President Obama’s attempt to wrest control of the debt limit from Congress is getting quiet praise on Wall Street.
Yet the financial community has long wanted matters concerning the debt limit to be as routine as possible, and the financial industry recognizes Obama’s proposal could accomplish that goal.
“I think, more than anything, the goal is not to have a repeat of what happened last year ever again. The market uncertainty, the downgrade, everything,” said one financial industry representative who wished to remain anonymous. “Removing the recently established uncertainty over raising it, I think, would go a long way.”
Under the White House proposal, the president would have the power to raise the debt limit as needed.
Congress currently must pass legislation to hike the limit, but under Obama’s proposal lawmakers would only be able to pass a resolution disapproving of a debt limit increase by the president.
The president also would have the power to veto any resolution of disapproval, meaning two-thirds of Congress would have to disapprove of such an increase to block it.
The arrangement largely mirrors what was hammered out in last summer’s debt limit fight, when Republicans agreed to allow the president to request additional debt limit boosts with the opportunity to vote to disapprove of them. Both attempts to block the increases failed.
Given the high threshold to block an increase, Obama’s proposal would effectively erase Congress’s control over the debt limit.
Republicans insisted Friday the proposal — accompanied by White House demands of $1.6 trillion in higher taxes — were unlikely to go anywhere.
“I understand the strategic value of that to the White House,” said Rep. Trent Franks (R-Ariz.). “It certainly makes it easier as it were to get a debt limit increase, but I am one that…believes that it ought to be difficult to increase the debt. It ought to be something that is painful.”
Other GOP lawmakers said giving up the leverage would remove a key check on Washington spending.
“We need to do whatever we can to make sure we maintain the discussion — I don’t want to use the word leverage — dialogue with the president where he will engage on spending,” said Rep. Scott Garrett (R-N.J.).
Other observers agreed Obama’s proposal would calm financial markets unnerved by last summer’s debt ceiling haggling, which eventually led one firm to lower the U.S. credit rating.
“Financial markets around the world were really spooked last year,” said Steve Bell, a former Republican Senate staffer who is now director of economic policy at the Bipartisan Policy Center. “I think they will be spooked this year if they get the feeling that a similar thing will happen.”
Bell’s group estimated that last summer’s debt limit fight will end up costing the government $18.9 billion over the 10 years as a result of heightened borrowing costs.
Treasury Secretary Timothy Geithner has said he would like to do away with the debt limit altogether. While Wall Street groups have not gone quite that far, any moves that could reduce the chance a debt limit standoff could throw markets into turmoil would be received warmly.
But even if backers of the financial community would welcome the debt limit idea, the overall package put forward by the president might not be worth it.
“That is a good thing, but not worth the price of everything else,” one financial lobbyist said.
Democrats voiced support for the president’s debt limit push, even if it meant that they might someday be similarly disarmed against a Republican president.
House Minority Leader Nancy Pelosi (D-Calif.) said she supported the president’s proposal, while Rep. Peter Welch (D-Vt.) said it was high time to take the threat it poses to the economy off the table.
“It’s hardball. It’s a tactic to use the debt limit to get your way,” he said. “It’s understandable…but it’s very, very dangerous for the country.”
Republicans did not completely rule out the idea as part of the fiscal cliff, but said the price tag for keeping it would be incredibly high.
“There’s have to be substantial spending restraints put in place, I think, for our side of the aisle to even consider that,” said Rep. Randy Neugebauer (R-Texas). “I know this Republican can’t get behind that idea.”