Businesses want Washington to increase the U.S. debt limit as part of a package to avoid the “fiscal cliff,” thus averting two crises in one go.
But conservative Republican lawmakers would cry foul. For, while corporate America wants to head off market turmoil and the economic uncertainty that debt-limit drama might bring, Republicans want to use the threat of a debt-limit standoff to extract the biggest spending cuts possible.
Businesses and Wall Street want Washington to fix the issue well before that. Specifically, they want Congress to agree on a lame-duck package that avoids the automatic spending cuts and tax hikes dubbed the "fiscal cliff" and provides a framework for a broader deficit reduction deal next year. At the same time they want to prevent 11th-hour brinksmanship of the sort that triggered a U.S. credit downgrade in the summer of 2011.
“The downside risk here is significant if we don’t include it,” said Rob Nichols, president and chief executive officer of the Financial Services Forum; “It’s very sensible to include that, so we don’t roil the global capital markets any further.”
The U.S. Chamber of Commerce, the nation’s largest business lobby, agrees. While not explicitly demanding a debt-limit hike be part of fiscal-cliff talks, it says it's the perfect place to do just that.
Washington is expected to hammer out an agreement to avoid the cliff and also establish a framework for broader fiscal reforms, including tax reform, that could be accomplished in coming months.
Ken Bentsen, head of the Washington office at the Securities Industry and Financial Markets Association (SIFMA), says tackling the debt limit now would let the next Congress get to work on those big projects.
“As a practical matter, it would make sense to wrap it in,” he said. “You could move on to deal with tax reform and fiscal reform and all other things … and not have this looming cataclysmic event hanging over you.”
Negotiations in 2011 produced one of the most protracted and dramatic fights of the 112th Congress. The drama ended with a deal only hours before the government would have run out of money to pay its debts.
The political brinksmanship roiled markets and led to the first-ever downgrade of America’s credit rating.
Conservative Republican lawmakers are still stinging over that fight, feeling they have little to show for it.
The August 2011 agreement created a “super-committee” of House and Senate negotiators. If they failed to cut the deficit by at least $1.2 trillion, automatic “sequestration” would take effect, cutting spending across the board.
That's what happened; the bipartisan panel failed to get the job done and now Congress is trying to find a way to avert the automatic cuts.
It's left some Republicans wary of future efforts to hike the debt ceiling. “If you would raise the debt ceiling in some kind of agreement here in the lame duck, you would have raised the debt ceiling twice and not cut any spending,” said Rep. Jim Jordan (R-Ohio), chairman of the House Republican Study Committee, who opposed the last hike. He added, “To me, that’s a huge problem.”
It would also be uncomfortable to have the debt limit raised with the votes of many lawmakers who are leaving office. “There’s a philosophical problem with doing lots and lots of big things in a lame-duck Congress,” Jordan said.
Rep. Tim Huelskamp (R-Kan.), another conservative Republican who opposed the last deal, said congressional leaders and the White House do not have time to craft a deal that could justify another debt-limit increase.
“The agreement they would come up with [in the lame duck] would be too small and not be substantial enough,” he said, adding garnering rank-and-file Republican support would be much harder if the fiscal-cliff package included tax increases.
“The debt deal was just a real disaster for most of my colleagues,” he said. “To wrap that into what could be a tax increase proposal … makes it harder to pass.”
He also pushed back against the warnings of market turmoil coming from the business sector. He maintained that the nation’s fiscal trajectory is the real economic threat to worry about.
“I never thought the stock market was a very accurate predictor of economic reality,” he said. “I’d rather listen to Main Street than Wall Street.”
This story was updated at 8:43 a.m.