WASHINGTON — Republicans holding up an increase in the American debt limit — a move that could produce the first ever U.S. debt default — were pushing ahead Monday with a spending cut plan that has virtually no chance of becoming law. President Barack Obama promised to veto such a bill should it reach his desk.
House Republicans were preparing Tuesday to put to a vote their plan that axes spending, rules out any tax increases, and calls for a balanced-budget amendment to the U.S. Constitution that would require the government to not spend more than it takes in.
The effort is primarily an opportunity for them, particularly dozens of new lawmakers elected to the House with the support of the small government tea party movement, to showcase their ideological purity by putting the country on course for a balanced budget.
The White House issued a stinging rejection of the House plan on Monday, saying Republicans were playing politics with a critical issue that could cause “a severe blow to the economy.”
“Instead of pursuing an empty political statement and unrealistic policy goals, it is necessary to move beyond politics as usual and find bipartisan common ground,” the White House said in a statement issued by the Office of Management and Budget.
Congress and Obama face an Aug. 2 deadline for raising the debt limit above the current $14.3 trillion level. Failure to do that would leave the United States unable to meet its obligations to holders of Treasury bonds and domestic obligations such as payments to recipients of Social Security, the government pension plan for Americans of retirement age. That could create turmoil in world and domestic financial markets and hobble global economies that are still struggling to recover from the financial crisis that began in 2008.
To avoid that, Senate Majority Leader Harry Reid, and his Republican counterpart, Sen. Mitch McConnell, are said to be working on a plan that would allow Obama to raise the debt limit without prior congressional approval, while exacting smaller spending cuts.
But any such deal would also require passage in the House. To that end, Obama met quietly in the Oval Office on Sunday morning with House Speaker John Boehner and Majority Leader Eric Cantor. A Boehner spokesman, Brendan Buck, said “there is nothing to report in terms of an agreement or progress.”
But after an appearance in the White House Rose Garden Monday, Obama responded to a shouted question by saying “We’re making progress.”
In seeking a “Grand Bargain” that includes massive spending reductions, Obama has vowed to veto any legislative measure that does not also include higher taxes for America’s wealthiest citizens and corporations, including the elimination of tax breaks for hugely profitable oil companies. He has not indicated what he would do if the Reid-McConnell plan were to reach his desk.
The president’s so-called balanced approach — spending cuts coupled with more taxes on the wealthiest — appears to be gaining ground with voters.
A recent Gallup poll found that 69 per cent of Americans favour that approach. Among those who are not wed to an entrenched party view, pragmatism seems to be gaining traction over ideology.
A poll from the Pew Research Center found that among independent voters — coveted by both political parties looking ahead to the 2012 presidential and congressional elections — concern has shifted from fear that raising the debt ceiling would increase government spending to worry about the impact of the failure to raise it.
Two months ago Pew found that independents, by a 49 per cent to 34 per cent margin, were more concerned that raising the debt ceiling would lead to higher government spending, as opposed to chiefly fearing the harmful effects of keeping the ceiling unchanged. This month, independents split evenly on the question.
If the current $14.3 trillion debt ceiling isn’t increased by Aug. 2 — which past Congresses have done as a matter of course no matter which party was in control — it will have far-reaching consequences.
Default likely would produce higher interest rates for consumers on mortgages, car loans and credit cards. It also would make U.S. government borrowing more expensive and could stop government checks from going out to retirees. All that holds the potential for turmoil not only domestically but also in world financial markets and international economies.
Among some voters, there is suspicion that the talks in Washington are infused with the politics of the November 2012 election in which the state of the economy will likely determine whether Obama wins a second term.