Congressional Showdown: Debt Ceiling Fight Reaches Its Final Month

Donald Trump, Paul Ryan and Mike Pence in November 2016. (Public domain photo by Caleb Smith of the Office of the Speaker of the House.)

On September 29, the United States will hit its statutory cap for borrowing—the debt limit. Unless Congress acts to increase the self-imposed limit, the Treasury Department will be unable to issue new bonds, meaning the government will shutdown and eventually default on its obligations (mainly social security payments and interest payments on debt).

In addition to making it significantly more difficult for the government to borrow in the future, such an outcome would destroy market confidence in U.S. government debt, widely regarded as the safest of all investments. This would almost certainly spark a global financial crisis.

According to the Government Accountability Office, “the debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred.”

Raising the limit was once strictly procedural, and even eliminated as a requirement for a period, as passing a budget wherein spending exceeded revenues was understood to inherently authorize the requisite amount of borrowing.

In 2011 and 2013, however, many Congressional Republicans refused to vote to raise the limit unless President Obama agreed to spending cuts, resulting in the controversial Budget Control Act of 2011 and a government shutdown in 2013.

The public largely blamed Congressional Republicans for the shutdown, so in subsequent debt limit battles, moderate Republicans sought Democratic support to raise the limit in exchange for policy concessions.

If the limit is not raised in a timely manner, markets may begin to question America’s commitment to honoring its debts, leading to increases in short-term bond yields. In 2011 and 2013, yields on all forms of U.S. government debt increased four to eight points, costing the government hundreds of millions of dollars in additional interest payments.

With control of the House, Senate, and presidency, Republicans should be able to pass a debt limit increase without resistance. However, a lack of leadership from the Trump Administration and divisions within the party have made this uncertain.

Treasury Secretary Steve Mnuchin publicly favors a clean increase of the debt limit, and Budget Director Mick Mulvaney has implied that conservative Republicans should only support a debt limit increase that cuts spending. President Trump himself has not communicated what he wants from a debt limit package, if anything.

There were early talks between Speaker Ryan, Majority Leader McConnell, and the White House about tying the debt limit increase to an uncontroversial Veterans Affairs bill, but the meetings did not produce anything substantial enough to formally propose. Trump Tweeted his disappointment with the outcome.

In the wake of Republican dysfunction, Democrats have a rare opportunity to advance their agenda.

For example, Democrats could refuse to support a debt limit increase unless they’re promised inclusion on tax reform talks, which have been strictly partisan. Alternatively, Democrats could demand funding to stabilize ACA health insurance markets.

Such a proposition depends on the Democratic leadership’s ability to keep the caucus in line. In 2018, many Democrats, such as Sen. Joe Manchin, R-W.Va., are up for reelection by conservative constituencies and may want to campaign on having voted for a debt limit deal that cuts spending.

Additionally, the popularity of the Democratic platform depends on the public’s confidence in the government’s ability to solve problems. Thus, many Democrats are unwilling to engage in brinkmanship that undermines public trust in government.

The most likely outcome is that Republicans pass a clean debt limit increase. With control of the House, Senate, and presidency, there is a good chance Republicans will be able to pass spending cuts as a separate bill; there is little advantage to forcing eleventh hour negotiations over attaching such cuts to a debt limit increase.

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