The Senate voted overwhelmingly – 81 to 18 -- to end Washington’s budget impasse, a result that will put added pressure on the House of Representatives to do the same.
Republican House Speaker John Boehner confirmed earlier Wednesday that he won’t oppose the bipartisan budget compromise, signalling the end of Washington’s weeks-long fight over fiscal policy. However, it remained unclear whether he could get a majority of his caucus to back him.
“Millions suffered,” Charles Schumer, a Democratic senator from New York, said at a press conference. “This is not a happy day. It’s a somber day. We never should have gone what we went through.”
Mr. Boehner’s caucus started Washington’s latest impasse by making significant changes to President’s Barack Obama’s 2010 health law a condition of its co-operation in renewing the federal government’s spending and borrowing authority.
That gambit proved to be a losing one as Mr. Obama and Democratic leaders in the senate simply refused to co-operate. Polls suggest the public mostly blames Republicans for the partial government shutdown that now is in its 16th day. The Treasury Department says it will breach its statutory debt limit Thursday, raising the spectre of a default.
“The House has fought with everything it has to convince the President of the United States to engage in bipartisan negotiations aimed at addressing our country’s debt and providing fairness for the American people under Obamcare,” Mr. Boehner said in a statement. “That fight will continue. But blocking the bipartisan agreement reached today by members of the Senate will not be a tactic for us.”
Equity markets surged Wednesday as Democratic Majority Leader Harry Reid and Minority Leader Mitch McConnell took to the Senate floor to announce the result of four days of talks. The two leaders had been assuring the public since the weekend that they would resolve their differences before it was too late. They made good on that commitment, introducing legislation that would restore spending authority through January, lift the debt ceiling until early February and commit Senate and House leaders to engage in formal budget talks on spending levels and tax rates.
This “ends a standoff that ground the work of Washington to a halt this fall,” Mr. Reid said.
Both the Standard & Poor’s 500 index and the Dow Jones industrial average were more than 1 per cent higher near the end of the trading day in New York, as investors bet partisan tensions in Washington now have eased enough to restore the Treasury Department’s borrowing authority before the government misses a payment.
The Reid-McConnell compromise hews to the tentative outline that had been circulating for several days: the federal government’s spending authority would be restored until Jan. 15 and the debt ceiling would be increased enough to allow the Treasury to issue debt at least through Feb. 7. The budget committee chairs in each chamber – Patty Murray in the Senate and Paul Ryan in the House of Representatives – would convene formal talks on a longer-term budget that would address spending levels and tax rates.
To close the deal, Mr. Reid and Mr. McConnell largely dropped all other conditions. The bill would toughen eligibility checks on Americans who seek subsidies under President Barack Obama’s 2010 health law, a Republican request. Democratic negotiators abandoned an attempt to delay a new tax on existing health plans, which is opposed by unions. Republicans gave up trying to restrict the Treasury’s use of accounting manoeuvres to stay under the debt limit.
Senators were expected to vote on the measure early Wednesday evening, with the House taking up the legislation later Wednesday night.
Mr. Boehner’s statement confirmed speculation that he would stop trying to satisfy the hard-liners in his fractious caucus and simply call a free vote, allowing Republicans who want to end the impasse to join with the Democratic minority in supporting the Senate plan. Mr. Obama’s spokesman said earlier Wednesday that the President would endorse the Senate proposal.
It now looks possible that the Treasury’s ability to borrow could be restored by Thursday – when Secretary Jacob Lew estimates he will run out of accounting manoeuvres to stay below the current $16.7-trillion (U.S.) ceiling.
That looked far from likely only 24 hours ago.
One hurdle fell when Ted Cruz, the Republican senator who led the campaign to use budget deadlines as leverage to impede Obamacare, told reporters Wednesday that he would not use procedural moves to delay the legislation’s passage.
Politicians failed to extend the federal government’s spending authority at the beginning of the month, triggering the cessation of all non-essential services. More crucial is the imminent end of the Treasury Department’s borrowing authority, which the Treasury estimates will lapse on Thursday. That introduces the previously unimaginable risk that the world’s largest economy could default on its debt. Most bankers, investors and economists say that would be catastrophic because U.S. bills and bonds form the foundation of the global financial system.
Disaster wouldn’t arrive at midnight Wednesday. The Treasury says it still will have about $30-billion of cash on hand to pay its obligations. Estimates of how long the cash would hold out range from a few days to the end of the month.
Fitch Ratings, one of the three big firms that scores countries’ creditworthiness, said after markets closed Tuesday that it was reconsidering whether the U.S. deserves the company’s highest score.
“The U.S. authorities have not raised the federal debt ceiling in a timely manner,” Fitch said in a statement. “Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financial flexibility could increase the risk of a U.S. default.”