POLITICIANS in Washington DC appeared to be edging closer to a resolution on raising the US debt ceiling yesterday, after President Barack Obama described a bipartisan proposal by six senators as “broadly consistent” with his own approach.
The “Gang of Six” senators tabled a plan to cut $3.7 trillion (£2.3 trillion) from the US governments deficits over 10 years, including an immediate $500bn deficit reduction.
The resolution would involve both tax hikes and spending cuts – closing tax breaks but also aiming to reduce expenditure on Medicare and Medicaid.
Obama praised the proposal as a “very significant step” in the crunch talks between Democrats and Republicans, yet both sides are also readying themselves for Republican Mitch McConnell’s so-called fallback plan.
McConnell’s plan would authorise the President to raise the debt limit in three increments, totalling $2.5 trillion -- without any mandatory spending cuts -- provided Obama’s fellow Democrats go along with it.
Credit rating agency Moody’s yesterday warned that while such an eventuality would avoid an immediate downgrade of America’s AAA rating, it could still lead to a downgrade of the country's ratings in the next year or so.
“The numbers that are being discussed in terms of any possible deficit reduction coming out of this plan don’t seem to be very large,” said Moody’s analyst Steven Hess. “Therefore, this plan might result in a negative outlook on the rating.”
Republicans yesterday pushed their “cut, cap and balance” proposal, which calls for immediate spending cuts and capping the level of federal spending at a per centage of the economy -- 18 per cent by 2021. Even if the House of Representatives passes though the plan, it has effectively no chance of being voted through the Senate.