House Passes Debt-Ceiling Deal, No One Happy

The House voted Monday evening to raise the debt ceiling, and the bill today moved through the Senate, allowing the president to sign it on the very day of the drop-dead deadline.

The House of Representatives voted 269-161 on Monday evening to raise the debt ceiling of the United States, with certain strings attached. Some 174 Republicans and 95 Democrats voted for the bill, while 66 Republicans and 95 Democrats voted against it. The legislation now moves to the less-excitable Senate, which is expected to pass the bill on Tuesday, allowing President Obama to sign it precisely on the day that Treasury Secretary Timothy Geithner said was the drop-dead deadline.

Raising the debt ceiling was formerly a routine bit of business always undertaken by the majority party in Congress, either Republican or Democrat. This time it became a battleground. The result was a compromise that almost no one seems to like, but at least it’s enough to carry the government past the 2012 elections, which had been a firm demand by the Democratic Senate and President Obama, who didn’t want the fight replayed again before the election.

“People on the right are upset,” says Senate Majority Leader Harry Reid, one of the main architects of the bill in its final form. “People on the left are upset. People in the middle are upset.” Still, he characterized the deal as a “remarkable agreement which will protect the long-term health of our economy.” Even as he said that, a fair number of members of Congress probably muttered, “We’ll see about that.”

Outline of the bill

The mechanics of the bill not only bounce the debt ceiling upward (in stages) by a total of about $2.4 trillion through 2013, but specify nearly $1 trillion in spending cuts to the non-defense discretionary budget over the next 10 years, mostly in the more distant, rather than the sooner, of those years. The bill also sets up a congressional committee–already being called the “Super Committee”–composed of an equal number of Republicans and Democrats.

The “Super Committee” will be tasked with recommending more cuts in federal spending, as much as $1.5 trillion by Thanksgiving. Presumably the committee will make recommendations for cuts in Social Security, Medicare and defense spending, which the first round of cuts doesn’t touch. If Congress ignores the recommendations, the “triggers” in the debt-ceiling bill will reduce spending again by about $1.5 trillion, half from defense, half from non-defense (except for entitlements).

The bill also sets the stage for the next round of policy fighting within Congress and elsewhere throughout the next election cycle. To put it simply (and yet there are certain factors that will complicate things), Republicans will push for more cuts to federal spending that mainly benefits the middle class and poor via changes to entitlements, while Democrats will push for higher taxes for the wealthy to mitigate any damage to entitlements. The fight will be long and bitter and probably not over even after the 2012 elections.

Reactions to the deal

From the safely of the sidelines on Monday morning, Mitt Romney, who has been occasionally derided for his silence on the debt-ceiling imbroglio, came out swinging Monday morning with a prepared statement deriding the deal. The candidate says the deal “opens the door to higher taxes and puts defense cuts on the table.” Other Republican candidates are also on record as against raising the debt ceiling. For his part, one-time candidate Donald Trump called the deal “a joke”–something like his candidacy, perhaps.

Business interests that have lately been pushing hard for the deal–or any deal, really–seemed relieved at the prospect of the 11th-hour agreement. Early on Monday, for example, the U.S. Chamber of Commerce released a statement by Thomas J. Donohue, its president and CEO, that sounded optimistic indeed: “This agreement would cut spending by more than the increase in the debt ceiling, provide a workable, enforceable mechanism to ensure that the cuts actually take place … and avoid a default by the U.S. government that would create enormous economic harm and destroy jobs.”

As yet, Standard & Poor’s and the other rating agencies are mum on the deal. But now that the debt-ceiling deal is all but done, everyone will be paying attention to what they might have to say. The prospect of an agency downgrade of U.S. debt is the next big thing to make an already nervous economy that much more worried.

Wall Street watched the drama in the House with considerable interest, dropping rapidly in the morning–though much of that could be attributed to a decline in U.S. manufacturing that was reported on Monday. Still, as reports filtered in that the bill would be passed after trading hours, the equities markets rose steadily. In the end, the Dow Jones Industrial Average lost only 10.75 points, or 0.09 percent, while the S&P 500 and the Nasdaq were down 0.41 percent and 0.43 percent, respectively.