The U.S. Senate by a vote of 74 to 26 passed a bill Tuesday raising the federal debt ceiling, narrowly averting a government default that would have transpired at the end of the day. President Obama signed off on the bill after the Senate vote.
The House on Monday approved the bill, which raises the current $14.3 trillion debt limit through the end of next year while calling for up to $2.4 trillion in savings over the next decade and establishing a congressional committee to recommend fiscal reforms.
An initial $917 billion in savings comes by capping federal discretionary spending, including a $420 billion reduction of the national defense budget. Major entitlement programs are safe from this round of cuts.
A 12-member congressional committee will then be tasked with finding an additional $1.5 trillion in savings, likely recommending reforms to entitlement programs. Congress would have to vote on the committee’s recommendations by December 23, allowing President Obama to raise the debt ceiling by another $1.5 trillion.
However, if the committee’s recommendations fail to pass congressional voting, Obama can still raise the debt ceiling by $1.2 trillion. Doing so would also trigger automatic cuts across the board, including to Medicare, lasting from 2013 through 2021. Any given cut to Medicare from this automatic response is restricted from exceeding 2 percent of the program's cost.