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Debt Ceiling Bill Intensifies Budget Pressure on Congress – Money Morning

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The debt-ceiling showdown took center stage on Capitol Hill today (Wednesday) as a crucial vote on a Republican bill gave the Treasury the green light to borrow a fresh stash of cash until May 19.

The Republican-controlled House passed the bill by a 284-144 margin.

It now moves on to the Senate, where it is expected to pass quickly without any changes.

Senate Democrats are expected to back the plan even though they have been hesitant to support any short-term debt ceiling fix, maintaining it creates additional uncertainty for businesses and families.

“I’m very glad that (House Republicans) are going to send us a clean debt-ceiling bill,” said Senate Majority Leader Harry Reid, D-NV.

The measure would go from the Senate to U.S. President Barack Obama, who has repeatedly said he will not wrangle over the debt ceiling and will sign the bill when it reaches his desk.

Pleased with the results, the White House added a “but,” saying it would have liked a longer- term solution.

While the legislation looked extremely likely to make it to the Oval Office, there is still a chance it could get tangled up in Congress, given a controversial provision in the bill.

The legislation includes a divisive rider aimed at coercing Senate Democrats to ink a long-term budget deal. The “no budget- no pay” provision would withhold pay for members of Congress until a sustainable deal is agreed upon.

“It’s not a slam dunk. But the main thing is that the Republicans will cave on the debt ceiling. So we’re now just arguing over the details,” Greg Valliere, chief political strategist for Potomac Research Group, told CNN Money ahead of the voting.

What’s in the Debt Ceiling Bill

The bill essentially “kicks the can down the road,” but it is a path to a long-term deal. Here’s what it entails:

  • The proposed legislation would suspend the debt ceiling until May 19. This would allow the Treasury to continue to borrow funds restriction-free until then. The debt ceiling would then revert to its present level of $16.394 trillion. Whatever the Treasury borrowed during the deferral would be tacked on.
  • On May 19, the Treasury could again implement “extraordinary measures” to avert another default, buying two additional months. This would afford Congress more time to again raise the debt ceiling.
  • The bill also would pave the way for a longer-term increase, requiring Washington policymakers to agree to a budget resolution for fiscal 2014 by April 15. This is intended to set government spending and revenue levels for the next five to 10 years. It may also include debt-ceiling increase provisions.
  • If the House and Senate reach no agreement by the April 15 deadline, lawmakers’ pay would be held in escrow until a budget resolution is inked or until the current Congress’ term ends in January 2015.

What About a Long-Term Debt Ceiling Fix?

The bill is by no means a permanent solution for the debt ceiling. It’s little more than a Band-Aid right now. But it’s a temporary fix many are grateful for.

“It takes off the table the fight over the debt limit, which I thought would be very contentious,” Tom diGaloma, managing director at broker dealer Navigate Advisors LLC, told The Wall Street Journal.

“It avoids the immediate threat of default and recession,” said David Keeble, global head of interest rate strategy at Credit Agricole in New York.

House Republicans have been vying for steep spending cuts in exchange for raising the debt ceiling. During the fiscal cliff negotiations, the GOP wanted dollar-for-dollar spending cuts equivalent to any increase in the debt ceiling.

What the GOP wants now is a “big down payment on the debt crisis,” according to Budget Committee Chairman Rep. Paul Ryan, R-WI.

Ryan, the Republican vice-presidential nominee in 2012, said Wednesday at a breakfast in Washington that his party will demonstrate “realistic expectations while being reasonable.”

“We have to set our expectations accordingly” and “fight for those things” Republicans stand for “in a realistic way,” Ryan commented. “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.”

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