Uneasy House OK's Debt Deal

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The Wall Street Journal
By: Naftali Bendavid & John McKinnon
August 2, 2011

Both Parties Find Fault With Bill; Senate to Vote Tuesday

WASHINGTON--The House passed a $2.4 trillion debt-ceiling increase Monday night with the Senate planning to follow on Tuesday, after one of the most ferocious fights ever over government spending.

Congressional approval, along with President Barack Obama's signature, would raise the government's debt limit just before the U.S. government would begin defaulting on its obligations.

Both liberals and conservatives were upset by parts of the deal. Democratic and Republican party leaders spent Monday trying to get them on board.

Lawmakers and other officials raised questions Monday about how the complicated agreement will unfold in the coming months, such as who will sit on a key deficit-cutting congressional committee and whether that panel can raise taxes.

The Treasury Department has said for months that the government would begin running out of money to pay bills Tuesday if the government's $14.29 trillion borrowing limit wasn't increased.

The White House and congressional leaders are scrambling to agree on a deal before Aug. 2 to raise the U.S. federal borrowing limit. Follow developments in Washington and reaction globally here.

The House vote was 269-161, with 95 Democrats joining 66 Republicans in voting no. The divided tally highlighted deep dissatisfaction among the rank-and-file of both parties, even though it was the rare bill endorsed by both House Speaker John Boehner (R., Ohio) and Minority Leader Nancy Pelosi (D., Calif.).

The margin was bigger than expected, as Democrats split evenly but Republicans voted by a wide margin for the bill. In a last-minute drama, Rep. Gabrielle Giffords (D., Ariz.), badly wounded by a gunman Jan. 8, returned to cast her first vote--a yes--since the shooting, and was greeted by loud applause from her colleagues.

Members of both parties said a debt-ceiling increase had to be accompanied by spending cuts, but they couldn't agree on the scope of those cuts.

The agreement, struck late Sunday, raises the debt cap by up to $2.4 trillion in three steps. It cuts $917 billion in spending over 10 years and creates a congressional committee to close the deficit by an additional $1.5 trillion.

If the panel deadlocks or Congress doesn't accept its plan, a pre-arranged set of spending cuts would kick in.

Many Democrats were angry that the package consists entirely of spending cuts, with no mandated tax increases. The White House dispatched Vice President Joseph Biden to Capitol Hill Monday to sell Democrats on the deal. He stressed that it would still allow the funding of priorities like education, and that it raises the debt limit through the end of 2012, rather than for a few months as many Republicans wanted.

Mr. Biden conceded the unhappiness by members of his party. "They expressed all their frustration," Mr. Biden said.

Ms. Pelosi told fellow Democrats in a closed-door session to vote their conscience on the debt deal, meaning she wouldn't press them to support it. Despite her yes vote, she criticized the agreement for asking nothing of the wealthy.

Senate Majority Leader Harry Reid (D., Nev.) was among leaders of both parties telling their members this was the best compromise possible.

"Everybody had to give something up," Mr. Reid said. "People on the right are upset. People on the left are upset. People in the middle are upset."

Conservative Republicans had their own complaints: that the package doesn't cut enough, defers tough decisions to a committee and doesn't require approval of a constitutional amendment to balance the federal budget.

Republicans also worried that the package cuts too much from defense spending. Of the initial $917 billion in spending cuts, $350 billion come from defense.

Mr. Boehner met with members of the House Armed Services Committee to calm their concerns, saying he told them, "This is the best defense number we're going to get."

At first Monday, stock investors reacted positively to the tentative accord hammered out Sunday evening, sending the Dow Jones Industrial Average up more than 1% in early trading. But the relief was short-lived as investors turned their attention to the fragile economic recovery, and the Dow finished down 10.75 points, or 0.09%, at 12132.49. On Tuesday morning, Asian shares fell, as fresh worries over the global economy offset relief over the deal. Japan's Nikkei average fell 1.3%.

As leaders on both sides worked to sell the package to their members, they disagreed over whether it allows for tax increases.

."I think the big win here for us and for the American people is the fact that there are no tax hikes in this package," said House Majority Leader Eric Cantor (R., Va.).

Democrats disagreed.

"We've had our lawyers go over this very carefully," Sen. Kent Conrad (D., N.D.) said on MSNBC. "It is really very clear that [new] revenue can be part of any solution that the special committee develops."

While the agreement does suggest that the deficit-cutting committee could propose increasing taxes, it would face multiple barriers to doing so.

One is that the committee is using Congressional Budget Office projections that assume revenue will rise with the expiration of the Bush-era tax rates and current middle-class relief from the Alternative Minimum Tax. In effect, the panel would have to look for additional tax increases to achieve any deficit reduction, which could prove politically difficult.

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This page contains a single entry by CFED published on August 2, 2011 3:20 PM.

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