Leaders Agree on Debt Deal
WASHINGTON—After weeks of partisan wrangling, President Barack Obama and congressional leaders reached a deal Sunday night to raise the government's debt ceiling while cutting spending by about $2.4 trillion, avoiding a government default but setting the stage for months more of stormy debates over how Washington taxes and spends.
President Barack Obama and the bipartisan leadership of Congress reached a deal to lift the ceiling on the federal debt and reduce future budget deficit just days before a default deadline. WSJ's Peter Stein and Economics Editor David Wessel discuss the details.
The Senate and House are expected to vote on the deal Monday, so the agreement still needs the support of many House Republicans, who have proven a restless, independent group in recent days. But if it passes both chambers, it culminates an extraordinary display of political and economic brinksmanship, coming just days before the government could have been unable to fully pay its bills.
The deal would raise the debt ceiling by $2.4 trillion in two stages, and provide initially for $917 billion in spending cuts over 10 years. A special committee of lawmakers would be charged with finding another $1.5 trillion in deficit reduction, which could come through a tax overhaul and changes to safety-net programs.
Live Blog: The Debt Battle
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 Emerging Plan
The latest proposal, according to officials on both sides:
$917 billion in the first stage of deficit reduction.
$1.5 trillion in the second stage of deficit reduction to be defined by congressional panel.
$1.2 trillion in cuts triggered if committee doesn't succeed, part would be Defense cuts and part would be non-Defense cuts, exempting Social Security and Medicaid, and only affecting providers in Medicare.
There is also a provision to have Congress vote on a balanced-budget amendment.
The debt-ceiling increase would be done in two phases: $900 billion initially; a second increase of $1.5 trillion to get through 2012 if Congress agrees to committee cuts or passes a balanced-budget amendment to the U.S. Constitution. Otherwise, the second increase would be $1.2 trillion and would come along with broad spending cuts.
The committee wouldn't necessarily tackle a tax overhaul. But President Obama is threatening to veto any extension of the Bush-era tax cuts unless Congress acts on an overhaul of the U.S. tax code.
If the committee doesn't find at least $1.2 trillion in savings, or Congress doesn't adopt its proposals, a pre-set array of spending cuts would kick in, including cuts in military spending and Medicare payments to health-care providers.
Mr. Obama said he had hoped for a more sweeping deal that didn't delegate many cuts to a special committee, but he welcomed the resolution. "It will begin to lift the cloud of debt and the cloud of uncertainty that hangs over our economy," he said. "This process has been messy and it's taken far too long."
Other leaders also stressed the agreement wasn't all they wanted. "Now, listen, this isn't the greatest deal in the world," Speaker John Boehner of Ohio told House Republicans on a conference call Sunday night. "But it shows how much we've changed the terms of the debate in this town."
An even less enthusiastic response came from House Minority Leader Nancy Pelosi (D., Calif.). "I look forward to reviewing the legislation with my caucus to see what level of support we can provide," Ms. Pelosi said.
Mr. Obama called the top Democratic and Republican leaders from both chambers Sunday night to make sure everyone was on board just 10 minutes before he appeared in the White House briefing room to announce the deal, White House officials said.
For all the down-to-the wire drama, the deal leaves the hardest questions unanswered and sets in motion years of fiscal pain. It imposes spending caps for the next 10 years, but leaves the details of what programs would be cut to congressional committees.
And it launches a ferocious, months-long argument over how to rewrite the tax code and what changes to make in popular programs like Social Security and Medicare—issues that were ultimately shelved in this debate.
So while one uncertainty would be lifted from the economy with the increase in the debt ceiling, others would be prolonged.
Raising the government's borrowing limit has mostly been a routine vote in Congress over the years. The battle arose this time because many lawmakers said they wouldn't raise the $14.29 trillion debt ceiling unless it were tied to a deficit-reduction package. Treasury officials have warned for months that without an increase in the ceiling by Aug. 2, the government could run short of cash to pay its bills, including payments to veterans, contractors and Social Security recipients.
Financial markets cheered news of the deal. Asia opened sharply higher, with Japan's Nikkei 225 up 1.68% at 9 p.m. in Washington, shortly after Mr. Obama announced the deal. The dollar climbed against the yen and Swiss franc.
The two parties have struggled for weeks to resolve their differences on spending and debt issues, with angry name-calling on both sides, as the public looked on with—polls suggest—growing distaste. Even if the fight is over for now, it may take a long time for the political wounds to heal.
Senate Majority Leader Reid walked from a meeting with Senate Minority Leader McConnell on Sunday.
The Senate is likely to approve any deal inked by party leaders. But the House is a tougher question, given that GOP conservatives last week forced Mr. Boehner to rewrite a plan that he had crafted and urged them to support. After he toughened the language in the bill, the House narrowly approved it.
The deal will likely be rejected by the most liberal Democrats and conservative Republicans. Democrats are upset because the spending cuts will hit social programs and aren't accompanied by tax increases. Some Republicans feel that the cuts didn't go deep enough. A key question for Mr. Boehner is whether he can persuade more than half of the 240 House Republicans to approve the deal, since failure to do so would raise questions about how much support he has from his caucus.
"I know this agreement won't make every Republican happy. It certainly won't make every Democrat happy either," Mr. Reid said. But, he added, "the American people demanded compromise, and today they got it."
U.S. President Barack Obama says that both parties have reached an agreement to lift the debt ceiling and reduce the U.S. deficit, avoiding credit default.
Both parties are emerging damaged by the fight, which put the economy at risk as they bickered over who was more stubborn. Many Democrats are angry that Republicans won so many concessions on spending cuts, and they blame Mr. Obama for, as they see it, giving in too easily.
On the Republican side, lawmakers backed by the tea-party movement flexed their muscles throughout the debate, but their confrontations with party leaders raise questions about the movement's future role in the GOP.
The debate also established the precedent that an increase in the government's borrowing limit can serve as an occasion for the opposition party to extract concessions from the president. That is of great concern to many in the White House.
The building blocks of the deal had been bandied about by the participants for weeks. Messrs. Obama and Boehner were, for a time, seeking a "big deal" to cut spending by $3 trillion and raise perhaps $1 trillion in revenue, but those talks broke down twice. A week ago, congressional leaders believed they were on the brink of a deal much like the one that now appears imminent.
The final push began late Saturday, when the two sides nailed down their basic framework. It provides for an immediate debt limit increase of $900 billion, accompanied by spending cuts of $917 billion over 10 years, including $350 billion in defense cuts. The amount of defense cuts remained contentious until the very end.
A congressional "super-committee" of six Democrats and six Republicans will be charged with finding additional deficit reduction by Nov. 23. They are expected to come mostly from changes to entitlement programs like Social Security and Medicare, and from a sweeping tax overhaul.
If the committee fails to act, or if Congress refuses to adopt its proposals by Dec. 23, an array of prearranged cuts would kick in.
The nature of that backup package of cuts, or "trigger," was among the biggest sticking points. Negotiators settled on $1.2 trillion in cuts, of which half would be in defense spending and half in nondefense spending, including the payments to providers under Medicare. The cuts wouldn't affect programs for low-income households, Social Security or Medicaid. None of the cuts would kick in until 2013.
Also, if the committee doesn't find cuts of at least $1.2 trillion, then the president's debt limit increase could only be $1.2 trillion, not $1.5 trillion as it would otherwise be.
The second debt-limit increase would be proposed by Mr. Obama and subject to a congressional vote of disapproval, which would be unlikely to pass because it requires a 2/3 vote of both chambers. A total debt-limit increase of $2.4 trillion would provide the government with enough cash to cover its bills through 2012.
Now that a deal appears all but finalized, the next few days will unfold as a frenzied attempt to put the pieces in place. The Senate must vote on the package, followed by a high-stakes vote in the House, with key roles played by Mr. Boehner and Ms. Pelosi.
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