Treasury Secretary Timothy F. Geithner said his department will take “extraordinary measures” to postpone a U.S. default for about two months while President Barack Obama and Congress work out a deficit-reduction deal.
Geithner, in a letter to congressional leaders Wednesday, said the government will hit its statutory debt ceiling Monday. To avert a default, the Treasury will take action to create about $200 billion in headroom under the debt limit.
“However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures,” Geithner said.
Geithner’s letter adds urgency to talks between Obama and congressional Republicans on a deficit-reduction plan. Obama has asked that raising the debt ceiling be part of that plan.
Obama and Congress both return to Washington Thursday after an abbreviated Christmas holiday. They have five days before a deadline that would trigger more than $600 billion in tax increases and spending cuts that might cause a U.S. recession.
House leaders, who were forced last week to withdraw their latest proposal before it could face a vote, Wednesday called on the Senate to act next.
They said the Senate should amend bills passed by the House earlier this year include a one-year extension of tax cuts for all income levels.
“Once this has occurred, the House will then consider whether to accept the bills as amended, or to send them back to the Senate with additional amendments,” said House Speaker John Boehner, an Ohio Republican, in a statement together with Majority Leader Eric Cantor of Virginia, Majority Whip Kevin McCarthy of California and the head of the Republican conference, Cathy McMorris Rodgers of Washington.
Boehner and Obama have been unable to agree on the tax-rate increase on top earners Obama wants or the cuts to entitlement programs that Boehner sought, complicating the chances of getting a package done.
Both parties have begun work on minimal deficit-reduction proposals, aimed at avoiding the automatic tax increases and spending cuts while a bigger package is negotiated.
“At this point, all they’re looking for is a fig leaf,” said Stan Collender, a former staff member of the House Ways and Means Committee and the House and Senate Budget committees who is now at Qorvis Communications in Washington. “There’s no grand bargain. There never was.”
The trouble is that Senate Majority Leader Harry Reid, a Nevada Democrat, and Minority Leader Mitch McConnell, a Kentucky Republican, need to come up with something that also can get through the House, which has balked at any tax increases. Senate Republicans don’t want to be on the record supporting higher taxes unless they know the House also would pass it.
“There’s still a chance for them to get a deal,” said Ron Bonjean, a Republican strategist who once served as a spokesman for former House Speaker Dennis Hastert of Illinois and former Senate Majority Leader Trent Lott of Mississippi. “It grows more unlikely by the day, and there’s not a lot of days left.”
Obama and Boehner haven’t spoken since the president flew to Hawaii on Dec. 21, according to a Republican aide who requested anonymity when discussing the negotiations. Obama plans to return to Washington while his family will remain in Hawaii, the White House said.
The House will hold a pro-forma session Thursday. House leaders told rank-and-file lawmakers that they would receive a 48-hour notice before being called back to Washington. Leaders haven’t yet given that notice and are still discussing the schedule, according to a leadership aide who requested anonymity when discussing the leaders’ plans.
Even if the leaders decided to call back members, many wouldn’t be back to the Capitol until Friday.
Bonjean put the probability of no deal at 75 percent. Still, he said there’s a chance for one because Obama and Republican leaders want to avoid the “fiscal cliff” -- a term coined by Federal Reserve Chairman Ben S. Bernanke in testimony before the House Financial Services Committee in February. Tax cuts signed into law by President George W. Bush and extended by Obama are scheduled to expire Jan. 1, and automatic spending cuts for government programs are scheduled to start next month, creating the so-called cliff.
The S&P 500 declined 0.5 percent to 1,419.83 in New York. The Dow Jones Industrial Average dropped 0.2 percent to 13,114.59. The yield on the benchmark 10-year Treasury bond was 1.75 percent, down two basis points, or 0.02 percentage points, according to Bloomberg Bond Trader prices.
Before going on vacation with his family, Obama urged leaders of both parties to put together an interim bill to keep taxes from rising on middle- and lower-income Americans as the two sides work on a more comprehensive package.
Senate Democratic leaders have said they won’t take action on a fallback plan unless they have assurances from Boehner that he will bring it up in the House and let it pass with a combination of Democratic and Republican votes, and from McConnell that Senate Republicans won’t filibuster it.
“A comprehensive solution to the looming fiscal cliff will need to be a bipartisan solution,” Reid said on the Senate floor Dec. 21. “No comprehensive agreement can pass either chamber without both Democrats and Republican votes.”
Senator Charles Schumer of New York, the chamber’s third- ranking Democrat, told reporters Dec. 21 that “the key to this is the House.” McConnell wouldn’t “want to have his members put their necks on the line for a deal that may not pass the House,” he said.
Schumer and Reid called on Boehner to resume talks with Obama. Failing to reach a budget deal would push the U.S. into recession for the first half of 2013, according to the nonpartisan Congressional Budget Office.
“At this point there’s zero percent chance of a big deal and maybe a 10 percent chance of a small deal before Jan. 1,” Collender said. He has predicted a no-deal scenario since before the Memorial Day holiday in May, and said the past two weeks of inaction reinforced his projection.
At this point, Collender said, whether the Senate moves first won’t matter.
“Nothing will move House Republicans if they don’t feel like getting moved,” he said. “They’ve never been swayed by the Senate before.”
The remaining option for averting the cliff, he said, would be if Boehner risks his House speakership to put to the floor a tax deal that would get a majority of Democrats to support it and few -- perhaps less than 50 -- Republicans.
“The Republican caucus would never forgive him,” he said. “The statesmanlike thing to do would be to say, ‘I’m the speaker of the House, not the head of the Republican Party.’ That is the equivalent of never running for speaker again.”
Boehner, first elected speaker in January 2011, was selected by his Republican conference as its nominee to continue in the post in the new Congress that convenes next week. He needs an absolute majority of those present and voting on Jan. 3 in the 425-seat House to be re-elected. Republicans will hold 234 seats to begin the 113th Congress in January. If re-elected, Boehner will have more freedom to cut a deal, Collender said.
Until Dec. 17, Obama and Boehner had been edging closer to a deal that included $1 trillion each in tax increases and spending cuts. Boehner had put tax-rate increases on the table for income above $1 million a year, infuriating some lawmakers backed by anti-tax Tea Party groups.
That was the proposal he pulled from the House floor on Dec. 20 rather than see it defeated by his own caucus members.
Both Obama and Boehner have offered concessions in talks, in person and by telephone, since Dec. 5.
The president initially sought $1.6 trillion in new revenue, including a return to pre-Bush income tax rates for annual household income over $250,000 a year. The speaker first rejected any increase in tax rates, instead offering $800 billion in revenue by limiting unspecified exemptions.
After Boehner proposed raising taxes for households earning more than $1 million a year, Obama countered with a proposal to raise taxes on more than $400,000 of income.
Obama also has agreed to accept cuts in entitlement spending on programs such as Medicare, while Boehner has maintained that new taxes and spending cuts must be balanced on a one-to-one basis.
In sum, the two have approached the outlines of a plan that would raise about $1 trillion in tax revenue and cut about $1 trillion in spending.
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