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US Debt Deal Cuts Spending by $3 Trillion Next Decade, Raises Debt Ceiling in 2 Stages

July 31, 2011

Senate GOP leader: Getting close to a debt deal

By JIM ABRAMS Associated Press

July 31, 2011


White House and congressional negotiators sought to reassure the nation that they would beat a Tuesday deadline for averting the first federal default in history. But as Congress prepared to convene for a rare Sunday session, a final deal to raise the debt ceiling and reduce the deficit remained elusive.

Senate Republican leader Mitch McConnell said negotiators were "very close" to sealing a deal that would cut spending by some $3 trillion over the next decade while raising the debt ceiling through 2012 in a two-stage process. The Treasury says it will not be able to meet all its debt obligations if Congress does not act by Tuesday.

McConnell, appearing on CNN and CBS, said he hoped to soon be able to present to his fellow Republicans an agreement "that they'll consider supporting." That agreement would include raising the debt ceiling, cutting spending by some $1 trillion initially and creating a joint committee of members of Congress that would look at a larger plate of cuts that included tax and entitlement reform.

Democrats were more cautious in saying that the end of weeks of bitter debate was almost over. Sen. Chuck Schumer, D-N.Y., a member of the Democratic leadership, told CNN that while "there is no final agreement," there was a sense of relief that the two sides were finally working on a compromise plan.

Schumer later told CBS that one of the last sticking points is the creation of a "trigger" mechanism that would hit priorities of both parties if the committee does not come up with a plan for further deficit reduction.

Among the trigger ideas being discussed are automatically reducing spending on entitlement programs such as Medicare along with closing tax loopholes or reducing defense and non-defense programs by an equal amount.

"It should be equally tough on Democrats and Republicans," Schumer said.

McConnell said the bipartisan committee, which would be asked to come up with a plan by Thanksgiving, would have a "broad mandate" to look at all aspects of government finance, including tax reform.

McConnell said he had talked to both President Barack Obama and Vice President Joe Biden on Saturday. "I particularly appreciate that we are back talking to the only person in American who can sign something into law, and that's the president of the United States," he said.

McConnell said the deal being worked on, while raising the debt ceiling in two stages, would satisfy Obama's demand that there not be another divisive debate before next year's election. The scenario being discussed would raise the debt ceiling unless there is a two-thirds majority in both houses of Congress to reject it.

McConnell said that there would be no tax increases in the deal, and White House National Economic Council Chairman Gene Sperling, on CNN and Fox, said there would be no revenue increases over the next year and a half.

But while keeping higher taxes out of the deal was the top priority of many Republicans, it's still going to be a task for McConnell to sell any agreement to his caucus.

Sen. Lindsey Graham, R-S.C., said on ABC that this would be the first time that he could remember that the nation is paying for future debt increases dollar-for-dollar and that "from the Republican Party's point of view, I think we can declare victory in a limited fashion." But he said that even with the agreement the national debt will continue to rise and "I don't know where I'm going to land" on a vote.

"From a big picture," Graham said, "I'm not ready to vote for this."

On the House side, where GOP conservatives have pushed their party toward greater cuts and linking future debt ceiling raises to passage of a balanced budget amendment, a leadership aide said that while the negotiators appeared to be heading in the right direction, no agreement will be final until members have a chance to weigh in.

Sperling said Obama has presented three principles that the final package must meet: a significant down payment on deficit reduction, major entitlement and tax reform at a later date, and an end to the uncertainty created by the threat of the nation's defaulting on the debt. He said the nation doesn't want to "go through this mess again around the holidays."

Under the proposed agreement, Congress would also have to vote on a constitutional amendment requiring a balanced federal budget, a top-flight GOP goal. Unlike a bill approved Friday by the Republican-run House, none of the debt limit increase would be tied to congressional approval of that amendment.

Details of a possible accord began emerging Saturday night after Senate Majority Leader Harry Reid, R-Nev., said on the Senate floor that the two sides were trying to nail down loose ends and complete an agreement.

"I'm glad to see this move toward cooperation and compromise, and hope it bears fruit," he said.

A Democratic official said that while bargainers were not on the cusp of a deal, one could gel quickly. A Republican said there was consensus on general concepts but cautioned there were no guarantees of a final handshake. Both spoke on condition of anonymity to reveal details of confidential talks.

Any pact would have to quickly pass both chambers of Congress after a rancorous period that has seen the two parties repeatedly belittle each other's efforts to end the standoff.

Even so, the deal under discussion offers wins for both sides. Republicans and their tea party supporters would get spending cuts at least as large as the amount the debt ceiling would grow and avoid any tax increases. For Obama and Democrats, there would be no renewed battle over extending the borrowing limit until after next year's elections.

Under the possible compromise, the debt limit would rise by an initial $1 trillion.

A second, $1.4 trillion increase would be tied to a specially created congressional committee that would have to suggest deficit cuts of a slightly larger amount. If that panel did not act - or if Congress rejected their recommendations - automatic spending cuts would be triggered that could affect Medicare and defense spending, two of the most politically sacrosanct programs.

The government has exhausted its $14.3 trillion borrowing limit and has paid its bills since May with money freed up by accounting maneuvers.

McConnell and Schumer appeared on CNN's "State of the Union" and CBS' "Face the Nation" while Graham spoke on ABC's "This Week." Sperling appeared on "State of the Union" and "Fox News Sunday."


Associated Press writer David Espo contributed to this report.

US lawmakers close to deal to avoid default

Khaleej Times, Steve Holland and David Morgan

(Reuters) 31 July 2011, 6:44 PM WASHINGTON -

U.S. lawmakers were close to a last-gasp $3 trillion deal on Sunday to raise the U.S. borrowing limit and assure financial markets that the United States will avoid a potentially catastrophic default.

“We’re very close,” said Senate Minority Leader Mitch McConnell, the top Senate Republican who is playing a key role in the debt ceiling negotiations.

White House senior adviser David Plouffe said there was general agreement on a deal that would cut the U.S. deficit in two stages. It was first time the White House had acknowledged that both sides were close to a deal.

The first $1 trillion in cuts have been largely agreed on by lawmakers. Under the emerging deal described by congressional aides, a further $1.8 trillion would be recommended by a special committee appointed by Congress and automatic measures would implement the planned cuts if Congress failed to vote on them.

“It is clear that in the first stage we’re going to get ... an extension of the debt ceiling, a first set of spending cuts over $1 trillion, and then you’re going to get this committee that will be charged with reporting out hopefully a balanced deficit reduction,” Plouffe told NBC’s “Meet the Press.”

An agreement would end weeks of political gridlock that brought the world’s largest economy teetering on the brink of an unprecedented default and close to losing its triple-A credit rating.

Senator Charles Schumer, a Democrat, told CNN: “Default is far less of a possibility now than it was even a day ago because the leaders are talking, and talking in a constructive way.”

Politicians were scrambling for a deal to avoid the possibility of market shock on Monday, before Tuesday’s deadline when the United States loses its borrowing authority.


“We have to get this solved. Today is obviously a critical day. We have to give confidence that there is a pathway” to reduce the deficit, Plouffe said.

A U.S. default would plunge financial markets and economies around the globe into turmoil. U.S. stock markets last week posted their worst losses in a year, the dollar slumped and nervous investors put cash into insured bank accounts.

Japan, the second largest holder of U.S. debt, was increasingly alarmed that the United States would miss the deadline, sources familiar with Japan’s fiscal affairs said.

McConnell, speaking on CNN’s “State of the Union,” said he hoped to be able to recommend an agreement “very soon” to Republican senators. Asked if a deal would emerge on Sunday, he said, “Soon.”

The emerging deal seemed to answer key demands of both sides. It would have no tax increases as Republican wanted, and it would extend the debt ceiling through the 2012 election year as President Barack Obama insisted.

But by relying solely on spending cuts, Obama and his Democrats were likely to face questions about whether they ceded too much ground to Republicans and how they would protect popular but expensive social programs from the knife.

Democratic Senate Majority Leader Harry Reid pushed back a key procedural vote on a debt limit plan by 12 hours to 1 p.m. EDT (1700 GM) on Sunday, buying time for both sides to hammer out details before Asia markets open in a few hours’ time.

The tentative agreement proposes setting up a committee, to be made up of members from both parties, that would be charged with negotiating the tough elements of reforming popular but expensive entitlement programs as well as the U.S. tax code. McConnell said the committee would make its recommendations by late November.

Any deal would have to get through the Republican-controlled House of Representatives, where Tea Party conservatives have been seeking deep cuts and are pushing to get an amendment to the U.S. Constitution requiring a balanced federal budget.

“Discussions are moving in the right direction, but serious issues remain. And no agreement will be final until members have a chance to weigh in,” said a House Republican leadership aide.

U.S. debt negotiators hammer out tentative agreement

WASHINGTON, July 31, 2011 (Xinhua) --

U.S. debt ceiling negotiators are working on a tentative agreement on raising the federal government's debt limit to avert a looming debt default crisis.

The United States is not going to default, Senate Republican leader Mitch McConnell said Sunday morning in an interview with CNN.

"We're very close to a deal," McConnell added.

He said that both parties were working on a 3 trillion U.S. dollars package, and some conservative GOP members wanted a balanced budget amendment to the Constitution to be included in the deal.

Leaders from both parties are discussing the compromise plan "in a constructive way," Democratic Senator Charles Schumer said on Sunday.

However, Schumer held that it was "premature" to say now that a deal has been reached, as there are many details to talk about before sealing the deal, Schumer noted.

There has to be compromise on each side to push forward a solution in a divided government and Congress, noted Schumer, adding that the negotiators were discussing defense cuts of equal magnitude to domestic spending cuts.

Sunday was a "critical day" to cut a deal to raise the nation's debt limit, White House senior advisor David Plouffe said on Sunday, adding that "we have to get this solved."

Plouffe said there was not a deal yet, as both sides were working out on details of a plan.

The federal government's borrowing limit, currently at 14.29 trillion dollars, was reached on May 16. The Treasury Department said the nation would begin to default on its debts unless the Congress agreed to lift the limit by Aug. 2.

Obama's top economic adviser Gene Sperling Sunday also urged Congress to raise the debt limit to lift the uncertainty cloud over the economy and financial markets.

A procedural Senate vote on a debt ceiling proposal put forward by Senate Majority Leader Harry Reid was postponed until Sunday afternoon to give negotiators more time to hammer out an agreement.

Editor: Zhang Xiang

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