July 19, 2011, 8:40 p.m. EDT
By rschroeder[at]marketwatch[dot]com (Robert Schroeder), MarketWatch
WASHINGTON (MarketWatch) — Ignoring a veto threat from President Barack Obama, House lawmakers on Tuesday approved a Republican bill that would raise the U.S. debt limit on condition that both chambers of Congress pass a balanced budget amendment and make deep spending cuts next year.
The House bill, which would raise the debt limit by $2.4 trillion, is dubbed “Cut, Cap and Balance.” It is expected to fail in the Senate and has been ridiculed by the White House as “duck, dodge and dismantle.”
The House’s vote came on the same day that Obama cited progress in negotiations to raise the debt ceiling and lauded a newly released Senate “Gang of Six” plan that would cut $3.7 trillion from deficits over 10 years.
The House bill was approved on a vote of 234-190.
Republicans say that they offered the plan to avoid a default by the U.S. government and that cutting and capping spending will ensure that Washington lives within its means.
“Today, the House will vote on the Cut, Cap and Balance Act; our balanced plan to meet the president’s request for a debt-limit increase while achieving serious spending cuts, binding budget reforms, and putting in place a balanced-budget amendment to ensure we don’t continue to kick the can down the road,” said a statement from House Majority Leader Eric Cantor’s office before the vote on Tuesday.
The White House said the bill sets up an “unacceptable choice” between lifting the debt ceiling or passing a balanced budget amendment that would cut Medicare and Social Security too deeply.
The Obama administration has repeatedly urged Congress to raise the $14.3 trillion debt ceiling by Aug. 2 or else the government will face default on its obligations.
The plan from the Senate group known as the “Gang of Six” aims to immediately cut $500 billion in deficits; make Social Security solvent over 75 years; and reduce marginal income tax rates, among other things.
Obama said Tuesday that he’ll urge congressional leaders to get down to business on Wednesday and craft a plan that can pass both chambers of Congress in time for the Aug. 2 deadline for raising the debt limit.
With “Cut, Cap and Balance” expected to fail in the Senate and never reach Obama’s desk, Senate lawmakers are also working on a backup plan to raise the debt ceiling in addition to the newly released plan from the “Gang of Six” senators.
The backup plan, which Senate Republican Leader Mitch McConnell and Senate Democratic Leader Harry Reid have been crafting, would allow the debt ceiling to rise in exchange for $1.5 trillion in spending cuts over a decade.
The bill passed in the House Tuesday would raise the debt limit by $2.4 trillion but would be accompanied by mandatory spending cuts of $380 billion in fiscal year 2012 in addition to a balanced-budget amendment. Read a summary of the Republican bill.
Treasury Secretary Timothy Geithner has warned that the government won’t be able to pay interest or principal on U.S. debt, and will be unable to make Social Security or Medicare payments, if the debt limit isn’t raised.
While paying close attention, the bond market has been largely unaffected by the debt-ceiling drama in Washington. On Tuesday, yields on benchmark 10-year notes /quotes/zigman/4868283 10_YEAR +0.49% remained below 3%. Read Bond Report.
Wall Street continues to have faith that the default is out of the question.
“Nobody can believe it is going to happen – that is why markets are reacting this way,” said Tim Ryan, CEO of the Securities Industry and Financial Markets Association, in a telephone conference with reporters on Tuesday.
“Our hope and expectation is that the government will come to a resolution of the overall debt burden and overall deficit of the country so it is crystal clear the US will maintain the highest credit rating quality, which is a triple AAA rating,” said Randy Snook, the executive vice president of SIFMA.