Speaker reworks Bill on US debt

House Speaker John Boehner was rewriting his plan to cut federal spending and raise the debt ceiling yesterday, after the Congressional Budget Office revealed that his Bill would not cut as much spending as he had promised it would.

The non-partisan CBO determined that Mr Boehner's plan would cut spending by $US850 billion ($NZ970 billion) over the next decade, less than the $1.2 trillion promised in the Bill.

CBO's scoring came on the eve of a vote in the House of Representatives on Mr Boehner's plan, which was already struggling to gain enough votes among Republican members.

"CBO estimates that the legislation would reduce budget deficits by about $850 billion between 2012 and 2021 relative to CBO's March 2011 baseline," the CBO wrote in a letter to Mr Boehner yesterday.

Michael Steel, a Boehner spokesman, said the Speaker was reworking his plan. It was undetermined when a vote on the revamped plan will occur.

"We're here to change Washington. No more smoke and mirrors, no more `phantom cuts'," Mr Steel said. "We promised that we will cut spending more than we increase the debt limit - with no tax hikes - and we will keep that promise.

"As we speak, congressional staff are looking at options to rewrite the legislation to meet our pledge." Before Mr Boehner's setback, congressional Democrats and Republicans appear headed for a clashtomorrow over duelling plans to cut spending and raise the federal debt ceiling, while the head of the International Monetary Fund warned of dire consequences for the world economy if lawmakers fail to act by the August 2 default deadline.

Senate Majority Leader Harry Reid forged ahead with his own plan, which could come up for a vote as early as Friday.

"We're in a stalemate," White House press secretary Jay Carney said yesterday"The problem we have, is that we need Congress to produce something that is a compromise and that, therefore, can get support from Democrats and Republicans in both houses and reach the President's desk and meet the President's approval." The fate of both plans was uncertain.

In the House of Representatives, Jim Jordan, a Tea Party-backed Republican from Ohio, said there were not 218 Republican votes to pass Mr Boehner's two-step plan to cut federal spending by $1.2 trillion and extend the debt ceiling for about six months. Many conservatives think it would not cut spending enough.

House Democratic Whip Steny Hoyer of Maryland said Mr Boehner should not look to House Democrats to help him push his plan through.

Mr Hoyer predicted that "very few" Democrats would vote for it.

Mr Carney repeated President Barack Obama's threat to veto Mr Boehner's Bill should it make it through Congress, which he said was not going to happen because the Senate would never pass it.

The US Chamber of Commerce, on the other hand, backed the Boehner plan. In a letter to all House members, the chamber urged them to vote for the plan, saying that "this legislation is critical. Default on our debt obligations is not an acceptable option. The time for Congress to act is now".

On the Senate side of the Capitol, Mr Reid was having a hard time mustering enough Republican support to get the 60 votes he needs to pass his plan, which is similar to Mr Boehner's.

The major difference is that Mr Reid's plan would extend the federal Government's borrowing authority through 2012 - beyond the presidential and congressional elections - while Mr Boehner's would extend it for about six months, requiring another extension battle next winter, when electoral politics will be even more intense.

"After our meeting today ...we decided that members of our caucus would start reaching out to our Republican colleagues and encourage them to support our plan," Mr Reid told reporters.

"The Senate plan is a reasonable plan ... Speaker Boehner's plan is not a compromise. It's written for the Tea Party, not the American people."

Senate Minority Leader Mitch McConnell, (Republican, Kentucky) signalled that Mr Reid should expect little co-operation from Republicans.

"Stating the obvious, we believe the Reid proposal is not a serious effort to address deficit and debt and it should be defeated," Mr McConnell said. "And we need to re-engage with the President, the only person who can sign a Bill into law, and get a bipartisan solution that can pass the House, pass the Senate, and be signed by the President."

The bitter impasse over the debt ceiling and deficit plans is making international financial markets nervous, Christine Lagarde, managing director of the International Monetary Fund, said.

Speaking to the Council on Foreign Relations in New York, she said that "the clock is ticking, and clearly the issue needs to be resolved immediately" for the world's sake.

"Indeed, an adverse fiscal shock in the United States could have serious spillover for the rest of the world," Ms Lagarde said. Either a default or downgrading of US debt by ratings agencies "would be a very, very, very serious event, not just for the United States but for the global economy at large"