House Speaker John Boehner indicated Tuesday that Republicans will vote on an extension of the federal debt ceiling to allow Treasury to borrow money until mid-May. The move would reverse the order of a series of expected debt and spending fights in Washington, an effort designed to put the GOP on more sound political footing.
The Speaker said the measure would be tied to a provision that would suspend the pay of lawmakers if they do not agree to a budget by April 15th. A vote is expected Wednesday.
"I think the American people understand that you can't continue to spend money that you don't have," Boehner said.
At the White House, spokesman Jay Carney indicated the president would likely sign the measure if the Congress passes it. "The House Republicans made a decision to back away from the kind of brinksmanship that was very concerning to the markets, very concerning to business, very concerning to the American people," Carney said.
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Extending the debt limit for a few months without demanding specific spending cuts means the next moment of high political and market drama will occur when the so-called "sequester" or automatic across the board spending cuts, kicks in on March 1. That deadline is itself the result of another temporary maneuver by Congress on New Year's Day to avoid the fiscal cliff.
But for Republicans, having the sequester fight first is politically advantageous -- the White House won't be as easily able to call their bluff as they would in a fight over the nation's debt ceiling. That's because many in the GOP say they can live with the consequences of the dramatic spending cuts if no deal is reached. On the other hand, many Republicans (and the White House) argued that the consequences of a stalemate on the debt ceiling – defaulting on federal obligations to pay for earlier spending – would needlessly roil global markets and possibly threaten the nation's credit rating.
But failure to agree to a deal on the sequester would result in about $85 billion in cuts to defense and domestic spending – a far more palatable outcome. Although the defense cuts are more than Republicans would prefer, automatic spending cuts are something many of them see as a necessary belt tightening in an era of runaway federal spending.
A House GOP aide explained a five step process outlined in the new measure to NBC News. First, the Republicans would simply suspend the debt ceiling through May 18. Then, on May 19, they would re-impose the ceiling but raise it by the amount of debt incurred during the suspension. If there isn't a budget resolution agreed to by April 15, the pay of members of Congress would be put in escrow – and members of the House and Senate would not get paid until their chamber passes a budget. But they would get back salary at the end of the Congress. "Constitutionally, we have to pay members," the aide said.
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The move reduces short term tensions on a day when Republicans were still reeling from what they saw as a needlessly provocative inaugural address by President Obama on Monday, deepening an already entrenched partisan divide in Washington. "One thing that's pretty clear from the president's speech yesterday -- the era of liberalism is back," said Senate Republican leader Mitch McConnell (R-Ky). "An unabashedly far-left-of-center inauguration speech certainly brings back memories of the Democratic Party of ages past."
And some Republicans in the House are unlikely to vote for a short term debt ceiling extension that the Obama White House is asking for even if their leadership endorses it. "I will not vote to raise the debt ceiling unless significant efforts are made to fix the underlying problem of deficits and accumulated debt that force debt ceiling votes and risk America's future," said Rep. Mo Brooks (R-AL). "I take this stance full well knowing the adverse economic effects of a failure to raise the debt ceiling, but also knowing, Mr. Speaker, that those effects pale in comparison to an insolvency and bankruptcy of the America I love."
Sentiments like those make it unclear whether the debt ceiling extension can pass in the House. Speaker Boehner declined to answer a question about the vote count as he exited a press conference Tuesday evening.
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The Administration responded cautiously to the proposal releasing an official statement from the Office of Management and Budget calling it a "short-term measure" that "introduces unnecessary complications, needlessly perpetuating uncertainty in the Nation's fiscal system" But the administration also said it was encouraged that the proposal "lifts the immediate threat of default and indicates that congressional Republicans have backed off an insistence on holding the Nation's economy hostage to extract drastic cuts in Medicare, education, and other programs that middle-class families depend on."
An analysis prepared for investors by Goldman Sachs noted that the likelihood of a US default on its obligations is not high, because the market consequences would be so severe – but that calculation is nearly reversed for the fight over the sequester spending cuts. "Allowing them to take effect in full could impose a meaningful drag on growth, but the effect might not be severe enough to dissuade Congress from allowing it to occur."
Goldman economist Alec Phillips wrote that the effect of spending cuts in calendar year 2013 would be about $53 billion, or 0.3% of GDP.