Enlarge Alex Wong/Getty Images House Speaker John Boehner gives a thumbs up after the chamber passed his plan Friday to raise the debt ceiling and cut spending. The Senate voted to kill the measure a short time later.
"We are almost out of time" for a compromise, warned President Obama as U.S. financial markets trembled at the prospect of economic chaos next week. The Dow Jones average fell for a sixth straight session.
Lawmakers in both parties said they were determined to avoid a default, yet there was little evidence of progress — or even significant negotiations — on a compromise during a long day of intense political maneuvering.
The House vote was 218-210, almost entirely along party lines, on a Republican-drafted bill to provide a quick $900 billion increase in U.S. borrowing authority — essential to allow the government to continue paying all its bills along with $917 billion in cuts from federal spending.
It had been rewritten hastily overnight to say that before any additional increase in the debt limit could take place, Congress must approve a balanced budget-amendment to the Constitution and send it to the states for ratification. That marked a concession to tea party-backed conservatives and others in the rank and file who had thwarted House Speaker John Boehner's attempt to pass the bill Thursday night.
"Today we have a chance to end this debt limit crisis," Boehner declared, his endgame strategy upended by rebels within his own party.
But the changes he made to the House GOP bill further alienated Democrats. And they complicated prospects of a compromise that could clear both houses and win Obama's signature by next Tuesday's deadline.
At the other end of the Capitol, Senate Democrats rejected the measure without so much as a debate. The vote was 59-41, with all Democrats, two independents and six Republicans joining in opposition.
'Our Last Chance'
Moments later, Senate Majority Leader Harry Reid, D-Nev., unveiled an alternative that would cut spending by $2.4 trillion and raise the debt limit by the same amount, enough to meet Obama's terms that it tide the Treasury over until 2013.
Reid invited Republicans to suggest changes, saying, "This is likely our last chance to save this nation from default."
The Senate GOP leader, Mitch McConnell of Kentucky, accused Democrats of "rounding up `no' votes to keep this crisis alive," and noted the House had passed two bills to raise the debt limit and the Senate none.
The House, eager to return the Senate's favor rejecting the Boehner bill, set a vote to reject Reid's proposal on Saturday. The Senate set a test vote for shortly after midnight on Sunday, a middle-of-the-night roll call that underscored the limited time available to lawmakers
At the same time Reid appealed for bipartisanship, he and other party leaders accused Boehner of caving in to extremists in the GOP ranks — "the last holdouts of the tea party," Sen. Richard Durbin of Illinois called them.
Republicans conceded that the overnight delay had weakened Boehner's hand in the endgame with Obama and Senate Democrats.
But the Ohio Republican drew applause from his rank and file when he said the House, alone, had advanced legislation to cut deficits, and that he had "stuck his neck out" in recent weeks in hopes of concluding a sweeping deficit reduction deal with Obama.
Balanced-Budget Amendment
Boehner's measure would provide a quick $900 billion increase in borrowing authority essential for the U.S. to keep paying all its bills after next Tuesday and $917 billion in spending cuts. After the bill's latest alteration, any future increases in the debt limit would be contingent on Congress approving the constitutional amendment and sending it to the states for ratification.
"With conservatives insisting on the addition of a balanced-budget amendment requirement, Speaker Boehner's bill will now cut, cap and balance" federal spending, said Rep. Jeff Flake of Arizona as Friday's scheduled vote approached.
The White House called the bill a non-starter. Press secretary Jay Carney issued a statement that called it a "political exercise" and said congressional leaders should turn their efforts to a compromise that Obama can sign by Tuesday.
The developments occurred one day after Boehner was forced to postpone a vote in the House for fear the earlier version of his measure would suffer a defeat. But by forcing a delay the conservative rebels upended the leadership's strategy of making their bill the only one that could clear Congress before a default and win Obama's reluctant signature.
"Everybody acknowledges that because of the dust-up yesterday we've lost some leverage," said Rep. Steven LaTourette, R-Ohio, an ally of the speaker.
The rebels said they were more worried about stemming the nation's steady rise of red ink.
Rep. Jeff Landry, R-La., a, a first-term lawmaker, issued a statement saying his pressure had paid off.
"The American people have strongly renewed their November calls of bringing fiscal sanity to Washington. I am blessed to be a vehicle driving their wishes to fruition," he said. "This plan is not a Washington deal but a real solution to fundamentally change the way Washington operates."
Administration officials say that without legislation in place by Tuesday, the Treasury will no longer be able to pay all its bills. The result could inflict significant damage on the economy, they add, causing interest rates to rise and financial markets to sink.
Executives from the country's biggest banks met with U.S. Treasury officials to discuss how debt auctions will be handled if Congress fails to raise the borrowing limit before Tuesday's deadline.
But Carney said the administration did not plan to provide the public with details Friday on how the government will prioritize payments.
The day's economic news wasn't very upbeat to begin with an economy that grew at an annual rate of only 1.3 percent in the second quarter of the year.
The Dow Jones industrial average suffered through a sixth straight day of losses, and bond yields fell as investors sought safer investments in the event of a default.
At the White House, Obama cited the potential toll on the economy as he urged lawmakers to find a way out of gridlock.
He said that for all the partisanship, the two sides were not that far apart. Both agree on initial spending cuts to take effect in exchange for an increase in the debt limit, he said, as well as on a way to consider additional reductions in government benefit programs in the coming months.
"And if we need to put in place some kind of enforcement mechanism to hold us all accountable for making these reforms, I'll support that, too, if it's done in a smart and balanced way," he said.
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By Lori Montgomery and Paul Kane
House GOP leaders won narrow approval of a plan to raise the federal debt limit Friday after revising the measure to appeal to rebellious conservatives, but it was quickly rejected by the Senate, where lawmakers were pursuing a separate, bipartisan agreement to avert a national default.
Heading into the final weekend before the Treasury expects to begin running short of cash to pay the nation’s bills, Senate Majority Leader Harry M. Reid (D-Nev.) was poised to forge ahead with his own proposal to grant the Treasury additional borrowing authority. This would set up a crucial vote in the Senate shortly after midnight Saturday.
Democrats conceded that they still lack the votes to repel a filibuster threat from GOP senators. But Reid beseeched his Republican counterpart, Minority Leader Mitch McConnell (Ky.), to join him in reworking the Democratic measure so the Senate could pass it and send it back to the House before slumping financial markets open Monday morning.
“The last train is leaving the station, and this is a last chance to avert a default,” Reid said in a speech on the Senate floor, arguing that the House bill would force Washington to endure another economy-rattling fistfight over the debt limit within a few short months.
“I say no, not again will we fight another battle like the one in which we are now engaged,” Reid added. “But default is not an option, either. And we cannot wait for the House any longer. I ask my Republican friends, break away from this thing going on in the House of Representatives.”
Though several Republican senators said a bipartisan compromise presents the only logical way to break the weeks-long stalemate, McConnell’s immediate response was not encouraging. In a written statement, he praised the House for passing “its second bill in two weeks that would prevent a default and significantly cut Washington spending,” and he criticized the Senate for “ginning up opposition.”
Still, Senate Democrats said they had received “positive signals” from Republican leaders. And though there were no formal talks with McConnell, Democratic leadership aides said they were hopeful that Reid would soon unveil a measure that would win Republican support.
Before the House vote, President Obama made a televised plea for compromise, arguing that the two parties are not “miles apart” and that he was prepared to work “all weekend long until we find a solution.”
Both the House and Senate bills call for cutting deeply into agency budgets over the next decade and creating a new 12-member committee tasked with identifying trillions of dollars in additional cuts by the end of this year. Reid’s bill would extend the $14.3 trillion debt limit into 2013, however, while the bill from House Speaker John A. Boehner (R-Ohio) would give the Treasury a reprieve only until February or March. If the committee failed to come up with $1.8 trillion in savings, Boehner’s bill would force another battle over whether to grant the Treasury additional borrowing power.
In brief White House remarks, Obama noted that the two sides are “in rough agreement” about the size of the first round of spending cuts and that “the next step” to rein in borrowing should be a debate over “tax reform and entitlement reform.”
“If we need to put in place some kind of enforcement mechanism to hold us all accountable for making these reforms, I’ll support that, too, if it’s done in a smart and balanced way,” Obama said.
Future cuts
Talks have been underway for weeks about how to structure a plan so that both parties are encouraged to engage seriously in negotiations over future debt reductions. One approach would be to require tax hikes and across-the-board spending cuts — which would be unattractive to many lawmakers — if the committee refuses to come up with recommendations for added savings.
On Friday, Sen. Richard J. Durbin (D-Ill.), the second-ranking Democrat in the Senate, said the design of that mechanism “is what all the negotiations are about.” He added, “That’s going to part of the endgame.”
Without such an agreement, Obama warned that the United States stands to lose its sterling AAA credit rating — “not because we didn’t have the capacity to pay our bills. We do. But because we didn’t have a triple-A political system to match our triple-A credit rating.”
Obama again urged Americans to contact their representatives, clogging Capitol Hill switchboards for a second time this week. The White House also tweeted a number of Twitter handles for Republican lawmakers so voters could press them to “get past this.”
The president’s lobbying campaign appeared to have little effect in the House, where attempts by Boehner to move toward the center were forcefully rebuffed. Earlier this week, Boehner unveiled a measure drafted largely by aides to Reid and McConnell, but he was forced to yank it from the floor late Thursday, when his right wing refused to fall in line.
For the next 23 hours, neither Boehner nor any other Republican leader issued a formal statement or paused in the Capitol hallways to explain to reporters what had happened.
Then on Friday, Boehner rewrote the bill to prevent an increase in the $14.3 trillion debt limit unless both chambers of Congress approve an amendment to the Constitution to mandate a balanced budget. The change swayed a handful of holdouts, and the measure passed 218 to 210, with every Democrat and more than 20 Republicans voting no.
But the episode was a humiliation for the new speaker and his leadership team, demonstrating they lacked clout inside their own conference. Even their allies in the Senate were stunned.
GOP divisions
Boehner, House Majority Leader Eric Cantor (R-Va.) and House Majority Whip Kevin McCarthy (R-Calif.) staked their personal reputations on the ability to deliver an all-Republican majority for the legislation.
They explained to their rank and file that despite broad Republican support in the House for a balanced-budget amendment, an earlier bill including the proposal could not pass the Senate. And the leaders pleaded with GOP lawmakers to support Boehner’s legislation, arguing that a majority for the bill would give McConnell leverage to push it through the Senate — or at least to force concessions from Reid.
Aides described the vote on the bill as nothing short of a vote of confidence in the leadership. All three leaders predicted victory.
But Thursday night, they were still short by as many as a dozen votes. So they pulled the bill and rewrote it to meet the demands of the conservative rebels. The balanced-budget amendment was put back into the bill.
On Friday, Boehner won tepid applause as he spoke in favor of the measure and defended his earlier effort to cut a far-reaching debt-reduction deal with Obama.
“I stuck my neck out a mile to try to get an agreement with the president of the United States. I stuck my neck out a mile. . . . But a lot of people in this town can never say yes,” Boehner said. “Yes, people can be critical of what we’ve done, but where are the other ideas?”
Democrats openly mocked Boehner for his inability to lead his caucus.
“He didn’t have a plan. By Tuesday, they announced they couldn’t call a vote. Well, maybe Wednesday. No, on Wednesday, they couldn’t call a vote. And then on Thursday, again, they failed to have the majority to call a vote. And so we waited,” Reid told reporters.
Even some Senate Republicans were perplexed by the disarray in the House.
Sen. John McCain (R-Ariz.) repeated his criticism of the balanced-budget amendment as “bizarro.” And Sen. Roy Blunt (R-Mo.), who served under Boehner in House leadership until his election to the Senate last year, said the rewritten House bill “may be more of a repeat” of the failed “cut, cap, balance” approach championed by conservatives “instead of a movement to being part of the solution.”
Boehner was “upbeat” during a luncheon with Senate Republicans, participants said, but senators exiting the meeting readily conceded that the House bill would not survive in the Senate. Blunt said they should be finding a compromise that can pass the Democratic Senate and win support from a majority of Boehner’s Republicans.
“Not all of his members, but a majority,” Blunt said.
Boehner is likely to suffer defections if he brings up a Senate-passed compromise, and he would need House Democrats to fill in the gaps — a difficult position for him politically. But GOP senators said they believe Boehner stands ready to do what it takes to avoid a default.
“I think things are moving better than they appear to be moving,” said Sen. Johnny Isakson (R-Ga.). “There’s agreement on cuts. And there’s almost unanimous knowledge that default is not in the cards. That’s the heart of the issue. The rest of it’s details.”
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