With barely a day to act, United States Congress leaders raced yesterday to try to gather enough votes to pass a massive austerity plan that would avert a disastrous, first-ever debt default with ruinous global consequences.
The Republican-led US House of Representatives seemed on track for an evening vote, followed by the Democratic-held Senate, with the fate of the legislation still in doubt just after midday despite upbeat predictions from supporters.
Democratic Senate Majority Leader Harry Reid told reporters, “We have to get this thing passed”.
The measure, needed to ensure the world’s richest economy can pay its bills past a midnight (0400 GMT tomorrow) deadline, raises the $14.3 trillion US debt ceiling and calls for $2.1 trillion in spending cuts over 10 years.
Early optimism on global markets had evaporated by midday on worries the deal could fall short of clearing the polarised US Congress or fail to prevent a painful downgrade of Washington’s sterling Triple-A debt rating.
“It is certainly not a game-changing breakthrough, and will keep the possibility of a near-term rating downgrade alive,” wrote Barclays Capital analysts, who called the accord “just a band-aid approach.”
A downgrade could push up US interest rates, making debt payments more expensive and affecting any flexible-rate loan in the sputtering US economy, still grappling with historically high unemployment of 9.2 per cent.
Vice President Joe Biden, a 36-year veteran of the Senate, held talks on Capitol Hill to press fellow Democrats to back the deal, fruit of six months of fitful talks between President Barack Obama and his Republican foes. Emerging from closed-door talks with House Democrats, Mr Biden said he had gotten an earful of their “frustration”.
All eyes were on the polarised House of Representatives, where liberal Democrats worried about the social safety net and archconservative “Tea Party”-allied Republicans demanded far more draconian government spending cuts.
“This deal is a sugar-coated Satan sandwich. If you lift the bun, you will not like what you see,” Democratic Representative Emanuel Cleaver, who heads the Congressional Black Caucus, said on his Twitter feed.
Liberals were aghast that the plan relied on spending cuts and did not include increases in tax revenues from the rich and wealthy corporations, though Mr Obama has called for letting tax cuts for the top brackets expire in January 2013.
Republican House Speaker John Boehner faced a critical test of his ability to rally his restive caucus, even as some Tea-Party-aligned lawmakers flatly rejected the deal.
Representative Michele Bachmann, a Tea Party favourite who is seeking the Republican presidential nomination, opposed the package saying it “spends too much and doesn’t cut enough.”
Piling pressure on Boehner, Democratic House Minority Leader Nancy Pelosi has stayed largely neutral about the legislation.
The blueprint negotiated between Mr Obama and congressional leaders would include more than $900 billion in cuts over the next 10 years – $350 billion of it in defence. A special congressional committee would then be tasked with coming up with another $1.5 trillion in cuts to report by November 23.
A failure by the committee would trigger automatic cuts – half in defence spending, a priority for many Republicans. Automatic cuts would not touch Democratic-backed Social Security and Medicare payments for the elderly, although they would still affect providers of the health care programme. White House spokesman Jay Carney rejected Democratic criticism that the package does not raise revenue, saying that the special committee could recommend measures such as cuts in oil and gas subsidies.
In a key point for Mr Obama, the package will raise the debt ceiling into 2013 – meaning he will not be forced into a similar showdown with Congress on spending in the midst of his re-election campaign next year.
The debt ceiling would rise by about $2.4 trillion in two steps. The US government hit its current debt limit of $14.3 trillion on May 16 and has since been operating through spending and accounting adjustments, as well as higher than expected tax revenue.
Japan, the second-largest foreign holder of US debt after China, hailed the deal. Beijing made no official comment, but its state-controlled television called the package “more pomp and ceremony than substance.”