U.S. lawmakers reached a deal to raise the debt ceiling, President Barack Obama announced late Sunday, ending a bitter dispute between Republicans and Democrats that could have resulted in the first ever federal default.
Obama told reporters in a hastily arranged news conference that the first part of the deal calls for a $1 trillion reduction in spending over the next 10 years.
The second part of the deal establishes a bipartisan Congressional committee, which is to report back by November with further deficit-reduction proposals, which will be put to Congress for an up-and-down vote.
"Is this the deal I would have preferred? No, I believe that we could have made the tough choices required on entitlement reform and tax reform right now, rather than through a special Congressional committee process," Obama said.
"But this compromise does make a serious down payment on the deficit reduction we need, and gives each party a strong incentive to get a balanced plan done before the end of the year. Most importantly, it will allow us to avoid default and end the crisis that Washington imposed on the rest of America."
Obama said the cuts will reduce federal spending to its lowest point since Dwight Eisenhower was president, but will not happen so quickly that they will drag on a "fragile economy."
Obama said the deal contains elements that will likely upset some Republicans, including asking the wealthiest citizens and corporations to do their share "by giving up tax breaks and special deductions." But he also said reforms unpopular with Democrats, such as "adjustments" to Medicare and other social programs, are also on the table, "to ensure that they are still around for future generations."
Before Obama spoke, Senate Majority Leader Harry Reid addressed lawmakers, calling the deal "the essence of compromise."
"Sometimes it seems our two sides disagree on almost everything," Reid told the Senate. "But in the end, these noble people were able to agree on this: the United States could not take the chance of defaulting on our debt, risking the United States' financial collapse and a worldwide depression."
Hours before the deal was formally announced, a spokesperson for Reid said the Nevada Democrat supported the measure, which made him the first top congressional leader to do so.
But despite Reid's endorsement, House Minority Leader Nancy Pelosi wouldn't commit to supporting any deal until, "I have a discussion with my caucus."
"If we had an agreement, I haven't seen in writing the final product," Pelosi told reporters Sunday night before Obama spoke. "And as you know what they say, the details are important."
After Reid addressed the Senate, Senate Minority Leader Mitch McConnell also endorsed the plan.
"At this point I think I can say with a high degree of confidence, that there is now a framework to review that will ensure significant cuts in Washington spending," McConnell said. "And we can assure the American people tonight that the Untied States of America will not for the first time in our history default on its obligations."
During an 8:30 p.m. ET conference call, House Speaker John Boehner told Republicans from the lower chamber that the deal met many of their key demands.
The Democrat and Republican caucuses are expected to hold meetings Monday morning to review and debate the terms of the deal.
The Democratic-controlled Senate and the Republican-controlled House must pass any deal before it can be signed by Obama.
Without a compromise in place by Tuesday, Aug. 2, officials said the Treasury will run out of funds to pay all the nation's bills. The looming catastrophe threatened to scuttle America's long-sterling financial status and send economic shockwaves around the world. The political standoff has been marked by late-night negotiations and heated rhetoric on both sides of the aisle.
The latest round of negotiations was led by McConnell and Vice-President Joe Biden. According to details of the plan that emerged Sunday night, the deal will raise the debt limit in two stages by at least $2.2 trillion, which satisfies a key Democrat goal of raising the ceiling enough to last through the 2012 elections.
Massive spending cuts are expected to thousands of programs, including to the Park Service, Internal Revenue Service and Labor Department. While Social Security and Medicare will avoid serious cuts, the congressional committee will be expected to look for savings in those and other programs to the tune of $1.8 trillion dollars.
Should the committee fail to reach that target, or if Congress fails to act on the recommendations by the end of this year, automatic spending cuts equalling $1.2 trillion would take effect. The debt ceiling would also rise by the same amount.
With files from The Associated Press
