WASHINGTON — Both houses of the U.S. Congress were lining up votes Monday on a bitterly fought agreement with President Barack Obama to raise the limit on U.S. borrowing and forestall an unprecedented American default.
The deal was struck late Sunday after weeks of outright partisan warfare. Obama said the plan cuts domestic spending to percentage levels not seen in more than 50 years. But many of the tea party-backed Republican first-term members of the House of Representatives remained deeply dissatisfied with the measure, as did their liberal Democratic counterparts at the other end of the spectrum.
While the plan was widely expected to pass, given that it was crafted to thread the needle between the philosophically opposite ends of the political spectrum, there were still no guarantees. Tuesday is the deadline to avoid a U.S. default on payments to investors in Treasury bonds, recipients of Social Security pension checks, those relying on military veterans’ benefits and businesses that do work for the government.
The House was set to vote first, after an hour of debate which began Monday afternoon at about 3 p.m. EDT (2000GMT).
The deal aims to prevent a downgrade of America’s credit rating, and news of the agreement initially buoyed global investors, but European markets surrendered those increases and closed down significantly on worries about the American economy. U.S. stocks also climbed after opening but slipped well into negative territory after a bad report on American manufacturing.
Obama sent a video to Congress aimed at selling Democrats on the plan. “This has been a long and messy process,” he said. “As with any compromise, the outcome is far from satisfying.”
As the Senate opened for business Monday, Majority leader Harry Reid declared the deal shows that the often-dysfunctional Senate can come together when it counts. “People on the right are upset, people on the left are upset, people in the middle are upset,” he said. “It was a compromise.”
Obama took comfort Sunday night after leaders of both parties in both houses of Congress were agreed to a plan that would initially cut about $1 trillion from U.S. spending, “the lowest level of domestic spending since Dwight Eisenhower was president” in the 1950s.
“Is this the deal I would have preferred? No,” said Obama.
Obama and many economists and financial experts predicted global chaos and plunging stock markets had no deal been reached by midnight Tuesday.
House Speaker John Boehner, the top Republican in the lower house, telephoned Obama Sunday evening to say the agreement had been struck, then immediately began pitching the deal to his fractious rank and file.
“It isn’t the greatest deal in the world, but it shows how much we’ve changed the terms of the debate in this town,” he said on a conference call, according to Republican officials. He added the agreement was “all spending cuts. The White House bid to raise taxes has been shut down.”
House Democratic Leader Nancy Pelosi was publicly noncommittal. “I look forward to reviewing the legislation with my caucus to see what level of support we can provide,” Pelosi said in a written statement. But Democratic officials said she was unlikely to do anything to try to scuttle the package.
The broadest outlines of the emerging plan, a deal that involved deep negotiations between McConnell and Vice-President Joe Biden, would raise the federal debt limit in two stages by at least $2.2 trillion, enough to tide the Treasury over until after the 2012 elections.
Biden met with Democrats in the House and the Senate, his mission to spur discontented liberals to support the plan.
Big cuts in government spending would be phased in over a decade. Thousands of programs could be trimmed to levels last seen years ago.
No benefit cuts were envisioned for the Social Security pension system or Medicare, the federal programs that provide health care payments to the elderly. But other programs would be scoured for savings. Taxes would be unlikely to rise.
The first step would take place immediately, raising the debt limit by nearly $1 trillion and cutting spending by a slightly larger amount over a decade.
That would be followed by creation of a new congressional committee that would have until the end of November to recommend $1.8 trillion or more in deficit cuts, targeting benefit programs, such as Medicare and Social Security, or overhauling the tax code. Those deficit cuts would allow a second increase in the debt limit, which would be needed by early next year.
If the committee failed to reach its $1.8 trillion target, automatic spending cuts totalling $1.2 trillion would kick in, and the debt limit would rise by an identical amount. The conservative campaign to force Congress to approve a balanced-budget amendment to the Constitution has been jettisoned.
Social Security, as well as the Medicaid and food voucher programs that provide health care and grocery money for the indigent, would be exempt from the automatic cuts, but payments to doctors, nursing homes and other Medicare providers could be trimmed, as could subsidies to insurance companies that offer an alternative to government-run Medicare.