The House of Representatives on Tuesday defeated a bill to raise the debt limit in a vote staged by Republicans to strengthen their push for deep spending cuts in negotiations with the White House.
By a vote of 318-97, the chamber overwhelmingly rejected President Barack Obama's call to increase the $14.3 trillion debt limit without conditions. Even some Democrats supporting Obama's position voted against it.
"I'm going to advise my members that they not subject themselves to the demagoguery that is sure to follow" if they vote for the measure, chief Democratic vote-counter Steny Hoyer said before the vote.
Polls show the public does not support a further increase in borrowing authority even as the Treasury Department scrambles to avoid a default that could push the country back into recession and rattle markets across the globe.
The Treasury Department has been tapping alternate funding sources, such as federal employee pensions, to cover its obligations since the debt limit was reached on May 16, but has warned it will run out of options if Congress does not act by August 2.
For now, markets are little concerned by the possibility of default on what is viewed as one of the world's safest investments. Yields on the benchmark 10-year Treasury bond reached a new 2011 low earlier in the day and traders predicted even lower yields later in the week.
"If we were having this conversation at the end of July it would be a different story. If the vote fails tonight, I don't think it impacts prices," said Christian Cooper, head of U.S. dollar derivatives trading at Jeffries & Co. in New York.
House Republicans held the vote in the late afternoon, well after markets had closed.
WHITE HOUSE MEETING ON WEDNESDAY
Obama will press the case on why the debt limit should be raised when he meets with House Republicans at 10 a.m. on Wednesday, the White House said.
Republicans say they will not back an increase in the country's borrowing authority that does not include deep spending cuts to ensure that debt remains at a manageable level relative to the economy.
"This vote makes clear that deficit reduction will be part of any bill to increase the debt limit," said Republican Representative Dave Camp, who sponsored the bill even though he does not support it.
In talks led by Vice President Joe Biden, Republicans and Democrats have identified hundreds of billions of dollars in possible spending cuts, and both sides say they could ultimately find more than a trillion dollars in deficit savings.
But they must resolve a dispute over the biggest-ticket items. Democrats say they will not consider cuts to popular health benefits until Republicans consider tax increases.
Tuesday's vote came after the Senate defeated three separate Republican budget plans in largely symbolic votes last week. The Senate also voted down Obama's budget proposal, which was considered to be irrelevant after he unveiled a more aggressive plan.
Democrats were split on the House bill, with 97 voting for a "clean" increase and 82 voting against it. No Republicans voted for the measure.
The vote could clear the way for a compromise by allowing lawmakers to say they voted against an increase that did not reduce deficits, but one analyst warned it did not guarantee support from conservative Republicans affiliated with the Tea Party movement.
"Some representatives would vote against it just because it would increase the government's borrowing limit, others would oppose it because of the specific spending cuts and revenue increases, and others would vote 'no' because they want deeper deficit reduction," Stan Collender, a budget analyst with Qorvis Communications, wrote in Roll Call, a congressional newspaper.