The Wall Street Journal
By: Carol E. Lee & Janet Hook
June 9, 2011
A third rating agency threatened to downgrade the U.S. government's credit status if Congress failed to increase the nation's borrowing limit by early August, increasing pressure on lawmakers and the Obama administration to reach a deficit-reduction deal.
Fitch Ratings said Wednesday it would put U.S. debt on watch for downgrade in early August in the event that Congress failed to lift the debt ceiling before other measures aimed at avoiding default are exhausted.
The notice follows similar warnings in recent weeks from Moody's Investors Service and Standard & Poor's. The Treasury says Congress must raise the $14.3 trillion debt limit by Aug. 2, the day stopgap measures will have run their course.
Congressional leaders and administration officials will meet Thursday to continue talks on a deficit-reduction package that both sides say is needed to build political support in Congress for raising the borrowing limit.
People familiar with the talks say that the White House will make a new push to scale back the $4 billion in annual tax breaks for oil companies. Republicans have opposed measures to raise taxes or eliminate tax breaks. But with gasoline prices now high, some GOP leaders have signaled an openness to cutting tax breaks for oil firms.
Sen. John Cornyn (R., Texas) said he hoped the Fitch warning would raise "pressure on the negotiators to come up with a real, grand bargain that includes significant spending cuts, plus entitlement reform." Senate Democratic Leader Dick Durbin of Illinois described the Fitch warning as "another compelling reason" to make progress on a deficit-reduction plan.
But Democrats and Republicans remain far apart on how to reach a deal. Democrats have rejected cuts to entitlement programs, such as Medicare, and Republicans have said no to tax increases.
Democrats see discussion of scaling back oil and gas tax breaks as the "first attempt to storm the beachhead on the larger revenue issue," an official familiar with the talks said. "It has a lot of weight simply beyond the $4 billion it would raise, being able to say to Democrats on the Hill that we got these guys to go along with one of our long-sought priorities."
Failure to raise the debt ceiling in time to avoid default would imply a crisis of governance, Fitch sovereign-ratings head David Riley said, although Fitch and Moody's said they expected the U.S. to raise the limit before triggering a default.
White House spokesman Jay Carney said Wednesday's announcement by Fitch underscored the need to raise the debt ceiling but didn't incite President Barack Obama to sit down at the negotiating table, as House Speaker John Boehner (R., Ohio) has urged.
Despite the lack of a deal in the deficit talks, which are led by Vice President Joe Biden, participants publicly have been optimistic. The White House has insisted the discussions are making progress. Eric Cantor, the No. 2 House Republican, who is part of the talks, said in an email to GOP colleagues that he was "cautiously optimistic we can find sufficient common ground" on spending cuts.
Mr. Boehner has said spending cuts in the deal should equal or exceed the amount that the debt limit is raised. That would mean about $2.4 trillion in spending cuts if the debt limit were raised enough to last through the next election. The time frame for those potential cuts is uncertain.
Sen. Jon Kyl (R., Ariz.), a participant in the Biden talks, embraced that as a goal.
"If you can't get about $2.5 trillion in real savings, then I don't think there'd be much of an appetite on our side to raise the debt ceiling by $2.4 trillion," Mr. Kyl said.
In a reminder of how hard it will be to persuade the GOP's right wing to accept a compromise deal, Mr. Kyl's comments drew criticism from the conservative Club for Growth, an influential political group.
Chris Chocola, president of the group, said Wednesday that spending cuts would not be enough unless they were accompanied by structural budget changes, such as a constitutional amendment requiring a balanced federal budget.
"Spending cuts alone won't last-they never do-but permanent budget reforms will," Mr. Chocola said.
--Andrew Ackerman, Siobhan Hughes and Corey Boles contributed to this article.