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Washington reaches debt deal at last

President Barack Obama and congressional leaders of both parties reached a debt ceiling deal Sunday night hours before jittery markets were set to open with the nation on the brink of default.

The deal which would raise the debt limit by at least $2.2 trillion in two stages — still has to be brought before the Republican-controlled House and the Democratic-led Senate for votes, but Obama, in a statement Sunday night, said it is a deal he can accept.

House Speaker John Boehner of Ohio was taking it before his Republican caucus, while Senate Majority Leader Harry Reid of Nevada planned to take it before his Democratic colleagues this morning.

“There is nothing in this framework that violates our principles,” Boehner told his Republican colleagues. “It’ all spending cuts. The White House bid to raise taxes has been shut down. And as I vowed back in May … every dollar of debt-limit increase will be matched by more than a dollar of spending cuts.”

Obama called the deal “a serious down payment on the deficit reduction we need” but said he would have rather worked toward a plan to reform taxes and spending over the long term.

According to Boehner’ office, in the first stage, the deal adds $900 billion to the current debt ceiling — enough to pay the nation’ obligations through February — while cutting about $1 trillion in spending.

“My message to the world tonight is that this nation and the Congress … are moving forward together,” Reid said.

A debt deal at last

Racing the clock to avoid a government default, President Barack Obama and Republican congressional leaders reached historic agreement Sunday night on a compromise to permit vital U.S. borrowing by the Treasury in exchange for more than $2 trillion in long-term spending cuts.

Officials said Speaker John Boehner telephoned Obama at midevening to say the agreement had been struck.

No votes were expected in either house of Congress until today at the earliest, to give rank-and-file lawmakers time to review the package.

“The leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default,” Obama said Sunday in remarks at the White House.

Senate Majority Leader Harry Reid, D-Nev., told the U.S. Senate on Sunday night that “reasonable people” were able to agree on a tentative framework for raising the nation’ debt limit and cutting the federal deficit.

Said Senate Minority Leader Mitch McConnell, R-Ky.: “I can say with a high degree of confidence that there is now a framework to review that will ensure significant cuts in Washington spending, and we can assure the American people tonight that the United States will not for the first time in our history default on our obligations.”

As contemplated in earlier talks between McConnell and Vice President Joe Biden, the federal debt limit would rise in two stages by at least $2.2 trillion, enough to tide the Treasury over until after the 2012 elections.

Big cuts in government spending would be phased in over a decade. Thousands of programs — the National Park Service, Internal Revenue Service and Labor Department accounts among them — could be trimmed to levels last seen years ago.

No Social Security or Medicare benefits would be cut, but the programs could be scoured for other savings. Taxes would be unlikely to rise.

Any agreement would have to be passed by the Democratic-controlled Senate and Republican-controlled House before going to the White House for Obama’ signature. Both houses were on standby all day, and Boehner, R-Ohio, was in his office.

Without legislation in place by Tuesday, the Treasury will not be able to pay all of its bills, raising the threat of a default that administration officials say could inflict catastrophic damage on the economy.

If approved, though, a compromise would presumably preserve America’ sterling credit rating, reassure investors in financial markets across the globe and possibly reverse the losses that spread across Wall Street in recent days as the threat of a default grew.

Reid, D-Nev., said he was “hopeful and confident” a deal would come together. But in a possible hint of dissatisfaction, he pointedly made no mention of congressional Democrats when he said negotiations were between McConnell and the White House and unnamed others.

The emerging deal could mark a classic compromise, a triumph of divided government that would let both Obama and Republicans claim they had achieved their objectives.

As the president demanded, the deal would allow the debt limit to rise by enough to tide the Treasury over until after the 2012 elections.

But barring a change, it appeared Obama’ proposal to extend the current payroll tax holiday beyond the end of 2011 would not be included, nor his call for extended unemployment benefits for victims of the recession.

Republicans would win spending cuts of slightly more than the increase in the debt limit, as they have demanded. Additionally, tax increases would be off-limits unless recommended by the bipartisan committee that is expected to include six Republicans and six Democrats. The conservative campaign to force Congress to approve a balanced-budget amendment to the Constitution would be jettisoned. But a vote could happen if a bipartisan committee fails to identify more cuts later.

Congressional Democrats long have insisted that Medicare and Social Security benefits not be cut, a victory for them in the proposal under discussion. Yet they would have to absorb even deeper cuts in hundreds of federal programs than were included in Reid’ bill, which many Democrats supported in a symbolic vote on the House floor on Saturday.

As details began to emerge, one liberal organization, Progressive Change Campaign Committee, issued a statement that was harshly critical.

“Seeing a Democratic president take taxing the rich off the table and instead push a deal that will lead to Social Security, Medicare and Medicaid benefit cuts is like entering a bizarre parallel universe — one with horrific consequences for middle-class families,” it said.

Although politically powerful business groups like the Chamber of Commerce are expected to support the deal, tea party organizations and others have looked disapprovingly on legislation that doesn’t require approval of a balanced-budget amendment.

If they keep to that position, it could present Boehner a challenge in getting the votes for a compromise, just as Obama may have to stand down rebels.

Soon after the Senate convened Sunday, Republicans blocked legislation Reid had advanced several days ago as part of an outbreak of brinkmanship with Boehner and the Republicans. The vote was 50-49, or 10 short of the 60 votes needed to advance the bill.

Source: Bloomberg