By JANET HOOK, COREY BOLES and PATRICK O’CONNOR, WSJ
The House defused one potential debt crisis Wednesday, while a top Republican set the stage for a far broader debate over whether it is possible to actually balance the U.S. budget in coming years.
The House resolved Washington’s most immediate fiscal problem by passing a short-term extension of federal borrowing authority. The Senate is expected to follow suit in coming days, which would set aside for now the potentially explosive question of whether the U.S. government might be unable to borrow money to pay its bills.
But House Budget Committee Chairman Paul Ryan (R., Wis.), at a breakfast hosted by The Wall Street Journal just hours before the debt vote, promised he would in coming weeks submit a budget plan that would erase the annual federal deficit within a decade by cutting government spending—and without raising tax revenue. That commitment helped House GOP leaders to persuade reluctant conservatives to defer the fight over the debt ceiling.
“The president got his revenues,” said Mr. Ryan, his party’s vice presidential nominee, referring to the $600 billion tax increase approved by Congress early this month. “My vision is, in the intervening days and months, that we will have this debate about how to fix this problem, and hopefully, people can come together to agree on getting a down payment on the debt crisis, getting a down payment on spending cuts.”Click on Video to Watch House Budget Committee Chairman Paul Ryan (R., Wis.) talks at an inaugural WSJ breakfast about extending the debt ceiling and his vision for solving the problem of the debt crisis in the future. (Photo: Getty Images)
Mr. Ryan’s 10-year timetable sets a tough goal compared with the 2011 House GOP budget that would have taken nearly 30 years to eliminate deficits. His refusal to allow tax increases also contrasts with President Barack Obama’s demand that deficit-reduction efforts include both spending cuts and more revenue.
House Budget Committee Chairman Paul Ryan (R., Wis.) talks at an inaugural WSJ breakfast about extending the debt ceiling and his vision for solving the problem of the debt crisis in the future. (Photo: Getty Images)
The extension of the debt ceiling through May 18 passed the House Wednesday by a vote of 285-144 with strong GOP support, even though it marked a retreat from the party’s previously held tenet that no increase be allowed without comparable spending cuts. Democrats viewed the vote as a major concession.
“Republicans are joining Democrats to say we will not hold the full faith and credit of the United States hostage, and we will pay our bills,” said Senate Majority Leader Harry Reid (D., Nev.). The Senate is expected to clear the bill and White House press secretary Jay Carney said the president would accept it.
Supporting the House bill were 199 Republicans and 86 Democrats; 33 Republicans and 111 Democrats voted against it, including Democratic Leader Nancy Pelosi of California. Many Democrats objected to the bill’s provision to withhold congressional pay if the House or Senate failed to pass a budget by April 15.
The timing of the extension means the debt limit will be revisited after two other fiscal deadlines. Many members of both parties have said they want to revise or replace across-the-board spending cuts set for March 1, and they will need to renew funding by March 27 if they want to prevent a partial government shutdown. They are far apart on how to achieve both goals.
The GOP included the link to congressional pay to pressure senators to pass a formal budget resolution for the first time since 2009. Senate Budget Committee Chairman Patty Murray (D., Wash.) said the Senate would do so, eliminating any question about whether Democrats would object to that provision.
The government neared the $16.394 trillion debt ceiling on Dec. 31, but the Treasury has juggled assets so it can continue borrowing money. Treasury officials have said this ability will run out as soon as mid-February.
The House bill would “suspend” the debt ceiling into the middle of May. The borrowing limit would then retroactively be increased to account for whatever debt the Treasury issued in the interim period. The Bipartisan Policy Center, a nonprofit research group, estimated the bill effectively amounts to a $450 billion increase in the debt limit.
Even after May 18, the Treasury could use emergency steps to continue making payments for several additional weeks.
Moody’s Investors Service’s lead analyst on the U.S., Steven Hess, said in an interview that the House vote had no impact on the firm’s rating on the government’s debt, which is triple-A with a negative outlook. The top factor for Moody’s rating is whether the budget deals that emerge from negotiations curb the U.S. debt burden over the medium term.
“This does nothing on that front other than to apparently force the Senate and the House of Representatives to come up with budgets. But what’s in those budgets is the important factor for us,” Mr. Hess said. “We have never thought that the debt limit itself was a fundamental factor in our rating.”
Democrats argue that it is near impossible to erase deficits that exceed $1 trillion a year without raising taxes—or else imposing crippling cuts in domestic programs.
Mr. Ryan provided few details about what programs his budget would trim. He said Republicans had no plans to make major changes to Medicare and Social Security for current beneficiaries, but wouldn’t rule out changes for Americans who are nearing retirement.
Even with its longer time frame for eliminating the deficit, the budget approved by the House in 2011 included deep reductions to spending and entitlement programs that were widely criticized by Democrats, including a structural change to Medicare that would transform the open-ended benefit for seniors and the disabled to a program more akin to subsidized private insurance.
He said he and Ways & Means Chairman Dave Camp (R., Mich.) aim to pass a broad overhaul of the tax code this year to lower rates for individuals and businesses while limiting deductions in a way that results in no increase to the deficit. In one concession, Mr. Ryan said he wouldn’t insist on maintaining the differential between the tax rate for wages and investment income, including dividends and capital gains. Americans at the top tax bracket pay a 20% tax on dividends and capital gains and 39.6% on their wages.
The Wisconsin lawmaker, who has kept a low profile since his unsuccessful run as Mitt Romney’s running mate, said Wednesday at the breakfast he was never despondent over the election’s outcome.
“I don’t despair,” he said. “I think despair is wrong. I gave up despair for Lent last time.”
But he did acknowledge that, sitting at Mr. Obama’s inauguration this week—”about eight rows behind” where he hoped to be on the inaugural stand—he did ponder the “woulda, coulda, shoulda” of a campaign that he insisted he and Mr. Romney came closer to winning than is commonly realized.
Republican vote-counters, Mr. Ryan said, have told him that 400,000 to 500,000 votes in New Hampshire, Virginia, Ohio and Florida—out of more than 120 million cast—”made the difference” in the outcome. But he said he moved beyond the second-guessing over the holiday season.