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(Adds material on Republican consideration of fallback options, beginning in the 10th paragraph.)
July 22 (Bloomberg) -- House Speaker John Boehner said he and the White House are “not close to an agreement” on raising the U.S. debt ceiling following a meeting with House Republicans in which Boehner’s mood was described as gloomy.
“The speaker was the most sort of melancholy I’ve seen him,” said Ohio Representative Steve LaTourette, a long-time Boehner ally. “He wanted to, I think, report to the conference that substantial progress was being made, we’re moving in the right direction, and he couldn’t give that report.”
President Barack Obama and Boehner face strife within their ranks and dwindling time to avert a U.S. default as they press for a broad agreement to boost the nation’s $14.3 trillion debt limit. The two leaders have discussed cutting spending by trillions of dollars and overhauling the tax code.
Republicans and Democrats are staking out political territory. The Democratic-led Senate today voted 51-46 to kill a Republican proposal that would provide a $2.4 trillion debt- limit boost only in return for spending curbs and a constitutional amendment requiring a balanced budget. Obama had said he would veto the measure.
“This piece of legislation is about as weak and senseless as anything that has ever come on this Senate floor,” Senate Majority Leader Harry Reid said yesterday.
Republicans said it’s the only way to tackle the debt.
“We don’t need any more behind-closed-doors, secret meetings where the president’s trying to tell America what we believe and what he believes and nothing ever ends up in writing,” said Senator Jim DeMint of South Carolina.
As frustration over the negotiations built, rank-and-file Republicans expressed support for a short-term extension of the debt ceiling with spending cuts and no tax increases while leaders continue to negotiate a larger deal in the coming months. That would challenge a threat from the president to veto a debt-limit increase that didn’t take the country through the next election.
“The votes are there for something like that, particularly if the leadership came in and said we want to buy an extra six months,” said Representative Tom Cole, a Republican from Oklahoma.
Republican leaders are discussing fallback options, said a House Republican leadership aide. The aide wouldn’t disclose what is under consideration for a shorter-term deal.
As of mid-afternoon, Boehner and Obama hadn’t scheduled any meetings, the aide said. House Republican leaders are working under a timeline that assumes they have until early next week to decide whether to move to a fallback plan, the aide said.
Obama said at a town-hall meeting at the University of Maryland in College Park that most Americans and many in Congress agree with the approach of mixing spending cuts and tax increases to deal with the long-term deficit.
“The only people we have left to convince are some folks in the House of Representatives,” he said. The president said lawmakers must raise the debt ceiling before Aug. 2. The U.S. “doesn’t run out without paying the tab,” he said.
Investors remained optimistic a deal would be reached even as Standard & Poor’s warned yesterday that a debt-limit increase that didn’t address long-term budget deficits would risk a downgrade of U.S. government debt. Benchmark 10-year yields, which fell below 3 percent today, are about 1 percentage point lower than the average for the past decade.
Two-year yields declined one basis point to 0.39 percent at 2:51 p.m. in New York, according to Bloomberg Bond Trader prices. Yields on benchmark 10-year Treasuries fell five basis points to 2.96 percent. The average yield for the past decade is 4.06 percent.
Senate Democratic leaders professed ignorance of what would come next in the debt drama, saying they had been left out of talks with the White House and weren’t sure what legislation they might consider in the coming days.
“A lot of what’s going on we don’t know,” Reid of Nevada said on the Senate floor before announcing there would be no votes over the weekend. “I haven’t been in the day-to-day negotiations.”
“I wish them well,” he said of Obama and Boehner.
Dianne Feinstein, a California Democrat who has been in the Senate for 18 years, said she has “never seen frustration higher” over the inability to get a straight answer from the administration on negotiations.
‘That’s Not Good’
“I’ve been through the Bush administration, the Clinton administration, we always knew, we always had a way to find out so that you could look at it, adjust your thinking, figure out how does that affect the people I represent,” Feinstein said. “None of that is available to us now, and that’s not good.”
Obama summoned top Democrats to the White House last night after Democrats balked at word of a potential deal between the president and Boehner that would reduce the long-term deficit by about $3 trillion over 10 years through deep spending cuts without an immediate increase in taxes. Democratic lawmakers said they feared the president was moving toward an agreement that undermined their party’s priorities.
“We are very volcanic at this moment,” Senator Barbara Mikulski, a Maryland Democrat, said as she left a session at the Capitol yesterday with White House budget director Jack Lew. “The clock is running, the Republicans are running from a real solution. I don’t want the president to be an enabler of that.”
Many Republicans are resisting the kind of grand bargain that Boehner has sought, refusing to accept tax increases as part of any deficit-reduction deal.
Two congressional officials said the White House told Democratic leaders it was pursuing a deal to cut spending, including on Social Security and Medicare, and a tax overhaul that could raise $1 trillion. That provoked an angry reaction yesterday from Senate Democrats, who said they feared they might be asked to swallow steep reductions in programs and trims to entitlement benefits with no assurance of higher tax revenue.
The administration and House Republicans are divided over the fate of the tax cuts for top earners that were passed during President George W. Bush’s administration, and how much revenue would be raised to curb the long-term federal debt, according to two Democratic officials familiar with the negotiations.
Negotiators are discussing setting debt-reduction targets to be achieved through entitlement changes and a tax overhaul, then enforcing those goals by setting up consequences to be triggered if they aren’t reached.
Obama wants those to include a tax increase on higher- income earners in 2013, while Republicans want to roll back portions of the health-care law Obama pushed through over their opposition in 2010, such as scrapping the mandate that every person have insurance or pay a penalty, according to a congressional official familiar with the talks.
Obama wants spending cuts to be gradual, with the fullest effects not felt until 2014 and beyond, to avoid shaking the economic recovery, the officials said, briefing reporters on condition of anonymity to discuss the closed-door talks.
While discretionary spending cuts could be immediate, changes in the tax code and entitlement programs would be worked out over the next year and wouldn’t take effect until 2013, the officials said. That doesn’t include a possible extension of the two-percentage-point cut in the payroll tax that’s due to expire at the end of the year, they said.
The two sides also have yet to agree on a way to ensure that deficit-cutting targets are met, the officials said.
Senate leaders have discussed a fallback plan by Reid and Republican leader Mitch McConnell to give Obama $2.4 trillion in borrowing authority. It could be combined with spending cuts and a committee charged with pushing through longer-term deficit reduction in coming months. That, too, faced mounting obstacles, with 86 House Republicans signing a letter dubbing the measure the “cut, run and hide” plan and vowing to block it.
Standard & Poor’s warned there is a 50 percent chance it will lower the U.S. government’s AAA credit rating by one or more levels within three months. S&P said yesterday that even if Congress raises the debt limit in time to avert a default it might lower the U.S. sovereign rating to AA+ with a negative outlook if it isn’t accompanied by a “credible solution” on the debt level.
Such a ratings change, which could come as soon as early August, would “modestly raise” the federal government’s borrowing costs, S&P said. If the U.S. defaults on some obligations after Aug. 2, even if it pays bondholders, S&P forecast short-term interest rates would rise by 0.50 percentage points and long-term interest rates by 1 percentage point.
--With assistance from Julie Hirschfeld Davis, Laura Litvan, Kate Andersen Brower, Catherine Dodge, Kathleen Hunter, James Rowley, Roger Runningen, Peter Cook, Brian Faler and Richard Rubin in Washington. Editors: Laurie Asseo, Mark McQuillan.
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