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 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.
In the final negotiations, the size of the defense cuts proved particularly nettlesome. Boehner was trying to ensure that any defense cuts would not begin until 2013, officials said.
Additionally, Medicare, the popular health program for seniors, would face a cap on expenditures. White House officials said Democrats had succeeded in writing the provisions so the cuts would be limited to 2% and would not hit Medicare beneficiaries, but would instead reduce payments to doctors, hospitals and other providers of Medicare services.
A balanced-budget amendment to the Constitution, which had been crucial to attracting support from House conservatives, would be brought to a vote, but the increase in the debt ceiling would not be tied to the outcome as conservatives had wanted. However, if the amendment were approved by both chambers and sent to the states for ratification, the automatic cuts would not be triggered — a provision designed to entice Democrats to vote for the amendment.
Dropping the requirement that the amendment pass both houses before the debt ceiling can be raised probably will cause a number of Republicans in the House to vote no. As a result, Boehner will need support from Democrats to pass the bill to make up for GOP defections.
"I think it may need anywhere from 60 to 100 Democrats," Ross said.
House Minority Leader Nancy Pelosi (D-San Francisco) issued a carefully hedged statement on that point, saying, "We all agree that our nation cannot default on our obligations and that we must honor our nation's commitments to our seniors, and our men and women in the military.
"I look forward to reviewing the legislation with my caucus to see what level of support we can provide."
In his conference call with Republican members of the House, Boehner described the deal as a considerable victory, according to sources who listened to the call. The sources spoke on the condition of anonymity to describe the conversation.
Boehner reminded the group that the president had started the debate calling for a debt limit increase with no conditions.
"Now listen, this isn't the greatest deal in the world," Boehner said, according to a source familiar with the conversation. "But it shows how much we've changed the terms of the debate in this town."
At least some of the lawmakers liked what they heard. Rep. Mike Kelly (R-Pa.) told the speaker during the conference call, "You deserve to go have a smoke."
Depending on how quickly Congress acts on the deal, a stopgap measure may be needed to allow the government to continue paying all of its bills for the next few days. If opponents of the deal decided to stage a filibuster in the Senate, that could prevent final action on the overall compromise before Tuesday's deadline.
White House senior advisor David Plouffe said earlier in the day that Obama remained open to a one- or two-day extension of the debt ceiling if Congress needed time to "dot the I's and cross the T's."
Peter Nicholas and Michael Memoli in the Washington bureau and Times staff writers Walter Hamilton and Tom Petruno in Los Angeles contributed to this report.