January 24, 1996
Web posted at: 10:15 p.m. EST
WASHINGTON (CNN) -- Amid growing anxiety over the prospect of an unprecedented debt default by the U.S. government, President Clinton and House Speaker Newt Gingrich Wednesday treaded toward common ground on the federal budget.
But despite the apparent thaw in the negotiations, a prime Wall Street credit rating agency threatened to "downgrade" $387 billion in U.S. Treasury bonds if the federal debt ceiling isn't raised.
Gingrich and Senate Majority Leader Bob Dole proposed a modest partial budget agreement that cuts the deficit but doesn't erase it entirely. Clinton had suggested a similar compromise in the past, but the GOP then rejected the idea.
Confronted with polls indicating the public blames the GOP more that the White House for the budget impasse, Gingrich Wednesday suggested a piecemeal approach, saying the two sides could agree, for now, to reduce the deficit by $100 billion -- what he termed a "down payment." But he later added that he would be surprised if Clinton conceded to more than $50 billion in savings.
The president, who spoke to Gingrich from Air Force One while on a tour of Kentucky, said he had "a good conversation" with the House speaker and seemed receptive to the plan.
The proposal may include a scaled-down budget that includes some spending cuts but leaves the thorniest issues -- including Medicare, Medicaid, and welfare -- to be settled after the November elections.
"Barring a dramatic change of heart on President Clinton's part, I don't expect us to get a seven-year balanced budget while President Clinton is in office," Gingrich told reporters. "But I do think you can take steps."
White House spokesman Mike McCurry said administration officials were encouraged by the GOP proposal, and Treasury Secretary Robert Rubin said the suggestions "are constructive, need to be discussed."
The president and Gingrich agreed to let their staffs meet Thursday to discuss the proposal. Congress is also expected to pass legislation later this week to temporarily fund the government while a final budget deal is being worked out. The current temporary spending bill expires January 26.
In a bid to win party support for the plan, Gingrich met with House GOP freshmen, a group that has throughout the negotiations insisted on a seven-year budget-balancing deal or nothing.
In a letter to Clinton, Gingrich and Dole, R-Kansas, called the savings and tax cuts a "down payment" on balancing the budget, and said they want to attach the proposal to legislation extending the government debt ceiling.
Although Gingrich said Clinton did not express opposition to the idea of including spending and tax cuts in the debt ceiling measure, administration officials indicated that they did not like the idea.
But there was growing consensus on one thing: There should be no default on the nation's debt.
"We have to extend the debt limit on March 1," stressed White House chief Leon Panetta, "or you are not going to see Social Security checks go out ... no veterans checks, and this country will default on its full faith and credit. That's unheard of." (119K AIFF sound or 119K WAV sound)
Reacting to the threat of a default, Wall Street's Moody's Investors Service said it was placing Treasury bonds with interest payments due February 29 and April 6 "on review for possible downgrade."
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