(Bloomberg) The U.S. House voted to temporarily suspend the nation’s borrowing limit, removing the debt ceiling for now as a tool for seeking deeper spending cuts.
The measure, passed 285-144, lifts the government’s $16.4 trillion borrowing limit until May 19. It goes to the Senate, where Majority Leader Harry Reid said lawmakers will pass the measure unchanged and send it to President Barack Obama.
“The premise here is pretty simple; it says that there should be no long-term increase in the debt limit until there’s a long-term plan to deal with the fiscal crisis that faces our country,” House Speaker John Boehner, an Ohio Republican, said during floor debate. “This is the first step in an effort to bring real fiscal responsibility to Washington.”
The revised strategy eliminates the risk that House Republicans would be blamed for a default in the short term. Republicans plan to focus on other fiscal deadlines and say they aren’t giving up their fight for cuts to federal programs.
Republicans plan to use two other approaching deadlines -- the March 1 start of automatic spending cuts and the need to pass a bill to fund the government by the end of March -- to extract spending reductions from Obama and congressional Democrats.
The measure passed today, H.R. 325, would allow the nation’s borrowing authority to automatically rise May 19 to accommodate the amount the U.S. Treasury borrowed during the three months that the limit is suspended.
New York Senator Charles Schumer said at a news conference that while Democrats would prefer a longer debt limit increase, House Republicans’ decision “shows that the Republicans are in full-on retreat on fiscal policy.”
“They blinked,” Schumer said. “Gambling with default was never a sound plan by the Republicans.”
Still, second-ranking House Democrat Steny Hoyer of Maryland called the measure a “political gimmick” that puts off the debt-limit issue for three months so House Republicans “can continue to roil the Congress, roil our people and roil our country” with fiscal uncertainty.
Richard Durbin of Illinois, the Senate’s second-ranking Democrat, said the chamber probably won’t act before next week on the House measure.
Adopting a Budget
The House debt-ceiling plan is accompanied by a prod to lawmakers on the budget. It says the House and the Senate each must adopt a budget resolution for the next fiscal year by April 15. If not, the pay for members of the chamber that doesn’t act will be withheld and placed in an escrow account until they adopt one -- or, at the latest, until the end of the 113th Congress.
Reid said the Senate plans to pass a budget this year.
The Obama administration said yesterday it welcomed the House measure as a de-escalation of the fiscal debate.
The debt limit has been raised periodically since its creation in 1917, with Congress increasing or revising it 79 times, including 49 times under Republican presidents, since 1960.
Enactment of the legislation could allow the Treasury to continue borrowing for several months and delay the need for a permanent increase in the debt ceiling until late summer.
Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey, told Bloomberg BNA in an e-mail that “our very tentative estimates suggest” that the Treasury “might not need another permanent increase until August.” Analysts at New York-based RBC Capital Markets LLC concurred, telling clients in a daily research note that “under this deal the drop-dead date might slide until August.”
The Treasury Department has said it expects to run out of emergency measures to prevent a breach of the current debt limit between mid-February and early March.
Investors in U.S. Treasury bonds, who most directly bear the risk of a government default, haven’t shown alarm. The 10- year yield fell almost two basis points, or 0.02 percentage point, to 1.82 percent at 12:35 p.m. in New York today, according to Bloomberg Bond Trader prices.
The vote on the debt ceiling would clear the way for House Republicans to focus on the debate to replace about $1.2 trillion in automatic spending cuts, half of which would come from defense. Congress delayed the start date of the automatic cuts to March 1.
Republicans are prepared to let the automatic cuts go forward even if Democrats don’t agree to restructure them to fall less heavily on defense, said Representative Tom Cole, an Oklahoma Republican.
“We hope we can negotiate something different but we would let them go ahead and happen,” Cole said in an interview yesterday.
After dealing with the automatic cuts, the House is expected to take up its budget resolution and then turn to a bill to fund the government through Sept. 30, according to Representative John Fleming, a Louisiana Republican. The government is being funded through a stopgap measure that expires March 27.
Budget Committee Chairman Paul Ryan of Wisconsin said earlier today that Republicans want to force “a big down payment on the debt crisis” during the debate on spending cuts and extending the government’s borrowing authority.
“We have to set our expectations accordingly” and “fight for those things” Republicans stand for “in a realistic way,” Ryan the Republican vice presidential nominee last year, said at a breakfast sponsored by the Wall Street Journal. “Our job as we see it is to get spending under control, to get some entitlement reforms” and “make sure we don’t have a debt crisis,” he said.
All Financial Planning articles are archived after 7 days. REGISTER NOW for unlimited access to all recently archived articles, as well as thousands of searchable stories. Registered Members also gain access to exclusive industry white paper downloads, web seminars, blog discussions, the iPad App, CE Exams, and conference discounts. Qualified members may also choose to receive our free monthly magazine and any of our daily or weekly e-newsletters covering the latest breaking news, opinions from industry leaders, developing trends and growth strategies.