Debt ceiling compromise, Congress votes today, August 1, 2011, Debt raised $2.1 trillion, Government spending cut $2.4 trillion

Debt ceiling compromise, Congress votes today, August 1, 2011, Debt raised $2.1 trillion, Government spending cut $2.4 trillion

From Bloomberg August 1, 2011.

“Congressional leaders, leaving no extra time before a default threatened for tomorrow, are racing to push through a compromise sealed with President Barack Obama last night to raise the U.S. debt limit by at least $2.1 trillion and slash government spending by $2.4 trillion or more.

The House plans votes today and the Senate may follow suit to consider the agreement reached during a weekend of negotiations that capped a months-long struggle between Obama and Republicans over raising the $14.3 trillion debt ceiling.

Both parties were working to sell the deal to their rank and file — meeting resistance from social liberals who fault it for failing to increase taxes and from fiscal conservatives who say it’s insufficient to rein in the debt.

“The leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default,” Obama said in an appearance in the White House briefing room last night as congressional aides were drafting the legislative language. “This compromise does make a serious down payment on the deficit-reduction we need. Most importantly, it will allow us to avoid default.”

Stocks may rally after the deal, as futures on the Standard & Poor’s 500 Index expiring in September gained 1.1 percent to 1302.10 as of 11:01 a.m. in Frankfurt. Treasuries retreated after soaring July 29 in the wake of weaker-than-forecast U.S. economic growth figures. Ten-year notes yielded 2.85 percent, still less than their average 3.06 percent in the past year.”

“Two Installments

Lawmakers who were to vote within hours on the measure were just learning its details. It would raise the debt ceiling in two installments, sufficient to serve the nation’s needs into 2013. The framework, as detailed by officials in both parties, would cut $917 billion in spending over a decade, raise the debt limit initially by $900 billion and assign a special congressional committee to find another $1.5 trillion in deficit savings by late November, to be enacted by Christmas.

If Congress met that deadline and deficit target, or voted to send a balanced-budget constitutional amendment to the states, Obama would receive another $1.5 trillion borrowing boost.

In the case of Congress failing to take either step, or not producing debt savings of at least $1.2 trillion, the plan allows the president to obtain a $1.2 trillion debt-ceiling extension. Still, that would trigger automatic spending cuts across the government — including in defense and Medicare — to take effect starting in 2013. The Medicare cuts would only affect provider reimbursements, not benefits.”

“Concessions Made

In the final stage of negotiations, both sides made concessions. Republicans dropped their insistence on withholding some of the borrowing authority until future spending cuts had been made and a balanced budget amendment to the Constitution had been passed by both chambers of Congress. Those terms were included in a bill the House passed narrowly and along party lines July 29, only to see the measure defeated in the Senate less than 24 hours later.

The White House agreed to forgo an automatic tax increase, a sticking point for Republicans, as one of the consequences to kick in if no debt-reduction law was enacted by Christmas.

Even so, Obama has an opportunity to increase revenue in the future if he opts to allow the tax cuts enacted under George W. Bush to expire as scheduled in 2013. Even if Obama lost his re-election campaign next year, he could veto legislation to extend those cuts before leaving office — producing an estimated $3.5 trillion.

White House officials said the enforcement mechanisms will help them press Obama’s agenda as further deficit reductions are made, including additional tax revenue.”

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