Congress Facing Another Debt Ceiling Crisis
In addition to everything else on its plate, Congress will have to revisit raising the debt ceiling again sometime this summer.
In addition to health care reform, a new budget, and the Russia investigation, Republicans on Capitol Hill will also have to deal with a looming debt ceiling crisis that looks like it could do down to the wire:
WASHINGTON — This summer was supposed to be a heady time for Republicans, who would be repealing and replacing the Affordable Care Act, cutting taxes and simplifying the tax code, and reining in the reach of government.
But now the party, rife with divisions, faces a familiar fight of its own making: raising the government’s statutory borrowing limit.
Once a distasteful but manageable task for Congress, the debt ceiling has become a battle Washington seems unable to escape.
By law, Congress must periodically raise the cap on the amount of money that the government can borrow on international lending markets. Republicans transformed the once-routine task of lifting the debt ceiling into high-stakes games of chicken during the Obama presidency — edging the economy toward so-called fiscal cliffs to extract policy concessions such as budget cuts and spending caps.
With Republicans in control of both houses of Congress and the Oval Office, some thought that the debt ceiling would be an easy lift.
Instead, it has become an obstacle threatening to further stall an agenda that has already fallen well behind schedule. The Treasury Department wants the debt ceiling raised before Congress leaves for its August recess, a demand that could consume many of the 13 legislative days on the calendar next month.
“It’s going to complicate the ability to pass a budget, and it’s going to complicate tax reform because of the internal tensions that they have to struggle with,” said Ed Lorenzen, senior adviser for the Committee for a Responsible Federal Budget, a bipartisan group.
Time is running short. Republicans must finish their health care legislation under the Senate’s budget process in the coming weeks and pass a 2018 budget resolution before they can move on to the tax legislation that they have promised to approve this year. This fall, they will have to cut a deal with Democrats to fund the government. And all of that must happen against the backdrop of investigations into Russia’s meddling in the presidential election.
Fears over a looming debt ceiling fight were fanned late last month when Mick Mulvaney, the White House budget director, noted that tax receipts were coming in more slowly than had been anticipated and that the limit needed to be raised this summer rather than in the fall. The Congressional Budget Office revealed why in its monthly budget review on Wednesday: tax receipts were $60 billion to $70 billion short of what was projected at the beginning of the year. This was most likely the result of taxpayers’ delaying their tax filings in anticipation of big tax cuts.
The accelerated timetable to raise the debt limit has laid bare a difference of opinion within the White House about how it should be raised — whether it should be lifted without policy encumbrances or if it should be tied to other policy changes.
Mr. Mulvaney, who led the debt ceiling brinkmanship in his previous job as a Republican representative from South Carolina, explained last week that he would like to see concessions such as spending cuts or budget process changes tied to any bill that would raise the debt ceiling. But Steven Mnuchin, the Treasury secretary, has urged Congress to raise the borrowing limit as quickly as possible, with no strings attached, to avoid roiling financial markets and putting the economy at risk.
While the administration has not taken an official stance, President Trump signaled in a meeting with the Republican leadership this week that Mr. Mnuchin, not Mr. Mulvaney, was leading debt ceiling negotiations.
Still, those negotiations will not be easy. After years of arguing that debt limit increases should be paired with spending cuts, conservative Republicans may be unwilling to raise the ceiling without a price. Many House Republicans insist that inaction on the debt ceiling would not result in a government default, as Treasury secretaries from both parties have consistently warned.
After Mr. Mnuchin warned in May that time to raise the cap was running short, the House Freedom Caucus panned his request, saying, “We demand that any increase of the debt ceiling be paired with policy that addresses Washington’s unsustainable spending by cutting where necessary, capping where able and working to balance in the near future.”
Steve Bell, a former Republican staff director of the Senate Budget Committee, said the party’s difficulties raising the debt limit were emblematic of its current state of dysfunction.
“This is the reality of the Balkanization of the Republican Party,” said Mr. Bell, now with the Bipartisan Policy Center. “It is almost theological, and this is not something that is going to cement the party back together.”
The infighting means that Republicans will need support from across the aisle to raise the debt limit, but Democratic leaders do not appear eager to help. The party out of power in the White House has, by tradition, been reluctant to shoulder that political burden.
“I don’t have any intention of supporting lifting the debt ceiling to enable the Republicans to give another tax break to the wealthy in our country, to further exacerbate the challenge that is created when they have their trickle-down economics,” Representative Nancy Pelosi, the House minority leader, said last week.
The last time we had a real showdown over the debt ceiling, of course, was in the summer of 2011 when House Republicans, fresh off the wave election that swept them to power in 2010, played a game of brinksmanship with President Obama and the Democratic-controlled Senate that quite literally went down to the wire to the point where the Treasury Department was going to have to start choosing which of the obligations would get paid and which would not. The most important of those payments, of course, is the payment of interest and principal on the nation’s debts, which exist principally in the form of Treasury Bonds and Notes that are publicly traded on exchanges throughout the world and widely seen as the safest investment on the planet. If the Federal Government were to miss payments on this obligation, it would likely lead to serious disruptions in world financial markets, the end of a world where the U.S. is seen as a safe investment, and have serious ramifications for the world economy and the American economy. For that reason, if we did reach a point where there was not sufficient money to pay all of the obligations of the Federal Government, the Treasury Department would most likely be forced to prioritize payment with the cash on hand it has during a given period. This would mean that at least some obligations, which could range from everything to billing generated by the business that Federal agencies conduct with private companies to obligations owed to entitlement programs such as Social Security, Veterans health care, Medicaid, and Medicare. While the economic impact of missing such payments would not be nearly as serve as missing payments on the national debt, it would still be substantial and could be sufficient enough to significantly slow down economic growth that is already proving to be quite anemic.
Congress and the President both learned a lesson from that debt ceiling showdown six years ago, and as a result, we’ve had few confrontations over the issue in the ensuing time period. Instead, the Republican-controlled Congress, largely with Democratic Party consent, has quietly either raised the ceiling itself or passed a law that effectively “suspends” it for a given period of time. The one thing it hasn’t done, though, is to take the step that would seem to be the most logical, which would be to eliminate it entirely. The only reason that the United States has these confrontations over raising the debt ceiling from time to time is that Congress passed a law that bars the Treasury Department from raising debt to fund things that Congress has already authorized beyond a certain limit. As I’ve argued several times in the past — see here, here, and here for just a few examples — there is no rational reason why we need to keep revisiting this issue every time we run up against an artificially created barrier that threatens to degrade the credibility of the United States in global financial markets.
In the end, it’s likely that the Republicans on Capitol Hill will find a way to quietly raise the debt ceiling just as they have in the past. Before we get there, though, it’s looking like we may have to put up with another showdown between Members of Congress who recognize that authorizing the Federal Government to pay the bill for things that Congress has already authorized it to spend money on and the debt kamikazes who think that playing with the financial integrity of the nation is a way to advance their political position.