January 6, 2013 7:36 pm

Cracks widen in US debt ceiling debate

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Democrats and Republicans have started the new year stand-off over the US debt ceiling by airing their stark differences over how to divide the burden for deficit reduction between new taxes and fresh spending cuts.

Mitch McConnell, the Republican Senate minority leader, insisted that in the wake of last week’s deal over the fiscal cliff lifting income taxes on the wealthy that the “tax issue is finished, over, completed”.

“That’s behind us. Now the question is – what are we going to do about the biggest problem confronting our country and our future? That’s our spending addiction – it’s time to confront it,” he told ABC.

However, Nancy Pelosi, the Democratic House minority leader, said that the revenue raised in the fiscal cliff deal, pushed through early in the new year in the Senate and later through the House, was “not enough”.

“The president had originally said he wanted $1.6tn in revenue – he took it down to $1.2tn as a compromise in this legislation . . . but that is not enough on the revenue side,” she told CBS.

Under US law, Congress must approve an increase in the country’s borrowing limit, something that used to be relatively routine under both Republican and Democratic presidents, but has now become politicised as the deficit has grown.

The Treasury has advised Congress that the US hit its $16.4tn debt ceiling on December 31 but the department is now taking “extraordinary measures” giving it extra funds to service US debts probably until late February.

Ms Pelosi raised the possibility that President Barack Obama could bypass a congressional vote by ruling that the debt cap is unconstitutional under the 14th Amendment, which says the validity of the country’s debt “shall not be questioned”.

“When President Bush was . . . incurring these massive debts, the Republicans weren’t saying ‘boo’ at the time,” she told CBS. “In fact, if I were president, I’d use the 14th Amendment, which says that the debt of the United States will always be paid.”

In depth

US fiscal cliff

US Capitol

The US has averted going over the fiscal cliff but fresh political battles loom over spending cuts, the deficit and economic policy

Although the idea is popular among some Democrats, the White House has explicitly ruled out using the 14th Amendment as recently as last month.

Mr McConnell declined to say whether he would allow the debt ceiling to be breached if Mr Obama did not offer what his party regarded as a sufficient amount in spending cuts, as a number of Republican senators have suggested.

“Hopefully, we don’t need to get to that point,” he said.

The debt ceiling is just one of three upcoming occasions for partisan confrontation over the budget in coming months.

Across-the-board spending cuts, delayed in the fiscal cliff deal, now kick in on March 1. Congress also needs to pass a new budget when the current one runs out on March 27.

The US now borrows about 40 cents on every dollar the federal government spends.

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