Senators Near Fiscal Deal, but the House Is Uncertain
Negotiators talked into the evening as senators from both parties
coalesced around a plan that would lift the debt limit through Feb. 7,
pass a resolution to finance the government through Jan. 15 and conclude
formal discussions on a long-term tax and spending plan no later than
Dec. 13, according to one Senate aide briefed on the plan.
But while both Senator Mitch McConnell of Kentucky, the Republican
leader, and Senator Harry Reid of Nevada, the Democratic leader, praised
the progress that was made in the Senate, it was already clear that the
most conservative members of the House were not going to go along
quietly with a plan that does not accomplish their goal from the outset
of this two-week-old crisis: dismantling the president’s health care
law.
“We’ve got a name for it in the House: it’s called the Senate surrender
caucus,” said Representative Tim Huelskamp, Republican of Kansas.
“Anybody who would vote for that in the House as Republican would
virtually guarantee a primary challenger.”
There have been other showdowns between Republican lawmakers and
President Obama that went to the last minute; in 2011, lawmakers reached
a deal to raise the nation’s debt ceiling two days before officials
said a default was possible, resulting in a stock market plunge and the
downgrading of the nation’s credit rating. But the real possibility that
as of Thursday the government would not be able to meet its obligations
prompted grim warnings of an economic catastrophe that could ripple
through stock markets, foreign capitals, corporate boardrooms, state
budget offices and the bank accounts of everyday investors.
“If Republicans aren’t willing to set aside their partisan concerns in
order to do what’s right for the country, we stand a good chance of
defaulting, and defaulting could have a potentially devastating effect
on the economy,” Mr. Obama told reporters at Martha’s Table, a
Washington-area food bank.
Officials in several states said a default would mean unprecedented but
unknown consequences to federal programs that are administered by the
states, like Medicaid and food stamps. They also said that a market
collapse could undermine state pension plans. And higher interest rates
from a default on federal bonds could make short-term borrowing more
difficult and costly for states.
“This has us pretty nervous; it’s just a mess,” said John E. Nixon, the budget director
for the State of Michigan. “We are taking it very seriously, and we
have our agencies preparing contingency plans. But obviously nobody
really knows how it’s going to unfold, so you can only plan so much.”
Scott D. Pattison, the executive director of the National Association of
State Budget Officers, spent Monday morning fielding calls from anxious
members across the country.
“A lot of these folks are looking into ‘What kinds of options do we have
if there is a cash crunch?’,” Mr. Pattison said. “They are very, very
nervous. It’s uncharted territory.”
Investors on Monday reacted in tandem with the real-time reports of
halting progress, with stocks falling in the morning before drifting
into positive territory by the end of the day in response to reports of a
possible deal in the Senate. At the same time, asset managers and banks
began taking steps to be ready if the Treasury Department is unable to
pay back its short-term debt on time. And world leaders expressed
concern about the impact on their countries.
In Britain, Jon Cunliffe, who will become deputy governor of the Bank of
England next month, told members of Parliament that banks should be
developing contingency plans to deal with an American default if one
happens.
And Chinese leaders called on a “befuddled world to start considering
building a de-Americanized world.” In a commentary on Sunday, the
state-run Chinese news agency Xinhua blamed “cyclical stagnation in
Washington” for leaving the dollar-based assets of many nations in
jeopardy. It said the “international community is highly agonized.”
The Senate could vote on an agreement as soon as Wednesday if Mr. Reid
and Mr. McConnell discuss the deal with their members on Tuesday. That
would leave little time for the House to debate and vote on what will be
a contentious measure.
If a deal is not completed by the end of Thursday, Treasury officials
have said, the United States government will have exhausted
“extraordinary measures” for managing its debt, meaning that its ability
to pay its bills will be limited to the uneven flow of cash that comes
into the Treasury on a daily basis. On some days, officials warned, the
amount coming in will be less than the amount that is supposed to go
out.
But even that deadline provides no real sense of clarity. It remains
unknown how long the federal government could operate beyond that day,
what programs it might choose to suspend, or how quickly the global
financial markets would pronounce judgment.
Wall Street sentiment may be in evidence even before a vote, when the
Treasury Department sells new 13- and 26-week bonds. If investors are
hesitant to buy them, it could set a negative tone for the day, as was
the case after an auction last Tuesday. George Goncalves, a Treasury
strategist at Nomura Securities, said investors might not immediately
panic if all signs were pointing toward a positive vote.
“If it’s clear it’s going to happen by midnight, people will give them
the benefit of the doubt because everyone knows it’s not a hard
deadline,” Mr. Goncalves said.
Staff members at the Treasury, Federal Reserve and Federal Reserve Bank
of New York are working together behind the scenes to prepare, officials
said. Because of the government shutdown, now two weeks old, about four
in five staff members are furloughed at the Treasury Department,
including officials from the Office of Fiscal Projections, which is
critical in determining the balances in the government’s accounts. But a
Treasury official said that a team of core staff members was closely
monitoring the department’s debt management and fiscal projections.
Officials at the White House and the Treasury have said that contingency
plans are in place, though they have repeatedly declined to provide
details about which obligations would be met and which would be
abandoned. Market participants said such plans would most likely include
a plan to shore up short-term funding markets that rely on government
debt.
As they drafted their deal, Senate negotiators in both parties were
hoping that House Republican leaders would have no choice but to let a
bipartisan agreement come to a vote, even if it could pass only with
votes from Democrats and a minority of the Republican majority. But John
A. Boehner, the House speaker, provided few assurances on Monday that
an arrangement hammered out by his Senate colleagues could pass muster
among his conservatives.
Senate Republicans had pushed for an agreement that included a provision
to delay or repeal a tax on medical devices, but that became a sticking
point in the negotiations and will almost certainly be excluded from
the final deal, Senate aides said. But the deal would include a one-year
delay of another tax associated with the Affordable Care Act known as
the reinsurance tax, which employers pay.
Another Republican-backed measure likely to be in the deal would require
tighter income verification standards for people who receive subsidies
under the new health care law. Under the new guidelines, the Health and
Human Services secretary would have to certify that the department can
verify income eligibility. The two provisions are the only mentions of
the health care law whose defunding has been at the core of Republican
demands over the past two weeks.
Many Republicans have argued that if the Senate proposal passes with the
solid backing of Republican members — a possibility that seemed
probable given Mr. McConnell’s support — it would be an easier sell in
the House. But with the country just hours from what could be a
crippling default, many Republicans believe that Mr. Boehner will have
no choice but to ignore his most vocal members and put whatever passes
the Senate up for a vote.
“We’re now backed into a corner,” said Representative Peter T. King,
Republican of New York. “We have to do this by Thursday. We have to make
it work, but it’s not going to be perfect.”
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