Republicans and Democrats appear light years apart on an agreement to
raise the national debt limit, which the U.S. could hit by
mid-October. That leaves just weeks to move each side off its opening
By Mark Trumbull
The dynamics of the partisan rift over budget matters have suddenly
changed, gaining new urgency thanks to a determination by the U.S.
Treasury that it will run up against its borrowing limit by
That’s coming up quickly, moving debate over this Congress-imposed cap
on the national debt onto the legislative calendar right alongside a
parallel debate in Congress about approving a budget for the new
fiscal year that starts Oct. 1.
Right now, Republicans and Democrats appear light years apart. Many
conservative lawmakers are pushing to link a hike in the debt limit
with plans for new spending cuts.
President Obama says raising the borrowing cap is simply a matter of
allowing already-approved federal spending to occur — not something
that should become a bargaining chip in budget talks.
What if Republicans and Democrats can’t agree on a debt-limit hike?
According to Treasury Secretary Jacob Lew, the government would run up
against the current ceiling — a national debt of $16.7 trillion.
The economic implications are large.
Failure to raise the debt ceiling could throw the U.S. government into
a position of being unable to meet its financial obligations — a
position that many investors would view as a debt default. It could
prompt a credit-rating downgrade. It would affect millions of
Americans as routine payments for things like military salaries or
Medicare stalled or slowed.
And beyond that, a debt-limit impasse could slow an already tepid
economic recovery by damaging the confidence of businesses, investors,
Some of this is known because we’ve seen the movie before.
The last time the U.S. ran up to the borrowing limit was in 2011.
Congress raised the cap, but only after going so close to the brink of
default that Standard & Poor’s downgraded the government’s debt.
The stock market showed significant jitters, and consumer confidence
took a big hit.
That was all without any actual failure to raise the cap.
A debt downgrade, in effect, makes Treasury borrowing more expensive
because investors view government bonds as riskier. And in the 2011
case, the doubts were about political will of a divided Congress, not
about fundamental capacity of the US economy to fund government debts.
This time around, as last time, many Republicans in Congress view the
debt limit as a bargaining chip. At a time when the national debt is
already sky high, they argue, the cap should be raised only in tandem
with significant moves toward future fiscal discipline.
“I understand we have to raise the debt limit one more time, but let’s
not raise the debt limit until we have a plan in place that begins to
bring our budgets into balance over the next decade,” Sen. Marco Rubio
(R) of Florida said in a statement released Tuesday.
He said the U.S. needs “to confront this debt problem once and for all
so that our economy can get growing again, so that our middle class
can get strengthened again and so that America can be better off.”
Some Republicans also want to focus the fiscal debate around their
effort to “defund” Mr. Obama’s Affordable Care Act. Sen. Ted Cruz of
Texas is a champion of this goal, as is Senator Rubio, according to
news reports. But some Republicans balk at the idea of trying to link
a key fiscal vote — like the debt ceiling — to Obamacare.
Obama administration officials this week have laid down an opposing
marker, saying the debt ceiling should be raised without discussions
“Let me reiterate what our position is, and it is unequivocal: We will
not negotiate with Republicans in Congress over Congress’s
responsibility to pay the bills that Congress has racked up — period,”
White House spokesman Jay Carney said Monday. “We have never defaulted
and we must never default.”
The question of Obamacare funding could also come up in the other
fiscal debate — separate from the debt limit — over the budget and
federal spending authority for the next year.
Congress’s current spending authority is set to run out on Oct. 1, the
start of a new fiscal year. Think of it this way: The budget debate
authorizes the government to spend, and raising the debt cap is a bit
like raising a credit-card limit.
That’s important because, as federal budgets are currently framed,
ordinary tax revenue doesn’t come close to paying all the bills.
Republicans say Obama and the Democrats are resisting prudent steps to
restrain the growth of federal spending. The president, in response,
said this week that Republicans are being “penny wise and pound
foolish” in trying to cut economically useful investments such as in
education and science.
With the Treasury’s mid-October date-of-reckoning coming up, stay
tuned for an interesting next few weeks of fiscal debate.