Fights over increasing the nation’s borrowing authority have been contentious in Congress, yet follow a familiar pattern: Time and again, lawmakers found a way to step back from the brink before markets began to panic, and the nation risked a dangerous default on its debt. But this year’s fight has a different feel, some lawmakers say.
A new Republican majority in the House is itching for a spending showdown, and determined not to yield. They blame what they view as excessive federal spending for higher food and gasoline prices and the growing national debt. Led by Speaker Kevin McCarthy, they have ruled out passing a “clean” debt ceiling increase even as the White House insists such legislation be passed without conditions. It’s an impasse that shows no signs of easing ahead of this summer’s deadline for action.
“Very worried. Very worried,” was how Representative Patrick McHenry, R-North Carolina, a close McCarthy ally, described his outlook. “And frankly, I don’t see how we get there at this point. There’s no process set up, there’s no dialogue, there’s no discussion.”
The political conditions are comparable to 2011, when a new Republican majority swept into power after a resounding election win and was determined to confront a Democratic White House and extract major spending cuts in return for a debt limit increase.
To resolve that stalemate, Congress passed and President Barack Obama signed the Budget Control Act. The bill temporarily allowed borrowing to resume, set new spending limits and created a bipartisan “supercommittee” to recommend at least $1.2 trillion more in deficit reduction over 10 years. Republicans and Democrats on the panel failed to compromise, however, triggering automatic reductions in spending.
But some damage was done. Standard & Poor’s Ratings Services downgraded U.S. debt for the first time that year because it lacked confidence political leaders would make the choices needed to avert a long-term fiscal crisis.
In 2013, Obama took a different tack. He made clear early on there would be no negotiations on must-pass legislation to prevent a U.S. default, and he never wavered.
A partial government shutdown, which began October 1, swiftly coincided with the prospects of a default. On October 16, Congress passed legislation to end the twin threats and GOP lawmakers who demanded to roll back Obama’s signature health care law got nothing for their efforts. “We fought the good fight. We just didn’t win,” conceded then-House Speaker John Boehner.
Republicans say they are determined that Biden, who was Obama’s vice president during both of those debt ceiling battles, will have to follow the path set in 2011 — not the one set in 2013.
“President Biden is not President Obama, right?” said Representative Scott Perry, R-Pennsylvania, the leader of the hard-right House Freedom Caucus. “His poll numbers are in the tank, and they’re going to keep going down.”
The result, Perry said, is that Biden doesn’t have the political standing to ignore House Republicans.
“Look, there’s gonna be shrapnel all around, right. Right?” Perry said. “Everybody might take some wounds from it, but he’s not walking out of this thing unscathed.”
After a tumultuous start to the new Congress in which Republicans struggled to elect a speaker, they are taking great pains to show unity. Moderates and conservatives in the House are adamant: Biden must engage.
“Any damage in Treasury markets and the bond market, to the economy, will fall at the feet of the President of the United States because he’s the one that started this entire saga saying he wanted no negotiations,” said Representative Byron Donalds, R-Florida.
“He’s got to meet us partway,” added Representative Don Bacon, R-Nebraska.
Democratic Representative Gerry Connolly of Virginia said what concerns him most is that some Republicans believe the damage from a federal default is manageable, rather than to be avoided at all costs.
“Some of these people are substituting belief for empirical evidence and don’t accept the warnings of economists, Wall Street, Janet Yellen,” Connolly said.
Breaching the debt ceiling is different from a federal government shutdown. The government can continue to operate once the Treasury has exhausted its cash-on-hand. But outgoing payments would be limited to incoming revenue. Not all payments could be made on time and in full. Many fear such an event would shake the foundations of the global financial system.
Some lawmakers don’t believe the consequences would be that devastating. Representative Bob Good, R-Virginia, said breaching the debt limit without an agreement to increase it would force “prioritization of our spending.”
“I’m not afraid of that, quite frankly,” Good said.
Treasury Secretary Janet Yellen has said the government may be unable to pay all its bills as soon as June. Mark Zandi, chief economist at Moody’s Analytics, told a House panel this week the so-called X Day is likely to occur in mid-August. He said market pressures will likely build after Congress returns from its July 4th recess.
“As we can see from recent events given the banking crisis, the system is very fragile at this point in time,” Zandi said. “Adding the debt limit as an issue for investors would be particularly inopportune.”
He said there would be immediate and long-term consequences of a default.
“I think under any scenario, we would go into recession, it would be severe, financial markets would be upended,” Zandi said.
In the Senate, Democratic Senator Joe Manchin of West Virginia is encouraging negotiations. “I think Kevin McCarthy has been most reasonable,” he said.
GOP leadership in the Senate has also voiced support for McCarthy’s efforts. But some Senate Republicans say spending fights should be relegated to the annual spending bills that Congress passes to fund government agencies. An increase in the debt limit doesn’t authorize new federal spending — it only allows borrowing to pay for what Congress has already approved.
“Look, if we have disagreements on spending, and if we have to close government to resolve things, so be it, but threatening a collapse of the U.S. and world economy without raising the debt ceiling is, in my opinion, a weapon that is too severe,” said Senator Mitt Romney, R-Utah.
There have been roughly 80 deals to raise or suspend the borrowing cap since the 1960s. Romney noted that the debt ceiling was extended, with the help of Democrats, multiple times during Donald Trump’s presidency.
“Of course, last time you had President Trump as the individual pushing to raise the debt ceiling, but somehow when we have a Democratic president, we find religion,” Romney said.
The focus on the debt limit, now at about $31.4 trillion, intensified this week with McCarthy sending a letter to Biden warning that his position of not negotiating “could prevent America from meeting its obligations and hold dire ramifications for the entire nation.”
In a formal response, Biden signaled that he would not be willing to meet directly with the speaker until House Republicans released their own budget plan, which he asked McCarthy to do before lawmakers left Washington on Thursday for the Easter recess.
“As I have repeatedly said, that conversation must be separate from prompt action on the Congress’ basic obligation to pay the Nation’s bills and avoid economic catastrophe,” Biden wrote.
The letters did not appear to generate any progress or good will. Republicans left town without proposing a budget. And McCarthy accused Biden on Thursday of making the decision to put the economy in jeopardy, while seemingly making a crack about the president’s age.
“I don’t know what more I can do and how easy. I would bring the lunch to the White House. I would make it soft food if that’s what he wants,” McCarthy said, prompting laughter from other Republicans in the room.
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