House Speaker John Boehner will tell Wall Street leaders tonight that it would be “irresponsible” to let the U.S. default on its debt and even more so to raise the government’s borrowing limit without “dramatic steps” to reduce spending.
Boehner also will say that spending cuts should be greater than any increase in the federal debt limit, according to excerpts released by his office of the Ohio Republican’s planned speech to the Economic Club of New York.
“Without significant spending cuts and reforms to reduce our debt, there will be no debt limit increase,” Boehner will say, according to the speech excerpts. “And the cuts should be greater than the accompanying increase in debt authority the president is given.”
As Boehner spells out Republicans’ conditions for agreeing to raise the debt limit, both sides have been declaring some options off-limits. Boehner has said for weeks that House Republicans won’t accept higher income-tax rates, and Democratic opposition forced House Republicans to put on hold their plan to privatize Medicare. Two days ago, Arizona Senator Jon Kyl, that chamber’s No. 2 Republican, rejected the idea of a tax-code overhaul that eliminates a number of tax breaks.
The Treasury Department says the U.S. will reach the debt limit as early as May 16. Treasury Secretary Timothy Geithner has said he can use “extraordinary measures” to continue borrowing money through Aug. 2.
‘Not Just Billions’
Spending cuts should be in the “trillions, not just billions” of dollars, Boehner will say, according to the text. “They should be actual cuts and program reforms, not broad deficit or debt targets that punt the tough questions to the future.”
“And with the exception of tax hikes -- which will destroy jobs -- everything is on the table,” he will say.
Last week, Republican and Democratic leaders and Vice President Joe Biden began talks on a plan to cut the deficit and to raise the borrowing authority. That group meets again tomorrow. Separately, a bipartisan group of six senators has been negotiating on a plan.
In appearing before Wall Street leaders, Boehner faces a challenge to provide just enough assurance to investors that the U.S. won’t default without undermining his bargaining position.
“What Wall Street wants to hear is that they are going to raise the debt ceiling in a timely way,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania.
In an April 28 speech, Geithner said economic damage could occur if credit markets react to “the possibility, however remote, that the U.S. might default.”
Democrats today challenged the speaker to give Wall Street investors the assurances they are seeking that government’s borrowing authority is extended in time to avoid a default on U.S. debt.
“The stakes are high for Speaker Boehner,” Senator Chuck Schumer, a New York Democrat, told reporters on a conference call. He called on Boehner to provide “unwavering reassurance” to the credit markets that House Republicans won’t allow the U.S. to default on its obligations.
In the speech excerpts, Boehner says, “It’s true that allowing America to default would be irresponsible.” The speaker adds that “it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process.”
Failure to do so “would send a signal to investors and entrepreneurs everywhere that America still is not serious about dealing with our spending addiction,” Boehner says in the excerpts. “It would erode confidence in our economy and reduce certainty for small businesses. And this would destroy even more American jobs.”
William Galston, a scholar at the Brookings Institution, said lawmakers’ statements taking various options off the table are clouding prospects for a “grand bargain” to reduce the nation’s deficits.
In a May 7 radio interview, Kyl rejected the idea of a tax- code overhaul that eliminates a number of tax breaks.
“When you do that, somebody’s taxes actually go up,” he said in an interview with broadcaster Larry Kudlow on New York’s WABC radio. “And so the focus here is to keep taxes totally off the table.”
“I think it’s becoming increasingly clear that the political stars aren’t in alignment for a large structural deal,” said Galston, formerly a policy adviser to Democratic President Bill Clinton.
Amid debate about the deficit in Washington, bond market yields in the U.S. are lower now than when the government was running a budget surplus a decade ago. The yield on the benchmark 10-year note is below the average of 5.48 percent in 1998 through 2001, the last time the U.S. had a budget surplus, according to Bloomberg Bond Trader prices. Ten-year yields were little changed at 3.16 percent at 5:15 p.m. in New York, according to Bloomberg Bond Trader prices.
--With assistance from Laura Litvan and Catherine Dodge in Washington. Editors: Laurie Asseo, Leslie Hoffecker
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