The compromise, if approved by the House and Senate, would cut about $2.4 trillion from federal spending over the next decade.
U.S. debt deal

By Lisa Mascaro and Kathleen Hennessey, Washington Bureau
August 1, 2011

Reporting from Washington— President Obama and congressional leaders announced a deal to resolve the months-long impasse over the federal debt ceiling, agreeing on a compromise that would aim to slice about $2.4 trillion from federal spending over the next 10 years.

The final agreement, announced late Sunday, came after Republicans dropped their insistence on raising the $14.3-trillion debt ceiling in two stages and holding another debate at the end of this year. Obama dropped his demand that a deficit-reduction deal include at least some revenue increases — in effect deferring decisions about taxes until after the 2012 election.

“There is nothing in this framework that violates our principles,” House Speaker John A. Boehner (R-Ohio) told his members in an evening conference call. “It’s all spending cuts.”

Senate Majority Leader Harry Reid (D-Nev.) announced the deal on the Senate floor, saying it was a historic compromise that will require bipartisan action. “There is no way either party — in either chamber — can do this alone,” Reid said.

“I know this agreement won’t make every Republican happy. It certainly won’t make every Democrat happy either,” he said. “But that is the essence of compromise.”

Sen. Mitch McConnell (R-Ky.), the Senate minority leader, followed Reid, saying, “We can assure the American people tonight that the United States of America will not for the first time in our history default on its obligations.”

The deal must be approved by both houses of Congress. Democrats and Republicans in each chamber planned to meet Monday to be briefed on the details.

The announcement was made as financial markets were opening in Asia, which several lawmakers had said they regarded as an important deadline. Stocks rallied in Japan, Australia and South Korea as the new trading week began. The dollar rose, gold fell and Treasury bond yields edged higher.

Obama followed the Senate statements with his own at the White House, saying that the agreement was not all that he had hoped for but “will allow us to avoid default.”

The proposed deal would raise the debt ceiling sufficiently to carry the government through the end of 2012. It would provide for at least a dollar-per-dollar exchange of spending cuts for new debt authority, as Boehner had insisted upon. Congress would be able to vote against part of the new debt, but because Obama would veto any congressional measure to block a debt increase, opponents would need a two-thirds majority to override his veto, which is extremely unlikely.

The spending cuts would come in two stages. An initial round would impose more than $900 billon in domestic cuts across the federal government over the next 10 years. But the vast majority of those cuts would fall in future years, with relatively small cuts this year and next, which rankled some conservatives who fear that future Congresses could undo the agreement.

“I’m not committing my support yet,” said Rep. Dennis Ross, a freshman Republican from Florida. “I want to see the details. We still do not bind future Congresses to real spending cuts. And you know how this works: The only spending cuts we’re really going to see for sure are the ones in 2012.”

In the second stage, a bipartisan congressional committee would be established to recommend by late November $1.5 trillion in further cuts. If the committee deadlocked and Congress failed to adopt its recommendations by December, as many lawmakers say is inevitable, as much as $1.2 trillion in additional cuts would automatically be triggered, starting at the beginning of 2013. That date would allow the Congress chosen in the next election to undo — or deepen — the cuts.

Devising how those triggers would work and what would be cut had been the center of the negotiations in the last few days. The tentative deal would require automatic cuts of equal size, in dollars, in both defense and domestic accounts, officials said.

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