UPDATE 4-Senate backs increase in debt limit to $14.3 tln

* Democrats hope they won’t have to vote again

* Enables Treasury Dept to service growing debt

* Democrats include “paygo” to limit new spending
(Adds Hoyer comment)

By Andy Sullivan

WASHINGTON, Jan 28 (BestGrowthStock) – The U.S. Senate voted
narrowly on Thursday to increase the government’s borrowing
authority to $14.3 trillion, which would allow the Treasury
Department to continue servicing the country’s spiraling
national debt through most of 2010.

Senate Democrats hope the 60 to 40 party-line vote will
enable them to avoid another politically toxic vote on the
issue before the November congressional elections.

The House of Representatives will vote on the legislation
next week, House Majority Leader Steny Hoyer said. It will then
go to President Barack Obama and be signed into law.

Congress must periodically raise the legal limit for the
government’s borrowing, and the Treasury Department is expected
within weeks to exceed the current $12.4 trillion limit set in
December.

Failure to raise the limit would roil financial markets,
but lawmakers are never eager to sign off on a measure that
allows the government to dig itself deeper into debt.

The national debt more than doubled over the past decade as
Republican President George W. Bush cut taxes while pursuing
wars in Iraq and Afghanistan and setting up an expensive
prescription-drug benefit.

“We’ve gone to the restaurant, we’ve eaten the meal, and
now the only question is whether we’ll pay the check,” said
Democratic Senator Max Baucus.

President Barack Obama and his Democrats, who control
Congress, now face a growing public backlash over aggressive
spending measures they have taken to stimulate the economy,
which had been mired in the worst recession in 70 years.

ANOTHER TRILLION-DOLLAR DEFICIT

The government spent a record $1.4 trillion more than it
collected in the past fiscal year, and the nonpartisan
Congressional Budget Office (CBO) forecasts a similar $1.35
trillion deficit for the current fiscal year, which ends Sept.
30.

Experts warn investors could demand higher interest rates
on U.S. debt if Obama and Congress do not get the budget
deficit under control. If current policies are not changed, the
government’s interest payments will more than triple over the
coming decade, the CBO said.

Obama has proposed a three-year freeze on domestic spending
starting in October, though it remains to be seen whether his
colleagues in Congress support it.

Seeking to ease the pain of the debt-limit vote, Senate
Democrats paired it with a budget-control measure that would
require new spending to be offset with cuts elsewhere, an
approach called ‘paygo’ used successfully in the 1990s to turn
deficits into surpluses. [nN28245555]

Republicans said that measure could be easily circumvented
and none voted for it.

At a town hall event in Florida, Obama said he was
“grateful” to the Senate for passing paygo, while Hoyer, a
leading proponent of the measure, said he was “very happy.”

“I think the passage of this is very, very positive step
toward getting a handle on the finances of our country,” Hoyer
said in a phone interview.

A separate measure that would have set up a bipartisan
commission to figure out a way to balance the budget failed in
the Senate on Tuesday in the face of opposition from interest
groups on the left and right who worried that it would lead to
tax hikes or cuts to favored programs.

Obama plans to set up a similar commission by executive
order, but it would have less legal authority and could have
trouble drawing Republican cooperation.

Stock Market Analysis

(Editing by Philip Barbara)

UPDATE 4-Senate backs increase in debt limit to $14.3 tln