Senate leaders are poised to reach an agreement as early as today to bring a halt to the fiscal standoff, and now must race the clock to sell the plan to lawmakers before US borrowing authority runs out this week.
The emerging deal would stave off a potential default, end the 15-day-old US government shutdown and change the immediate deadlines in favour of three new ones over the next four months. It’s far from complete as the Senate may delay passing the plan and House Republicans may seek to block or change it.
Lawmakers would be required to hold budget talks by December 13, fund the government through to January 15 2014, and extend the nation's borrowing authority until February 7 2014, according to a person familiar with the Senate talks who spoke on condition of anonymity to discuss the concept.
"We’ve made tremendous progress," Senate Majority Leader Harry Reid, a Nevada Democrat, said yesterday on the Senate floor with his Republican counterpart, Mitch McConnell of Kentucky. "We are not there yet."
An agreement would forestall the immediate crisis. It would end the shutdown that has closed many federal services and prevent a possible US default that the Treasury department said may be catastrophic.
US lawmakers, who have governed from fiscal crisis to fiscal crisis for more than two years, may be setting up more crises in the near future. The agreement would delay the next major deadline – the January 15 lapse in government funding – until after the holiday shopping season.
There are two potential obstacles to an agreement. First, a single senator would be able to use procedural tactics to push a final vote past the October 17 lapse in borrowing authority. Texas Republican Senator Ted Cruz, who spoke for more than 21 hours during a budget debate last month, wouldn’t rule out stalling maneuvers, saying he wants to see the details of the plan.
Also, House Republicans, who have demanded major changes to US President Barack Obama’s signature health-care law, may resist any proposal that contains few of their priorities.
"Sounds like everything the president asked for," Representative Blake Farenthold, a Texas Republican aligned with the Tea Party movement, said yesterday when asked about the Senate framework.
Obama has insisted that Congress raise the $16.7-trillion US debt limit without add-ons and that stopgap spending Bills be free of policy conditions.
A Senate agreement would again put pressure on House Speaker John Boehner, who has a 232-200 Republican majority. He may have to decide whether to side with hardliners insistent on changes to Obamacare or rely on Democratic votes to pass a bipartisan Senate plan through the House.
House Republicans also may consider making changes and sending the plan back to the Senate.
Reid and McConnell may release the plan’s details as early as today. Any one senator could push a final vote until at least October 18, after the debt ceiling is breached though before the US runs out of cash and begins missing payments between October 22 and October 31.
House Republicans will meet today at 9 am in the Capitol and may consider debt-limit legislation on the floor. Senators will meet in party caucuses.
"We’ve not made any decision," House Majority Leader Eric Cantor, a Virginia Republican, said yesterday. "We are going to meet with our members in the morning to determine the best path forward."
Benchmark Treasury 10-year yields rose three basis points, or 0.03 percentage point, to 2.72% at 6.26am New York time, according to Bloomberg Bond Trader prices. The rate touched 2.74%, the highest since September 23.
The Stoxx Europe 600 Index gained 0.7% at 6.15am in New York in the longest winning streak in two months. Standard & Poor’s 500 Index futures added less than 0.1%.
"We had very positive comments from the Senate leaders, and if you take those comments at face value, a deal looks fairly imminent," Otto Waser, chief investment officer at R&A Research & Asset Management in Zurich, said by telephone on Tuesday. "The market is back to the levels it was at before the entire crisis talks started."
Reid and McConnell, veteran Senate deal makers, are brokering the agreement, reached during conversations that started over the weekend. Democrats want as long a debt-limit increase as possible and as short a government funding extension at Republican-preferred levels. Republicans want the opposite.
Possible sticking points late yesterday included whether Democrats would agree to Republican demands that the Treasury Department be barred from using so-called extraordinary measures to extend the debt-limit deadline after February 7.
Such manoeuvres pushed forward the deadline for five months this year, though it’s not clear how much time they would buy in 2014.
"It is very unwise," Senate Finance Committee chairmperson Max Baucus, a Montana Democrat, said of the Republican demand.
The accord being worked out wouldn’t include repealing or delaying an excise tax on medical devices, said the person familiar with the talks and a Senate Democratic aide who requested anonymity. Republicans had sought that change, joined by some Democrats who represent states such as Minnesota with concentrations of device makers.
The plan would postpone a reinsurance fee the government is levying on health plans for the first three years of the healthcare exchanges – amounting to $63 a worker next year, said the person familiar with the talks. Labor unions, aligned politically with Democrats, have asked for the delay.
Democrats could claim that the agreement is a trade of health-law measures favored by each party that just happens to be linked to a debt-ceiling increase and spending bill free of policy conditions. Republicans could say they got health-law changes attached to the must-pass measures.
The agreement also would give federal agencies flexibility to manage the across-the-board spending cuts known as sequestration if they occur in 2014.
The partial government shutdown began October 1 after Republicans insisted on changes to the 2010 Patient Protection and Affordable Care Act. Backed by Cruz, they started with a plan to defund the law and ended up seeking a one-year delay of the requirement for individuals to purchase health insurance.
Obama and Democrats resisted, and the president said that Republicans were trying to extract a ransom just for doing their jobs. After a 2011 agreement that produced more than $2-trillion in spending cuts, Democrats are trying to use the fiscal impasse to set a precedent against future negotiations set against the backdrop of default.
An ABC News/Washington Post poll found that 74% of Americans disapprove of how Republicans have been handling the fiscal impasse, compared with 53% who disapprove of Obama’s approach.
"We’ve basically blown the last two months with some of our members, and a lot of the House, focused on a shiny object that was never going to happen," said Senator Bob Corker, a Tennessee Republican. "So we find ourselves four days from a debt ceiling and all of a sudden, 72 hours ago, we began talking about the right subject, which is spending and entitlement reforms and those kinds of things."
The lack of significant health-law changes in the Senate agreement is causing concerns for some House members.
Representative Charles Boustany, a Louisiana Republican, said party leaders will have "a hard time" gaining support from a number of House Republicans "because of the lack of Obamacare features" in the Senate proposal.
"The one good news" is the spending level won’t change, Boustany said. "That’s a victory."
The House hasn’t passed debt-ceiling legislation, in part because hard-liners were demanding hundreds of billions of dollars of spending cuts to entitlement programs.
"All of us should be worried that we can’t get a majority for anything," Representative Devin Nunes, a California Republican, told reporters at the Capitol yesterday. "I've always thought that the House should actually do something with 218 votes that’s realistic and gives us a firm position, but we haven’t proven that we can do that." – Bloomberg