The U.S. House and Senate worked anew Monday on competing plans to slice away huge amounts of U.S. spending as the Republican price for raising the American debt limit — a necessary measure to prevent an unprecedented Aug. 2 default.
Political leaders had hoped to strike a deal Sunday to reassure investors that the partisan fight in Washington was nearing an end, lifting fears that the United States would be unable to pay its bills when the current borrowing limit expires a week from Tuesday.
As global markets watched nervously, both parties were now constructing rival fallback plans. The Republicans insist that any increase in borrowing authority be short term and include no tax increases. Democrats are holding firm to a plan that would raise the debt ceiling sufficiently to keep it off the congressional agenda until after the 2012 election.
A plan by Senate majority leader Harry Reid does that but would jettison fellow Democrat President Barack Obama's hoped for increases in tax revenues to offset cuts to the U.S. social safety net.
House Speaker John Boehner planned to meet with his chamber's majority Republicans Monday afternoon to rally his fellow party members around a proposal to raise the debt ceiling just enough to keep default at bay through the end of the year.
In a speech to the National Council of La Raza, a Hispanic civil rights group, Obama said he still wanted a deficit-cutting plan that cuts spending and also increases tax revenue by making the wealthy and corporations pay more to help stabilize the long-term debt.
Obama said the wealthy and big corporations have to "pay their fair share, too." And he alluded to the difficulty of cutting a deal, saying "compromise is becoming a dirty word."
The stakes are high. Major global credit ratings agencies have threatened to downgrade the U.S. government's triple-A credit rating unless there are assurances that the United States will not go into default for the first time in its history. A default could mean that the U.S. government could not pay all its bills starting next month, including interest and principal on Treasury bonds, Social Security checks to retirees, and payments to government contractors.
Lowering the U.S. credit standing likely would raise the cost of U.S. government borrowing. Americans seeking home mortgage or car loans would see interest rates climb, as would people with outstanding credit card balances.
Obama says that effectively amounts to a tax increase on Americans. Many economists think default could push the U.S. economy back into recession or worse, while causing chaos in the global economy.
Both Republicans and Democrats in Congress and Obama have sought to position themselves to avoid possible blame.
The biggest obstacle to a long-term debt limit extension is coming from the Republican-controlled House, which includes dozens of new Republican members elected last November with strong support from the small-government, low-tax tea party movement. Nearly all House Republicans have signed a public pledge not to raise taxes for any reason and could face primary election challenges in the run-up to the 2012 vote. They fear the wrath of voters in conservative districts for failing to live up to the promise on taxes. Members of the House must face the voters every two years.
Obama also will run for re-election in 2012 and does not want to see his campaign for a second White House term bogged down in another nasty political fight over increasing the country's borrowing limit.
As the default deadline approached, the White House had canceled some Obama campaign fundraising events recently and said it would forgo two others that were set for Washington on Monday.
Obama has insisted on an increase in tax revenues, mainly through closing loopholes and letting cuts for wealthy Americans expire, to cover some proposed spending cuts in the U.S. social safety net, programs like the Social Security pension plan and Medicare health insurance coverage for people over age 65. Republicans steadfastly refuse to accept higher taxes.
Under the leadership of the embattled Boehner, Republicans labored over a plan that would boost the debt limit immediately by roughly $1 trillion, while locking in slightly more in spending cuts. Another package combining trillions more in savings and another extension of the debt limit would be considered later.
In a conference call with members of his caucus, Boehner was quoted by one participant as saying the new approach is "going to require some of you to make some sacrifices."
Boehner said the new legislation was expected to be unveiled as early as Monday morning, according to one official familiar with his remarks on the call.
Reid and Senate Democrats worked on an alternative to cut spending by $2.7 trillion and increase the debt limit by $2.4 trillion — enough to push the issue off the agenda until after the 2012 elections.
Reid said the plan "meets Republicans' two main criteria" — spending cuts greater in size than the increase in borrowing authority and no new revenue.
