Geithner pledges debt-ceiling stopgap

— Treasury Secretary Timothy Geithner said his department will take “extraordinary measures” to postpone a U.S. default for about two months while President Barack Obama and Congress work out a deficit reduction deal.

Geithner, in a letter to congressional leaders Wednesday, said the government will hit its statutory debt ceiling Monday. To avert a default, the Treasury will take action to create about $200 billion in headroom under the debt limit.

“However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures,” Geithner said.

Geithner’s letter adds urgency to talks between Obama and congressional Republicans on a deficit-reduction plan. Obama has asked that raising the debt ceiling be part of that plan.

Obama and Congress are to return to Washington today after an abbreviated Christmas holiday. They have five days before a deadline that would trigger more than $600 billionin tax increases and spending cuts that some economists say might cause a recession.

House leaders, who were forced last week to withdraw their latest proposal before it could face a vote, Wednesday called on the Senate to act next.

They said the Senate should amend bills passed by the House earlier this year to include a one-year extension of tax cuts for all income levels.

“Once this has occurred, the House will then consider whether to accept the bills as amended or to send them back to the Senate with additional amendments,” House Speaker John Boehner, an Ohio Republican, said in a statement together with Majority Leader Eric Cantor of Virginia, Majority Whip Kevin McCarthy of California and the head of the Republican conference, Cathy McMorris Rodgers of Washington.

Boehner and Obama have been unable to agree on the tax-rate increase on top earners that Obama wants or the cuts to entitlement programs that Boehner has sought, complicating the chances of getting a package done.

Both parties have begun work on minimal deficit-reduction proposals, aimed at avoiding the automatic tax increases and spending cuts while a bigger package is negotiated.

“At this point, all they’re looking for is a fig leaf,” said Stan Collender, a former staff member of the House Ways and Means Committee and the House and Senate Budget committees who is now at Qorvis Communications in Washington. “There’s no grand bargain. There never was.”

The trouble is that Senate Majority Leader Harry Reid, a Nevada Democrat, and Minority Leader Mitch McConnell, a Kentucky Republican, need to come up with something that also can get through theHouse, which has balked at any tax increases. Senate Republicans don’t want to be on the record supporting higher taxes unless they know the House also would pass it.

“There’s still a chance for them to get a deal,” said Ron Bonjean, a Republican strategist who once served as a spokesman for former HouseSpeaker Dennis Hastert of Illinois and former Senate Majority Leader Trent Lott of Mississippi. “It grows more unlikely by the day, and there’s not a lot of days left.”

Obama and Boehner haven’t spoken since the president flew to Hawaii on Friday, according to a Republican aide who requested anonymity when discussing the negotiations. Obama planned to return to Washington on Wednesday, while his family will remain in Hawaii, the White House said Tuesday.

The House is to hold a proforma session today. House leaders told rank-and-file lawmakers that they would receive a 48-hour notice before being called back to Washington. Leaders haven’t yet given that notice and are still discussing the schedule, according to a leadership aide who requested anonymity when discussing the leaders’ plans.

Even if the leaders decided today to call back members, many wouldn’t be back to the Capitol until Friday.

Bonjean put the probability of no deal at 75 percent. Still, he said, there’s a chance for one because Obama and Republican leaders want to avoid the “fiscal cliff” - a term coined by Federal Reserve Chairman Ben Bernanke in testimony before the House Financial Services Committee in February. Tax cuts signed into law by President George W. Bush and extended by Obama are scheduled to expire on New Year’s Day, and automatic spending cuts for government programs are scheduled to start next month.

Before going on vacation with his family, Obama urged leaders of both parties to put together an interim bill to keep taxes from rising on middle- and lower-income Americans as the two sides work on a more comprehensive package.

Senate Democratic leaders have said they won’t take action on a fallback plan unless they have assurances from Boehner that he will bring it up in the House and let it pass with a combination of Democratic and Republican votes, and from McConnell that Senate Republicans won’t filibuster it.

Failing to reach a budget deal would push the U.S. into recession for the first half of 2013, according to the nonpartisan Congressional Budget Office.

Information for this article was contributed by Kathleen Hunter, Hans Nichols, John Hughes, Roxana Tiron and Steven Komarow of Bloomberg News.

Front Section, Pages 4 on 12/27/2012

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