Tags: mcconnell | debt | deficit | congress | obama

Optimism Grows on Debt-Ceiling Deal but Uncertainties Persist

Sunday, 31 Jul 2011 03:43 PM

Congressional leaders said Sunday that they were moving toward a deal to avert a U.S. default amid a flurry of weekend negotiations, while a Republican senator warned not to expect a vote Sunday and a White House spokesman said critical issues still were not settled.

Senate Republican leader Mitch McConnell said that congressional negotiators and President Barack Obama were “very close” to a deal to raise the debt limit, having made “dramatic progress” on a compromise Saturday.

As negotiations continued, a Democratic plan backed by Senate Majority Leader Harry Reid fell short of the 60 votes needed to overcome a Republican effort to stop it in the Senate. The vote was 50-49, with even Reid switching his vote to no so he could bring the matter back for reconsideration.

Republicans and the White House were nearing agreement on another plan that would raise the $14.3 trillion debt limit while cutting $1 trillion in spending and charging a special committee with proposing additional savings of up to $1.8 trillion, according to people familiar with the discussions.

Still, White House Communications Director Dan Pfeiffer said in a Twitter message that the two sides have “important issues to work out.”

No Vote Sunday

Republican Senator Bob Corker of Tennessee said “there’s no way -- no way there will be a vote today” on a compromise.

Corker said he expected congressional leaders to make a statement to bolster confidence in financial markets later in the day.

“I’m sure there will be both Democrats and Republicans who in the end find the agreement wanting in one way or another, but I believe there will be a strong bipartisan support for this,” McConnell, of Kentucky, said on CBS’s “Face the Nation” program. “This deal has not been finalized yet, but I think we are very, very close to something that I can comfortably recommend to” Republicans.

‘Cautiously Optimistic’

Shortly before the vote on his plan, Reid, of Nevada, said on the Senate floor today that he’s “cautiously optimistic” a deal can be reached. “We’re not there yet,” he said.

David Plouffe, a special adviser to Obama, also cautioned that no final agreement had been reached and negotiations were continuing. Democrats “have not yet signed off” on the framework, said Senator Chuck Schumer of New York, the third-ranking Democrat.

“The trigger’s still being constructed,” Schumer said on CBS, referring to the enforcement mechanism meant to compel Congress to approve the second phase of deficit reduction.

Republicans and the White House are weighing an accord that would prompt automatic spending cuts to all areas of government -- including defense and Medicare -- should a debt-cutting law fail to be enacted by Christmas. Schumer said such an approach “might work,” yet Democrats were still “fighting for revenues” -- or tax increases -- to kick in along with spending cuts if the debt savings aren’t achieved.

Constitutional Amendment

The framework under discussion also calls for Congress to vote on a balanced-budget amendment to the Constitution, a person familiar with the talks said last night. Amendments require two-thirds majorities for passage; if enough Democrats oppose the measure, it would have little chance of winning approval.

The prospective agreement wouldn’t guarantee increased net revenue, a sticking point for Republicans who have been adamant that any deal with tax increases couldn’t pass the Republican-run House.

Obama and congressional Democrats have insisted that any deal be a “balanced approach” that includes revenue, raising questions about whether the president would find substantial support from his party for the plan.

“You’re going to have to have closing of tax loopholes. You’re going to have to have revenue produced to close the deficit,” Plouffe said on ABC’s “This Week.”

An Enforcement ‘Sword’

Schumer, speaking on CNN’s “State of the Union,” said both sides must have a “sword” hanging over their heads to enforce the cuts.

Another option being discussed would be “defense cuts of equal sharpness and magnitude to domestic cuts,” he said.

White House press secretary Jay Carney has said repeatedly that if a deal is reached, Obama would be willing to sign a short-term extension of the debt ceiling for several days if necessary to give Congress time to pass the agreement.

Obama and congressional leaders Saturday kick-started the new push to prevent a U.S. government default on its debt after several previous efforts in recent weeks fell short. As the day progressed, Republicans and Democrats expressed greater optimism that a deal could be within reach before Aug. 2.

Financial markets through Friday were restrained in reacting to the impasse on a debt deal.

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 percent in New York.

Stocks fell as economic growth trailed forecasts. The Standard & Poor’s 500 Index slipped 0.7 percent and tumbled 3.9 percent this week for its worst slide in a year.

More Than Expected

Mark Zandi, chief economist for Moody’s Analytics, Sunday called the emerging debt-ceiling agreement “great news.”

“This sounds like we’re going to avoid a crisis,” he said on CNN. “Three trillion dollars in deficit reduction over the next 10 years is more that what I would have expected.”

Reid, in remarks on the Senate floor Saturday night before details of the framework emerged, cautioned that “there are many elements to be finalized 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.”

Obama has been demanding a debt-limit increase that lasts through the 2012 election, when he is seeking another term.

Reid moved Saturday night to give the negotiations more breathing room, delaying the test vote by 12 hours.

Symbolic Vote

The House Saturday held a symbolic vote rejecting the rival proposal by Reid, 246-173. The vote was scheduled after the Senate voted down on Friday a Boehner debt-ceiling plan that had passed the House earlier in the day.

Boehner’s measure would have made congressional approval of a constitutional amendment to balance the budget and enactment of a $1.8 trillion debt-cutting package prerequisites for part of its $2.4 trillion borrowing boost. That could have forced another debt-limit showdown early next year, just as 2012 campaigns were intensifying.

The Treasury is preparing contingency plans to pay the government’s obligations should Congress fail to raise the borrowing limit in time. Carney said Treasury officials may reveal the plans over the weekend.

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Congressional leaders said Sunday that they were moving toward a deal to avert a U.S. default amid a flurry of weekend negotiations, while a Republican senator warned not to expect a vote Sunday and a White House spokesman said critical issues still were not...
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