Republicans are digging in on the federal debt limit, warning Democrats that it will be up to them to avoid a default as President Biden pushes for trillions more in spending.
GOP senators are taking a firm line as Democrats plot a path for their $3.5 trillion spending measure, which the party plans to pass with budget reconciliation rules that will prevent the GOP from blocking it with a filibuster.
Given those plans, GOP senators say they won’t lift a finger to help Democrats raise the debt ceiling.
“I’m not sure why there’s much of an incentive right now given what the Democrats are doing, trying to run roughshod over the minority in the Senate, to help them,” said Sen. John Thune (S.D.), the No. 2 Republican in the Senate.
Thune added that if Democrats are going to use a go-it-alone approach to push through a sweeping spending package, which is expected to include other priorities like immigration reform, then Republicans believe "the debt limit can ride on it and they can own it all."
Senate Minority Leader Mitch McConnell (R-Ky.) previewed the GOP tactics to Punchbowl News, in remarks confirmed by his office.
“I can’t imagine there will be a single Republican voting to raise the debt ceiling after what we’ve been experiencing,” he said.
The government will reach its spending limit on July 31, though the Treasury Department will be able to shuffle funds for an additional period to prevent the U.S. from breaking the ceiling. Actually doing so would cause a severe disruption to markets and the economy, as the U.S. government would be unable to meet demands from its creditors and pay its bills.
The limit on how much debt the federal government can owe has been suspended for nearly two years thanks to a bipartisan deal struck under former President Donald Trump. The Congressional Budget Office estimated Wednesday that the Treasury would most likely run out of cash in October or November, though that is just an estimate.
Experts have said that the coronavirus pandemic is making it harder to estimate precisely when the U.S. would default on its obligations absent any action.
“There is so much spending that is going out in a relatively short period of time, and because there's lots of uncertainty about when that spending is going out the door, it makes it even more difficult than usual to predict what spending patterns in August, September, October, etc. are going to look like,” said Shai Akabas, director of economic policy for the Bipartisan Policy Center, a non-partisan think tank.
Republican senators are planning to use the specter of crisis to secure major fiscal concessions, in a throw-back to the Obama years.
Sen. Lindsey Graham (R-S.C.), the top Republican on the Budget Committee, is expected to put forward a proposal next week, accusing Congress of “spending like drunken sailors.”
“We need to make some structural reforms down the road. ...About half the time the debt ceiling has been increased has been accompanied by something and I think now is the time to put some ideas on the table,” he said.
The effort comes after a GOP Congress approved a massive tax-cut bill during the Trump years that added to the deficit. It also follows a series of big spending bills signed by Trump and Biden that were intended to help the economy survive the pandemic.
Democrats would need at least 10 GOP votes to defeat a filibuster on a stand-alone debt limit increase and several progressives have ruled out ceding to Republican spending-cut demands. Several top Senate Democrats—including Majority Leader Charles Schumer (D-N.Y.)—accused McConnell of holding the U.S. economy hostage.
“The leader's statements on the debt ceiling are shameless, cynical, and totally political,” Schumer said at the Capitol on Wednesday.
“This debt is Trump debt. It's COVID debt. Democrats joined three times during the Trump administration to do the responsible thing,” Schumer added. “And the bottom line is that leader McConnell should not be playing political games with the full faith and credit of the United States.”
Republicans have suggested that Democrats add a debt-limit increase to the budget-reconciliation process.
Doing so would make it easier for Democrats to lift the ceiling, but would also shield GOP senators from a vote that is necessitated by spending decisions by both parties.
Senate Budget Committee Chairman Bernie Sanders (I-Vt.) said that Democrats are “looking at various approaches” while also criticizing Republicans’ comments on the debt limit.
“It goes without saying, I think the world expects the strongest economy in the world to pay its debts,” he said.
It’s unclear whether Democrats could pass such a bill before a debt ceiling deadline.
Democrats are expected to vote on a budget resolution, which greenlights the party-line bill, before they leave for an August recess. But once they return, they will likely be negotiating for weeks on a separate deal to fund the government.
Passing a bill under reconciliation is already filled with challenges: Democrats need total unity in the Senate and near unity in the House, a tricky balance that will take time to negotiate. And proposals in it need the greenlight from the Senate parliamentarian, who makes decisions on what does or does not qualify, and isn’t expected to start making rulings on what can be included in the spending plan until after Democrats pass their budget resolution next month.
Graham predicted that Democrats would ultimately try to find another way to raise or suspend the debt ceiling, arguing that folding it in with their $3.5 trillion plan would be a political gift to Republicans.
“I doubt if they’ll take them up on that … I think it would be a great add there,” Graham said, asked about McConnell’s suggestion Democrats do it through reconciliation. “You’re raising taxes, you’re growing the government, you’re raising the debt all by yourself.”
Trillion of dollars in Treasury bonds held by foreign governments and investors are underpinned by faith in the federal government’s ability to pay its bills. A default on the national debt could shatter that confidence and trigger a catastrophic financial crisis.
“At that point we would be purely playing defense, trying to figure out how to best salvage a potentially catastrophic economic scenario,” Akabas said.
In testimony before a Senate panel last month, Yellen warned that a federal default “would have absolutely catastrophic economic consequences” and cause “unthinkable” economic damage.
It’s not unusual for Republicans to take a hard-line stance on the debt limit when Democrats are in power. Most notably, S&P downgraded the U.S.’s credit rating from AAA, the highest level, to AA+ during the Obama administration in 2011 shortly after a debt limit standoff was resolved only days before the U.S. would have defaulted.
But the debt limit was suspended several times during the Trump administration without much difficulty.
Democrats accused Republicans of a double standard after 23 GOP senators voted for a deal that included a debt ceiling suspension in 2019.
“It is not business as usual. When Donald Trump was president of the United States we didn’t say we’re going to have a political agenda of one, two, three before we pay our bills,” Wyden said.
The White House said that Congress should address the debt ceiling on a bipartisan basis, like it did when Trump was president.
“We expect Congress to act in a timely manner to raise or suspend the debt ceiling, as they did three times on a broad, bipartisan basis during the last administration,” White House Press Secretary Jen Psaki said Wednesday.
But Thune, asked about the difference between those votes, argued that the “atmospherics” had deteriorated rapidly since then.