The Republican-controlled House canceled a vote Tuesday night on a plan to reopen the federal government and raise the debt ceiling after support from conservatives for the deal crumbled, leaving Washington without a clear path forward for avoiding a first-ever default on the nation’s debt.
Later Tuesday night, Senate leaders Harry Reid and Mitch McConnell moved to pick up the pieces of the shattered House effort, with aides to both senators expressing optimism a deal could be soon at hand.
“Senator Reid and Senator McConnell have re-engaged in negotiations and are optimistic that an agreement is within reach,” said Adam Jentleson, spokesman for Reid (D-Nev.).
“Given tonight’s events, the leaders have decided to work toward a solution that would reopen the government and prevent default. They are optimistic an agreement can be reached,” said Don Stewart, spokesman to McConnell (R-Ky.).
It was already far from clear if the House proposal could attract enough support in the Democratic-controlled Senate to end Washington’s political crisis. The plan contains several provisions that Democrats have strongly opposed.
The influential conservative group Heritage Action also opposed the House proposal soon after it was announced, and conservatives close to the House leadership expressed alarm that they had shut down the government and would get nothing for it except a punitive measure restricting their own staff’s healthcare, according to senior House Republican aides.
“I’ve got one vote and I’m a no,” Rep. Thomas Massie (R-Ky.) said as he left a meeting with House Speaker John Boehner’s (R-Ohio) leadership team.
The stunning turnaround could represent yet another rebuke to Boehner, whose previous efforts at compromise have been thwarted by his party’s right flank. And with the U.S. Treasury set to exhaust its ability to borrow money on Thursday, Fitch Ratings, a credit rating agency, announced Tuesday that it was accelerating its timetable for a potential U.S. credit rating downgrade, among the first concrete effects of the standoff. If Fitch follows through, it would become the second credit rating firm to downgrade U.S. government debt, potentially triggering ripple effects across a range of financial markets.
“Political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default,” Fitch said late Tuesday. “The U.S. risks being forced to incur widespread delays of payments to suppliers and employees, as well as Social Security payments to citizens — all of which would damage the perception of U.S. sovereign creditworthiness and the economy.”
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Fitch’s announcement followed a day of declining optimism about efforts to resolve the crisis, , as Democrats and Republicans began attacking each other again and the White House said negotiators remained “far from a deal.’’
Just a day earlier, Senate leaders had been closing in a deal to end the two-week-old government shutdown, extend borrowing authority until Feb. 7 and fund federal agencies for three months. But the bipartisan Senate talks were put on hold Tuesday as negotiators awaited a plan from the Republican-led House.
Even the inklings of a House proposal that emerged earlier Tuesday drew immediate condemnation from Democrats, primarily because the plan would include significant changes to President Obama’s signature health-care law. Unlike the Senate proposal, the House plan originally included a two-year repeal of a medical device tax and a provision eliminating the employer health-care contribution for members of Congress and White House officials.
Later Tuesday, House Republicans regrouped around the new version of their bill, which dropped the medical device tax provision, and officials said they would bring it the House floor tonight, but later changed their minds. The new proposal was also unlikely to win bipartisan support, in part because it would fund federal agencies only through Dec. 15, creating the threat of another government shutdown just before Christmas.
The House’s efforts have attacted derision from Democrats, who were holding firm in their opposition to what they characterized as GOP efforts to extract concessions in exchange for ensuring the nation’s fiscal health.
“It’s nothing more than a blatant attack on bipartisanship,” Senate Majority Leader Reid (D-Nev.) said of the first House proposal. Democrats, he added, “felt blindsided” by the House plan saying that it could sabotage the Senate talks.
If the renewed standoff is not resolved, it could threaten the Treasury Department’s ability to balance the nation’s financial books as early as Thursday, according to government officials and independent analysts. By then, the government would essentially be running on fumes, unable to borrow money from various sources.
Sometime next week, the Treasury would likely run short of cash, potentially imperiling some Social Security and other major payments, officials and analysts said. The nation’s first default on its debt could follow on Oct. 31, when the government could miss $6 billion in interest payments.
Despite the Obama administration’s warnings that breaching the debt ceiling Thursday could trigger a default and cause drastic economic consequences, a new Pew Research Center poll shows that a majority of Republicans and many independents don’t feel the same urgency. The poll shows 52 percent of Republicans, 38 percent of independents and 36 percent of Americans overall say the country can break the deadline without major economic problems.
Some congressional Republicans also have said the government can still pay interest on its loans even if the debt ceiling isn’t raised. White House Press Secretary Jay Carney on Tuesday labeled these Republicans “default deniers.”
The new House Republican proposal would raise the debt limit through Feb. 7, as Senate negotiators had planned. But in addition to denying employer subsidies to lawmakers and members of the executive branch, conservatives insisted on denying those subsidies to their own congressional staffs as well.
That could be another obstacle if Republicans manage to pass the measure and send it to the Democratic-controlled Senate, because Reid has voiced strong objections to ending employer health subsidies for congressional staff.
Republicans also adjusted another proposal to make clear that the Treasury Department would be only temporarily barred from using extraordinary measures to juggle the nation’s books if the Feb. 7 deadline were breached. But Democrats are insisting that the Treasury Department maintain flexibility to manage the next debt-limit deadline.
The reaction to the first House plan — the one that contained the new-dropped medical device tax repeal — illustrated Boehner’s difficulties in coralling support from his restive members.
Senior leadership aides and some lawmakers said a meeting to discuss that plan did not go well, with one Republican saying the “response was tepid” when Boehner laid out the proposal. “It’s going to be a hell of a time” to get to 217, this lawmaker said. “It’s going to be dicey.”
Boehner said late Tuesday morning that he was talking to lawmakers from both parties to find “a way forward” and was keenly aware that the nation was very close to reaching the limits of its borrowing authority. “I have made clear for months and months that the idea of default is wrong and we shouldn’t get anywhere close to it,” Boehner said.
The potentially stark consequences of failure did not seem to be moving negotiations along Tuesday, and the path forward was unclear.
White House spokesman Jay Carney said the president remains “encouraged by the progress that we’ve seen in the Senate, but we’re far from a deal at this point. And so we hope that — we hope that progress continues.’’
The White House said Obama would meet with House Democratic leaders on Tuesday afternoon.
If Democratic lawmakers refuse to support either House Republican proposal, the bill would need votes from all but 15 of the 232 Republican lawmakers.
Rep. Walter Jones (R-N.C.) said many lawmakers from his party have “sincere, deep concerns” with the earlier House plan. For example, he noted that while he is willing to vote to reopen the federal government, which has been closed since Oct. 1, he said he has not voted to raise the debt ceiling since 1997 and has vowed never to do so again.
Others wanted the bill to include spending cuts or entitlement reforms. Rep. John Fleming (R-La.) said some members were seeking to add the “conscience clause” to the proposal–removing a provision under the federal health care law that requires insurance plans to cover contraception.
And other members objected to accepting the key Jan. 15 and Feb. 7 dates envisioned in Senate negotiations. “There was a lot of discussion of dates. A lot,” said Rep. Phil Roe (R-Tenn.).
Reid said he thought Boehner was trying to put forward the House proposal as way to pacify conservatives in his party whose support he needs in order to remain speaker. “I’m very disappointed with John Boehner, who would once again try to preserve his role at the expense of the country,” Reid said.
House Minority Leader Nancy Pelosi (D-Calif.) accused Republicans of “sabotaging a good-faith bipartisan effort coming out of the Senate.”
Rep. Xavier Becerra (D-Calif.) said Republicans were on the verge of “shutting down the economy” as well as the government “simply because there’s a family feud” going on within their ranks.
Under the Senate proposal, once the government is reopened, policymakers would launch a new round of talks over broader budget issues in hopes of developing a plan to replace deep automatic spending cuts known as the sequester before Jan. 15. That is when the next round of sequester cuts is scheduled to slice an additional $20 billion out of agency budgets, primarily from the Pentagon.
The Senate framework includes only minor changes to the health-care law, falling well short of defunding it or delaying major provisions, as conservative Republicans are seeking. Instead, Republicans would get new safeguards to ensure that people who receive federal subsidies to purchase health insurance under the law are eligible to receive them. The House bill would also require income verification for individuals and families receiving subsidies for health insurance.
Democrats involved in the Senate negotiations were considering dropping their demand to delay the law’s “belly button tax,” a levy on existing policies that is set to add $63 per covered person — including spouses and dependents — to the cost of health insurance next year, aides in both parties said Tuesday. Republicans had derided the proposal as a special favor to organized labor.
As word of the competing House proposal spread through the Capitol Tuesday morning, Senate Republicans postponed an 11 a.m. meeting of their caucus. The mood was considerably different than it had been on Monday night, when Reid and Minority Leader McConnell (R-Ky.) expressed confidence that they had developed a framework that could win the approval of Congress and spare the country from defaulting on the national debt for the first time in U.S. history.