US avoids debt default as Congress passes two-year fiscal plan

WASHINGTON – Congress passed a two-year bipartisan budget plan that avoids a catastrophic default on U.S. debt, increases spending on domestic and defense programs and ends months of turmoil among House Republicans.

The 64-35 Senate vote early Friday, following House passage two days earlier, sends President Barack Obama a bill that will extend U.S. borrowing authority until March 2017, after he leaves office. The agreement likely frees Obama of protracted fiscal battles with congressional Republicans for the rest of his term. It also means House Speaker Paul Ryan, a Wisconsin Republican, won’t have to deal with a fight that helped drive his predecessor from office.

“This agreement isn’t perfect,” Senate Majority Leader Mitch McConnell, a Kentucky Republican, said Thursday on the Senate floor. “But here’s the bottom line: This is a fully offset agreement that rejects tax hikes, secures long-term savings through entitlement reforms, and provides increased support for our military.”

The measure includes a two-year deal to increase defense and non-defense spending levels by $80 billion in 2016 and 2017, paid for with future savings and revenue. The agreement diminishes, but doesn’t eliminate, the odds of a government shutdown because lawmakers still must work out details before current funds expire Dec. 11.

Lawmakers were racing against a Nov. 3 deadline to avoid a debt default. The plan faced opposition from some Senate Republicans, including three 2016 presidential hopefuls who denounced the deal although their own party leaders crafted it.

Congress has struggled to raise the debt limit and fund the government since 2011, when Republicans took House control and John Boehner of Ohio became speaker. Conservatives seeking policy changes such as defunding Obamacare caused a 16-day partial government shutdown in October 2013 and took the government to the brink of potential default in 2011 and 2013. Standard & Poor’s downgraded U.S. debt for the first time in 2011.

Boehner shocked his colleagues on Sept. 25, saying he would resign rather than fight an effort by rebellious conservatives to remove him amid another threat to close the government. After Majority Leader Kevin McCarthy of California dropped out of the race to succeed Boehner, party leaders persuaded 2012 Republican vice presidential nominee Ryan, 45, to take the speaker’s job. He was elected to the post by the full House on Thursday.

Boehner’s decision to resign freed him to negotiate the budget agreement with McConnell, Obama and Democratic leaders, and to rely on mostly Democratic votes to gain House approval as one of his final acts in Congress.

While McConnell and Sen. Harry Reid of Nevada, the chamber’s top Democrat, described the budget deal as imperfect, each touted specific elements sought by his party. McConnell said it would enact “the most significant reform to Social Security since 1983,” while Reid said it protects Social Security disability benefits from “deep cuts.”

“The budget agreement is good for the middle class, good for the economy and good for the country,” Reid said.

The measure gives Obama almost 90 percent of the additional money for domestic programs he asked for in February and lifts spending limits that the administration contended were hindering the economy.

Negotiators dealt with a pending shortfall in the Social Security Disability Insurance program before it began to run out of money, which the agency’s trustees said would happen weeks before the November 2016 presidential election.

Democrats had sought a simple transfer of payroll tax revenue from the Social Security retirement fund to the disability account. Republicans got changes to the program but agreed to allow the adjustment, temporarily increasing the contribution from 1.8 percent to 2.37 percent of wages.

The budget deal is paid for, in part, by the U.S. selling 58 million barrels from the Strategic Petroleum Reserve. It also changes the way partnerships such as hedge funds and private equity firms are audited to increase tax compliance, raising $11 billion, according to the Congressional Budget Office.

The proposal uses war funds, which aren’t subject to budget caps, to increase defense spending, something Obama has previously opposed. It would raise the Defense Department’s overseas contingency operations and the State Department’s war funds by more than $7 billion apiece each year over the Obama budget request. The White House had projected a larger decrease in war funds due to the ending of the conflict in Afghanistan in 2017 but the budget deal maintains spending higher levels through that year.

The deal would prevent a major increase in Medicare premiums next year for some recipients by applying a surcharge in later years. It would also increase rebates paid by drug manufacturers to federal and state governments to cover the cost of Medicaid and change the way Medicare pays for services at hospital-owned doctors’ offices.

While Democrats supported the agreement, Republicans had to contend with challenges from a number of members who opposed it, including three 2016 presidential contenders: Marco Rubio of Florida, Ted Cruz of Texas and Rand Paul of Kentucky.

“This is a bipartisan busting of the budget caps that will further indenture our next generation,” Paul said early Friday on the Senate floor.

Rubio said in a statement the agreement delays “tough decisions until after the next election.” Cruz said Thursday night on the Senate floor that the Republican majority was handing Obama a “diamond-encrusted, glow-in-the-dark American Express card.”

The House passed the agreement in a 266-167 vote Wednesday with only 79 Republicans voting in favor. Reid said afterward, “The vast majority of Republicans serving in the House wanted to default on the debt, which would be catastrophic.”