Hemmed in by the looming threat of a historic default, Congress and the White House on Tuesday gave final approval to a $2.4 trillion debt extension that keeps government borrowing and spending on track, and redefines the debt-increase debate forever.
President Obama and the bipartisan coalition that powered the legislation through Congress with amazing speed said they had staved off dire economic consequences, but Wall Street seemed unconvinced as the Dow Jones industrial average tumbled amid poor consumer spending news and top credit-rating agencies warned that the world’s largest economy needed to do more to restrain spending.
Moody’s Investors Service left its AAA U.S. credit rating unchanged but added a “negative” warning.
And even before Mr. Obama’s signature was attached to the debt increase, Republicans and Democrats were already fighting over the next step: how to constitute the 12-member super committee that will recommend $1.5 trillion in deeper savings by the end of this year.
Still, for Tuesday at least, both ends of Pennsylvania Avenue basked in the bipartisanship of the 74-26 vote in the Senate, which followed Monday’s 269-161 approval in the House.
The deal makes history by attaching for the first time spending cuts to a debt-limit increase — something Republicans said would constitute a new standard for future administrations.
“Never again will any president from either party be allowed to raise the debt ceiling without being held accountable for it by the American people,” said Senate Minority Leader Mitch McConnell, the Kentucky Republican whose last-minute negotiations with Vice President Joseph R. Biden produced the default-saving deal.
Democrats, meanwhile, took heart in playing defense: They said they kept the cuts lower than they otherwise would have been, and staggered them so the deeper bites come in the out years of this decade.
And Democrats, who control the White House and Senate, were already looking forward to the upcoming fight in the special deficit committee, insisting that tax increases will have to be a part of any deal that the panel produces.
“The only way we can arrive at a fair arrangement for the American people with this joint committee is to have equal sharing. It’s going to be painful,” said Senate Majority Leader Harry Reid, Nevada Democrat.
That committee must report back by Thanksgiving and Congress is required to vote by Christmas, setting up two new potential crisis deadlines similar to this week’s debt deadline.
Treasury officials had said the government would bump up against its $14.29 trillion borrowing limit some time Tuesday and, without an increase, would have had to suspend some payments. Among the options were halting Social Security or veterans’ benefit checks, stopping payment on government contracts or defaulting on interest payments.
Months of negotiations over a broader package broke down in recent weeks, and Tuesday’s new law turned out to be more of the least common denominator of what all sides could agree to.
In the White House Rose Garden shortly before he signed the bill into law, Mr. Obama said it was “just a first step” — but he also said that with the economy still sputtering after three years, Washington needs to take another look at what it can do to create jobs.
He proposed another round of infrastructure spending, and said he wants to extend unemployment benefits and the payroll-tax cut all parties agreed to in December.
“Growing the economy isn’t just about cutting spending; it’s not about rolling back regulations that protect our air and our water to keep our people safe,” he said. “That’s not how we’re going to get past this recession. We’re going to have to do more than that. Both parties share power in Washington. Both parties need to take responsibility for improving this economy.”
Though there have been contentious debt fights in the past, lawmakers said this time was markedly different, both in tone and in the danger that could have resulted if the government had actually defaulted.
And the outcome of this debate will be lasting — Mr. McConnell said every future debt increase likely will be accompanied by a debate over how best to reduce spending.
Six Democrats and one liberal independent voted no, saying the pain in the bill wasn’t worth it and fearing that the next fight — which will play out over the rest of this year — could threaten Social Security and Medicare.
Nineteen Republicans voted against the bill in the Senate, saying it was a missed opportunity.
“Talk is different than outcomes. What we need are outcomes. What we need is fundamental change to the way we spend money in Washington,” said Sen. Mike Lee, Utah Republican and one of a number of freshman Republicans who, energized by their recent election, led the fight against the measure.
Running 74 pages, the bill amounts to a $32.4 billion debt increase per page, for a total possible debt increase of $2.4 trillion.
On the cuts side, it instantly imposes discretionary spending limits for the next decade, for savings of $917 billion, and sets up a new congressional committee that would be charged with finding an additional $1.5 trillion in savings or new revenue.
If the committee fails to act, or Congress fails to pass their recommendations, new cuts would go into effect, split across defense and non-defense spending, totaling more than $1 trillion.
The committee will tackle the issues left unsolved by the last few months’ debate: whether to increase taxes, and how to rein in spending in social safety-net programs such as Social Security, Medicare and Medicaid, which are the major drivers of long-term debt.
Future debt increases would depend on either the committee acting or the automatic cuts going into effect.
Alternatively, the debt could be raised if Congress approves and sends to the states for ratification a balanced-budget amendment to the Constitution. The agreement requires both chambers of Congress to hold votes on such an amendment before the end of the year.
• Dave Boyer contributed to this report.
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