The Senate voted Thursday to allow the national debt to swell to nearly $9 trillion, preventing a first-ever default on U.S. Treasury notes.
The bill passed by a 52-48 vote. The increase to $9 trillion represents about $30,000 for every man, woman and child in the United States. The bill now goes to President Bush for his signature.
Republican leaders put off this vote as long as they could, CBS News correspondent Bob Fuss reports. The federal government is about a week away from being unable to pay its bills – literally. Waiting for Congress, the treasury has been moving money around, even borrowing from federal worker's retirement funds.
It's an embarrassing vote for Republicans, since they control the decisions on taxes and spending that led to all this debt. But it also had to be done so the government could go out and borrow more money to pay its bills.
The measure allows the government to pay for the war in Iraq and finance Medicare and other big federal programs without raising taxes. It passed hours before the House was expected to approve another $91 billion to fund the war in Iraq and provide more aid to hurricane victims.
The partisan vote also came as the Senate continued debate on a $2.8 trillion budget blueprint for the upcoming fiscal year that would produce a $359 billion deficit for the fiscal year beginning Oct. 1.
The debt limit will increase by $781 billion. It's the fourth such move — increasing the debt limit by a total of $3 trillion — since Mr. Bush took office five years ago.
The vote came a day after Treasury Secretary John Snow warned lawmakers that action was "critical to provide certainty to financial markets that the integrity of the obligations of the United States will not be compromised."
On Thursday, Treasury postponed next week's auction of three-month and six-month bills pending Senate action, though the move was likely to be quickly reversed given the Senate's vote.
The present limit on the debt is $8.2 trillion. With the budget deficit expected to approach $400 billion for both this year and next, another increase in the debt limit will almost certainly be required next year.
Democrats blasted the bill, saying it was needed because of fiscal mismanagement by Mr. Bush, who came to office when the government was running record surpluses.
"When it comes to deficits, this president owns all the records," said Minority Leader Harry Reid, D-Nev. "The three largest deficits in our nation's history have all occurred under this administration's watch."
Only a handful of Republicans spoke in favor of the measure as a mostly empty Senate chamber conducted a brief debate Wednesday evening.
Senate Finance Committee Chairman Charles Grassley, R-Iowa, said Mr. Bush's tax cuts account for just 30 percent of the debt limit increases required during his presidency. Revenue losses from a recession and new spending to combat terrorism and for the war in Iraq are also responsible, he said.
As for the $781 billion increase in the debt limit, Grassley said: "It is necessary to preserve the full faith and credit of the federal government."
Before approving the bill, Republicans rejected by a 55-44 vote an amendment by Max Baucus, D-Mont., to mandate a Treasury study on the economic consequences of foreigners holding an increasing portion of the U.S. debt.
At present, foreign countries, central banks and other institutions hold more than one-fourth of the debt, but that percentage is growing rapidly.
Following the debt limit vote Thursday, the Senate was expected to vote late in the day on the budget plan, a nonbinding measure proposing tax and spending guidelines for the next five years.
Sen. Arlen Specter, R-Pa., appears poised to win an increase of $7 billion in new and real funding for education and health research. The $7 billion would effectively be used to break Bush's $873 billion budget cap for 2007, which represents the most significant vestige of fiscal discipline remaining in Senate Budget Committee Chairman Judd Gregg's budget.
The underlying Senate budget plan is notable chiefly for dropping Mr. Bush's proposed cuts to Medicare and for abandoning his efforts to expand health savings accounts or pass legislation to make permanent his 2001 tax cut bill.
Unlike last year, when Congress passed a bill trimming $39 billion from the deficit through curbs to Medicaid, Medicare and student loan subsidies, Senate GOP leaders have abandoned plans to pass another round of cuts to so-called mandatory programs.
But Gregg's measure re-ignites last year's battle over allowing oil drilling in Alaska's Arctic National Wildlife Refuge, since it would let Senate leaders bring an ANWR drilling measure to the floor under rules blocking a filibuster by opponents.