The House of Representatives voted overwhelmingly Wednesday to suspend the nation’s debt limit until May, allowing the federal government to continue to pay its bills and removing an immediate threat to the economy as it struggles to gain strength.
The move, expected to be ratified by the Senate and signed by President Barack Obama, signaled that the government will not repeat the 2011 debt limit battle this month, a skirmish that frightened Wall Street and led to a downgrading of the nation’s credit rating and could have done so again.
Several economists said Wednesday’s short-term extension will help the U.S. economy, by removing the immediate threat of default and setting the stage for a calmer debate over two other clashes over federal spending – a looming automatic cut in spending called a sequester and the expiration of a continuing resolution that’s financing many government operations.
“It helps because it eliminates the risk that we’d hit the debt ceiling soon,” said Nigel Gault, chief U.S. economist for forecaster IHS Global Insight. “It means we can consider in a less frantic atmosphere the sequester and the CR (continuing resolution).”
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But economists stressed that a short-term debt limit extension is only a bandage covering a festering long-term fiscal problem that Congress and the White House need to get a handle on to better instill confidence in the U.S economy.
Congress still faces deadlines on the automatic spending cuts scheduled to take effect March 1 and must deal with the expiration of the continuing resolution appropriations measure to keep the government operating in March.
The extension prolongs the uncertainty over Washington’s eventual decision on fiscal matters, said Steven Ricchiuto, chief economist for Mizuho Securities USA in New York. “There is going to be no certainty until somebody blinks here on spending and taxes,” he said.
Ricchiuto added: “It’s almost as if the Republicans are taking control of the debate, but now they have to do a better PR job. What they’re saying is, ‘We’re being reasonable, now it’s time for you to be reasonable.’”
With the passage of the so-called “No Budget, No Pay Act” by a 285-144 vote, House Republicans hoped to temporarily sidestep a potentially politically damaging fight with the White House over government default.
They also hoped to pressure Senate Democrats to pass a budget, something that the upper chamber hasn’t done in four years. Senate Budget Committee Chairwoman Patty Murray, D-Wash., announced Wednesday that her committee will draft a budget blueprint this year.
“It’s interesting to note with . . . almost four years having passed with an economy that’s been struggling, the Senate never acted,” said House Majority Leader Eric Cantor, R-Va. “It took one week in which their paychecks were on the line that now the Senate’s going to step up and do the right thing.”
Though House Democratic leaders derided the bill as a possibly unconstitutional gimmick, 86 Democrats joined 199 Republicans in voting for the measure. Only 33 Republicans crossed party lines to join 111 Democrats who voted no. Three Democrats didn’t vote.
About an hour before the vote, the Democratic-controlled Senate announced that it would take up the House measure and vote on it as early as next week.
“This bill surrenders the hostage Republicans have taken in the past by decoupling the full faith and credit of the United States from cuts to Social Security and Medicare, or anything else,” Senate Majority Leader Harry Reid, D-Nev., said of the House vote. “In substance, this is a clean debt limit increase that will set the precedent for future debt ceiling extensions.”
Under the House bill, lawmakers agree to suspend the debt limit until mid-May without dollar-for-dollar spending cuts, something that tea party groups, some conservatives and other fiscal hawks were demanding.
The concession by Republicans had a price: In return for the suspension, the House and Senate must pass a budget by April 15, or members will have their pay withheld in an escrow account.
“The principle, I think, is pretty simple – no budget, no pay,” House Speaker John Boehner, R-Ohio, said after the vote. “American families have to do a budget. They understand you can’t continue to spend money that they don’t have.”
Some lawmakers wondered whether the provision would actually have an impact on House and Senate members. Most members of Congress earn $174,000 a year. The average wealth of a senator was $13.9 million in 2011 and the average wealth of a House member was $6.5 million in the same year, according to an analysis by the Center for Responsive Politics.
“We’re going to get paid. It will be delayed, but we’re going to get paid,” Rep. Robert Brady, D-Pa., said during debate on the bill. “No Budget, No Pay has no teeth.”
But Rep. Jim Cooper, a Tennessee Democrat who voted for the bill and once authored a more stringent measure, thinks otherwise.
“The folks who have money love money more than anyone else and will want to be paid,” Cooper said.