The Senate on Tuesday overwhelmingly approved a plan to raise the federal debt limit and cut government spending, ending a bitter partisan stalemate that had threatened to plunge the nation into default and destabilize the world economy.
One day after a climactic vote in the House, the Senate easily approved the measure, 74 to 26, with significant majorities of both parties supporting it. President Obama promptly signed the bill and submitted a formal request to Congress to lift the $14.3 trillion debt ceiling, instantly giving Treasury $400 billion in additional borrowing power.
By a 74-26 vote, the legislation to raise the federal debt limit and reduce government spending is approved and goes to the president to be signed into law.
The final measure sets in motion a plan to raise the debt ceiling in three steps. A look at what comes next.
Can a super-committee succeed?
With the immediate crisis averted, Obama and congressional leaders quickly turned their attention to the next front in the war over the federal budget: a new legislative committee that will have the job of developing a broader plan to control the government’s debt.
The bipartisan panel, to be named this month, is likely to confront the same ideological divide that caused an almost crippling impasse in the debt-limit debate. Republican leaders are warning that they will not include anyone on the panel who is willing to raise taxes, prompting Democrats to threaten a hard line against cuts to Social Security and Medicare benefits.
Foreign investors and economic analysts see further action as crucial to restoring the United States’ financial reputation. On Tuesday, critics in China and elsewhere warned that the initial debt-reduction package, which would cut about $1 trillion from agency budgets over the next decade, is too modest. And they complained that the last-minute agreement will not tackle the dangers that national health and retirement programs pose to the government’s long-term fiscal health.
Meanwhile, the package did not cheer the stock market, where the major indexes tumbled more than 2 percent on worries that the U.S. economic recovery is stalling and that the debt plan might even undermine it by weakening demand in the next year or two.
These fears — that the deal will neither energize the foundering economy nor require substantive changes to address long-term fiscal problems — have discouraged some investors, especially after political leaders in Washington raised expectations in recent weeks that they would reach consensus on putting the nation’s financial house in order.
This disappointment comes at a time when debt troubles are already roiling several European countries, where government leaders have also struggled to move political mountains without delivering the comprehensive reforms that economic analysts say are needed to head off a financial meltdown. Financial markets in Italy and Spain were buffeted Tuesday amid fears that a global economic slowdown would undercut their efforts to get their debts under control.
Speaking in the White House Rose Garden after the Senate vote, Obama called the initial round of spending cuts in the package “an important first step” in forcing the government to live within its means.
“This compromise requires that both parties work together on a larger plan to cut the deficit,” he added. “And since you can’t close the deficit with just spending cuts, we’ll need a balanced approach where everything is on the table.”