When it’s reached and what Congress can do
After a two-year lapse, the delicate debt limit policy returns to Washington.
Photo-Illustration: Intelligence; Photo: Getty Images
As the Senate finally moves forward on the bipartisan infrastructure bill and a budget resolution and budget reconciliation bill carrying much of Biden’s agenda, Democrats in Congress are grappling with a another problem: the need for an increase in the public debt limit. This complex but inevitable issue has long been an irritant to both parties in Washington, in large part because the public doesn’t like the idea of going into debt – even though majorities favor the goodies debt buys them. Here’s a quick guide to the hot potato issue, why Democrats will likely need to include a raise in their budget bill, and what happens if they don’t.
This is a statutory cap on the amount of debt the federal government may owe at any given time, established for the first time in 1917 and expanded to cover virtually all public debt by 1939. The debt is largely “ours”; $ 22.3 trillion is held by the public, and an additional $ 6.2 trillion reflects federal government borrowing from assets it owns (primarily Social Security and Insurance trust fund surpluses). disease).
The debt ceiling was suspended in 2019 as part of a two-year budget agreement between Congress and the Trump administration intended to postpone major budget battles until after the 2020 election. The agreement expired on August 1, 2021, with the effect that the debt ceiling was adjusted to the increase in the level of indebtedness as it currently exists. Accumulation of additional debt will require an increase or suspension of the limit. This makes it an immediate problem as the federal government has run large budget deficits over the past two years.
Nothing at first. The US Treasury can (and has done 15 times already) take what is called “extraordinary measures” to cover debt by moving funds and seeking other temporary expedients. But that will only work for a while, and now as in the past, we can expect Treasury officials to warn Congress when “extraordinary measures” have been exhausted. The stream guessing is that it will happen in October or November.
At this point, serious economic consequences are likely if the debt limit was not increased or suspended, since the federal government would be required to default on some of its obligations (whether in the form of interest payments). or federal spending) until tax revenues provide more money to fund the outstanding debt. At a minimum, interest rates would skyrocket, but the big fear is that a default could trigger a global financial catastrophe.
In the past, some conservatives have argued a default may be a good thing in forcing a major reduction in the size and cost of government, but it is not a serious claim as any reduction would be accompanied by a blow to “full faith and credit” The United States and the United States and much higher interest charges on existing debt, which is not going to go away.
Because the public closely associates the need to increase the debt limit with the decisions that made it necessary (always blamed on “the other side”), increases in the debt limit are still unpopular, and not just with Republicans who are typically moralistic about the very idea of debt. High-income Americans who are likely to have market-sensitive assets, and federal employees whose wages are threatened by default, are about the only segments of the public who are positive about the increases. of the debt limit. Thus, politicians from both parties seek every opportunity to vote against such measures, or at least to ensure that the “blame” is shared between the parties.
At the moment, yes, as they control both the executive and legislative branches of government which is in danger of default. Plus, Republicans no longer have to carry water for a president of their own party who was at least as hungry for deficit spending as his Democratic predecessor and successor. They therefore returned to the moralizing of deficit spending that characterized the GOP during the Obama presidency – and which was also a reason for signing for the tea movement.
Unsurprisingly, then, Senate Minority Leader Mitch McConnell announced that Democrats cannot expect a single Republican vote for a debt-limiting measure at this time. This is a problem because an increase or suspension of the debt limit is obstructed by the Senate, meaning it will require 60 votes in the Senate unless one part is designed – like include it in obstruction-proof budget legislation.
McConnell helpfully suggested that Democrats simply include an increase in the debt limit in the fiscal year 2022 budget reconciliation bill that is already in the works to implement the unenacted portions of President Biden’s 2021 legislative agenda. . But that would guarantee Democrats exclusive “blame” for increased public borrowing, as it stands to reason that the reconciliation bill will be passed by both Houses on a strict party line vote.
Aside from the blame game, fiscal rules might require that the debt limit measurement include a very specific increase in the dollar amount rather than a harder demagogue suspension. Thus, some Democrats, in particular the “centrists” considered vulnerable in 2022, speak of a different vehicle, like Punchbowl News Explain:
Democrats … have also toyed with the attachment of increasing the debt limit to a must-see government funding bill in late September, but that carries a huge risk. The funding package will need 60 votes in the Senate to pass, so 10 Republicans are expected to break with McConnell and vote for it. It seems extremely unlikely.
Moreover, this kind of high-stakes showdown is not what the White House and Wall Street want to see as the US economy rebounds from the Covid-19 pandemic. Government funding expires September 30.
Because they certainly can’t afford the risk of a default that could derail an economic recovery already threatened by the latest wave of COVID-19, Democrats in the White House and Congress should bite the bullet and include an increase in the debt limit in their budget legislation. , knowing that this approach will ensure that Republicans do not have to share responsibility for a necessary but unpopular step.
Democrats don’t have much time to decide on a course of action, however. Including an increase in the debt ceiling in the reconciliation bill is to include it first in the budget resolution for fiscal year 2022 which authorizes reconciliation. This resolution will be presented to Congress as soon as the Senate finishes voting on the bipartisan infrastructure bill and before it is free to take its scheduled vacation in August.