U.S. Senate close to deal on debt limit, reopening government: aide

The statue of Grief and History stands in front of the Capitol Dome in Washington October 15, 2013. REUTERS/Joshua Roberts


WASHINGTON |
Tue Oct 15, 2013 9:17pm EDT

(Reuters) – Democratic and Republican leaders in the U.S. Senate could announce a deal late on Tuesday to extend the government’s borrowing authority until February 7 and quickly re-open federal agencies that have been closed since October 1, a Senate aide said.

The development came after a chaotic day in which two House plans failed and Fitch Ratings warned it could cut the sovereign credit rating of the United States from AAA.

Fitch’s warning cited the political brinkmanship over raising the federal debt ceiling, and helped underscore how close to an economically damaging default Washington has come.

The aide said the latest Senate deal would also fund the government through January 15 as well as established a deficit reduction panel to deal with broader fiscal issues.

The aide said lawmakers in the Senate were discussing ways to speed up the process so that the Republican-controlled House could get an opportunity to act before a Thursday deadline when the Treasury Department says it will bump up against its borrowing limit, risking the nation’s ability to pay bills and creditors.

“They are still working on the details between Senators McConnell and Reid. We are making good progress,” said Senator Dick Durbin, the second-ranking Senate Democrat, referring to Senate Majority Leader Harry Reid and Republican Minority Leader Mitch McConnell.

House approval of any plan from the Senate remained uncertain however. Earlier in the day, Republicans in the House rejected a proposal with elements of the one being developed Reid and McConnell.

But the House was unable to come up with a plan of its own. In a span of a few hours, two plans floated by Republicans in the fractious House collapsed for a lack of support.

Both House plans failed to satisfy Obama, Senate Democrats or the small-government Tea Party wing of the Republicans, who are determined to win changes to the president’s signature healthcare law before they will agree to concessions on the budget.

The first House Republican attempt was shot down in a closed-door meeting that had begun with members singing the hymn “Amazing Grace.”

The second plan was scuttled hours before it was expected to hit the House floor for a vote after the influential Heritage Action for America, a conservative group, urged a “no” vote because it did not do enough to stop Obama’s healthcare law.

HOUSE PLANS SCUTTLED

Heritage said it would consider the plan a “key vote” in evaluating whether to back candidates in next year’s congressional elections. Shortly after that warning, a committee hearing scheduled to set rules for the debate was postponed and the plan put in limbo.

This second plan from House Republicans dropped a provision to delay a tax on medical devices that would be used to pay for Obama’s healthcare plan. Obama had objected to that proposal.

But the second plan, which would have extended the federal debt limit until February 7 like the Senate, would only provide government funding until December 15, drawing fire from the White House and Democrats for opening the door to another potential government shutdown just before Christmas.

If Congress fails to reach a deal by Thursday, checks would likely go out on time for a short while for everyone from bondholders to workers who are owed unemployment benefits. But analysts warn that a default on government obligations could quickly follow, potentially causing the U.S. financial sector to freeze up and threatening the global economy.

The U.S. Treasury Department seized on Fitch’s downgrade threat to press Congress. “The announcement reflects the urgency with which Congress should act to remove the threat of default hanging over the economy,” a Treasury spokesperson said.

After the Fitch announcement, S&P 500 futures fell 9.6 points while Dow Jones industrial average futures sank 60 points and Nasdaq 100 futures fell 7.5 points.

In the coming hours, much of the focus will be on Boehner and whether he agrees to the demands of the more conservative wing of his party for changes to Obama’s healthcare law as part of any budget deal.

Those demands sparked the partial government shutdown that began with the dawn of the new fiscal year on October 1, temporarily throwing hundreds of thousands of government employees out of work.

Obama said on Tuesday that Boehner “can’t control his caucus.”

“My expectation is that it does get solved, but we don’t have a lot of time,” Obama told WABC in New York.

Numerous polls show Republicans have taken a hit in opinion polls since the standoff began and the government shutdown. A Washington Post/ABC News poll released on Monday found that 74 percent of Americans disapprove of the way congressional Republicans have handled the standoff, compared with a 53 percent disapproval rating for Obama.

Another survey released by Gallup on Tuesday showed American confidence in the U.S. economy fell another five points last week as the government shutdown continued.

(Additional reporting by David Lawder, Mark Felsenthal, Steve Holland, Susan Heavey, Amanda Becker; Writing by John Whitesides; Editing by Karey Van Hall, Grant McCool and Tim Dobbyn)

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