he said - “Most importantly it will allow us to avoid default and end the crisis that Washington imposed on the rest of America. And it will allow us to lift the cloud of doubt and uncertainty” that has hung above the United States for weeks.
Mr. Obama and many economists and financial experts predicted global chaos and plunging stock markets had no deal been reached by midnight Tuesday.
The broadest outlines of the emerging plan, a deal that involved deep negotiations between McConnell and Vice President Joe Biden, would raise the federal debt limit in two stages by at least $2.2 trillion, enough to tide the Treasury over until after the 2012 elections.
Big cuts in government spending would be phased in over a decade. Thousands of programmes, the Park Service, Internal Revenue Service and Labour Department accounts among them, could be trimmed to levels last seen years ago.
No benefit cuts were envisioned for the Social Security pension system or Medicare, the federal programmes that provide health care payments to the elderly. But other programs would be scoured for savings. Taxes would be unlikely to rise.
The first step would take place immediately, raising the debt limit by nearly $1 trillion and cutting spending by a slightly larger amount over a decade.
That would be followed by creation of a new congressional committee that would have until the end of November to recommend $1.8 trillion or more in deficit cuts, targeting benefit programmes, such as Medicare and Social Security, or overhauling the tax code. Those deficit cuts would allow a second increase in the debt limit, which would be needed by early next year.
If the committee failed to reach its $1.8 trillion target, automatic spending cuts totalling $1.2 trillion would kick in, and the debt limit would rise by an identical amount. The conservative campaign to force Congress to approve a balanced-budget amendment to the Constitution has been jettisoned.
Social Security, as well as the Medicaid and food stamp programes that provide health care and grocery money for the indigent, would be exempt from the automatic cuts, but payments to doctors, nursing homes and other Medicare providers could be trimmed, as could subsidies to insurance companies that offer an alternative to government-run Medicare.
Any agreement would have to be passed by the Democratic-controlled Senate, which was seen as assured, and Republican-controlled House, which still could face a major tussle, before going to the White House for Obama’s signature. With precious little time remaining, both chambers had been on standby throughout the day on Sunday.
Some Republicans were said to be still be balking over proposed cuts in defence spending. It also was unclear how the 87 new House members, voted in with support from the low-tax, small-government tea party wing of the Republican Party, would vote. But it was believed that both Mr. Boehner, the Republican House speaker, and Mr. Reid, leader of majority Democrats in the Senate, felt certain they could garner sufficient votes.
