The analogy is imperfect – but it gives a sense of the frustration on both sides, as the U.S. comes within weeks of defaulting on its debt, and Democrats scramble to pull together a $3.5 trillion spending bill that they plan to pass without a single GOP vote.
The debt limit was once used as a way to manage spending and fiscal discipline. What is the secret to our success?
The standoff is a reflection of the dangers of a more majoritarian approach towards Congress and the Senate. It doesn’t matter if the Republicans want to stop the American Rescue Plan or pass it as Democrats did with it this spring, the standoff reflects a change in the way Congress and the Senate are approached.
” “This isn’t a leverage game at the moment; it’s just a potato game,” Marc Goldwein (senior policy director for The Committee for a Responsible Federal Budget) in Washington says.
Republicans want to “dine-and-dash” like a bad date. This week’s Senate Majority Leader Chuck Schumer accused his GOP counterparts of avoiding responsibility for paying America’s trillion-dollar debt.
Why should we help cover that bill, the GOP is responding in essence, when our dinner companion is right now preparing to order a 10-course meal against our objections? The analogy is flawed and both sides have their points. However, everyone can agree that the bill needs to be paid quickly. As early as October, the U.S. Treasury will run out of money and Congress won’t allow more borrowing. The country could default on its debt. This could not only affect America’s economy but also the global one.
Why We Wrote This
The debt limit was once used as a way to maintain fiscal discipline and prioritize spending. It has now become an political game. What is the secret to our success?
Raising the debt limit and the politics surrounding it are not new. However, in the past it was used to leverage the government into ensuring fiscal discipline while the country pursued its spending priorities. Republicans don’t ask for fiscal restraint in order to support the bill this time. They’re telling each other across the aisle that they will do it all, just like Democrats did last spring when they passed the $1.9 trillion American Rescue Plan and what they intend to do with their $3.5 trillion budget.
A tool meant to force parties to resolve their differences – which it did once – has become another type of political brinkmanship with little prospect of reaching a compromise. This is a reflection of the dangers that a more majoritarian approach towards Congress and the Senate has created. It doesn’t matter if the Republicans want to stop it or pass it as Democrats did in March. This shows a change from American views that both sides should have an input into major decisions.
“This does not represent a leverage game. It’s a game of hot potatoes,” Marc Goldwein (senior policy director, Committee for a Responsible Federal Budget) in Washington states.
Democrats accuse Republicans of breaking with long-standing bipartisan cooperation regarding the debt limit. Republicans claim that the standoff is different because of Democrats’ unilateral attempt to increase government.
” The point that we are trying to make, as Republicans, is that if you want to get around us, and dramatically increase the size, scope, and power of government, then you have to do it on your own,” states Sen. Lindsey Graham, of South Carolina. He sits at the Senate Budget Committee’s top Republican position. But Democrats claim that this moment is unique, as a pandemic caused severe, but temporary economic hardship and increased economic inequality.
“This has been one of the toughest stretches in the last 100 years, and that’s why I think going big right now makes a lot of sense,” says Sen. Tim Kaine, a Virginia Democrat on the Budget Committee. Senator Kaine said he didn’t want future generations to be burdened with debt. However, Democrats claim they believe that there are ways for them to fund the $3.5 trillion budget, which includes social reforms such as free community college and expanded Medicare benefits.
But he also implies that the current Republican stance is hypocritical, citing the 2017 GOP tax-cut bill, which passed without a single Democratic vote. According to the nonpartisan Congressional Budget Office, $1. 46 trillion to the deficit, though Republicans argued that the boost to the economy would ultimately more than make up for that. They were like “We don’t care about debt” but they didn’t accept criticisms from Republicans.
Senate Minority Leader Mitch McConnell (center), flanked by fellow GOP senators, warns that Republicans will block the House-passed measure to keep the government funded and suspend the federal debt limit, despite setting up a high-stakes showdown that risks triggering a fiscal crisis, at the Capitol in Washington, Sept. 22, 2021.
Treasury running out of money
The debt limit was established in 1917 to bring some fiscal discipline to federal agencies, and also to ease Congress’ role in authorizing additional borrowing. The government was basically told by it: You can borrow so much money before your need for additional borrowing.
Since World War II, the debt limit has been modified 98 times. Most recently, a 2017 deal suspended the debt limit through July 31, 2021, allowing the government to borrow as much as it needed until then to meet its obligations, which included COVID-19 stimulus checks and other pandemic spending. The Treasury Department has used so-called “extraordinary measures” to continue paying bills since Aug. 1. Congress must take action.
The other urgent deadline for Congress is Sept. 30, which is the end of the fiscal year. Congress must approve a budget to maintain the government’s operations and to pay for Social Security and military benefits. The Democrats still have to negotiate over their $3.5 trillion deal. With the progressive and moderate wings of the party arguing over the price, they proposed a temporary measure called a continuing resolution. This will allow them to continue with their negotiations. And within that legislation, they included a proposal to suspend the debt limit until December 2022, allowing the government in the meantime to do whatever borrowing necessary to pay the bills. Although the House approved it, Senate Minority Leader Mitch McConnell strongly opposed it.
“He is not lying on this,” states GOP Senator John Kennedy from Louisiana. He was one of few Republicans to say they might vote for the legislation anyway because it provides disaster funding for Louisiana which was hard hit by Hurricane Ida. “On this topic, Senator McConnell will be like the Missouri mule that sits in the mud but refuses to move.”
Past and future spending
Even though not a penny was spent, Congress would need to raise the debt limit to cover funding that has been approved but not spent. And that’s the result of decisions made by both parties, which have contributed to record debt levels that reached 128% of gross domestic product at the end of FY2020.
” The debt represents the sum of all fiscal decisions made in the past, with a greater emphasis on recent decisions,” Shai Akabas from the Bipartisan Policy Centre’s research into the debt ceiling. The reason why we have to raise the debt limit .”
In this sense, Democrats agree that it’s bipartisan debt which necessitates such an action. But if they suspend the debt limit through December 2022, that would effectively allow them to do as much deficit spending as they want between now and then – a point Sen. Ron Wyden of Oregon, chairman of the Senate Finance Committee, did not dispute when pressed by the Monitor.
And since Democrats hold the presidency, House and Senate, with the exception of a tiebreaking vote by Vice President Kamala Harris, Republicans do not have the power to reduce spending through budget reconciliation. The $1.9 trillion American Rescue Plan was passed by Democrats last spring. They plan to use it later in the year to approve their $3.5 trillion budget. This will be led by Bernie Sanders, Chairman of the Budget Committee. They would also have at least one more opportunity, in September 2022, to pass another sweeping budget without any GOP support.
Republicans accused Democrats this week of writing a blank cheque from American taxpayers’ accounts.
“Democrats have been rushing to Bernie Sanders’ socialist budget plan and Republicans will not be an equal partner in this endeavor,” stated Sen. John Barrasso from Wyoming.
Republicans want Democrats to deal with the debt ceiling in their budget reconciliation. But in 2017, when Republicans controlled the presidency, House, and Senate, they opted not to take that route, and Democrats joined them in suspending the debt limit – a point they are driving home now.
The economic stakes
Even some Democrats have raised concerns about the scope of the Biden administration’s spending plans. Former Obama Treasury Secretary Larry Summers, who first sounded a warning last winter, told Politico this summer that he had become increasingly concerned that massive spending could cause inflation, though he supports long-term investments like infrastructure. Citing these warnings, Republican Senator Charles Grassley from Iowa said that if Republicans supported Democrats’ massive spending spree, they would “throwing gasoline onto the fires of inflation.” Some argue that this spike in prices was due to supply-chain problems and is likely to be short-lived. A new line of economic thinking emerged during the second term of former President Barack Obama. This was especially evident among left-leaning economists. It seems that spending on deficits is not as serious a problem as it once was. Stephanie Kelton is an economist and advisor to Senator Sanders. She is also the author of “The Deficit Myth.”
Senator Sanders is an independent from Vermont. He has witnessed a substantial swathe of his Democratic base embrace the democratic socialist ideas that he preached for many decades. This is giving Republicans stiff competition in this blinking contest. “It would seem incomprehensible, and I believe it would be to Americans, that you would have the Republican Party that would allow the biggest economy on Earth to default,” says he. “I think Republicans may be a little bit crazy but they’re not that crazy.”
The last time the U.S. faced this threat of a government shutdown and possible default, S&P Global’s chief U.S. economist, Beth Ann Bovino, warned that if the nation defaulted on its debts, the economic impact “would be worse than the collapse of Lehman Brothers in 2008.”
The other option for Democrats is to address the debt ceiling within budget reconciliation. It has been done in the past, but not at this stage. This could be a lengthy process that can take several weeks.
Democratic Rep. John Yarmuth, chairman of the House Budget Committee, said this week to reporters that both Senate and House leadership decided it wasn’t an option. He said that if they decided to go this route they’d have to set a dollar figure to increase the debt ceiling and not just suspend it like the legislation currently in effect. This number could be used by Republicans in attacks ads before next fall’s midterm election. They’ll be back in the same spot if they increase it too much.
“I want to raise it to a gazillion dollars and just be done with it,” he said.