The United States has yet again reached its borrowing limit, setting the stage for a broad fiscal debate that could be the defining issue of the 114th Congress.
The nation will again reach its statutory debt limit on Monday. Its return has sent the Treasury Department hunting for funds to continue paying the bills, as lawmakers begin strategizing over the issue behind some of the most pitched battles of President Obama’s tenure.
And experts believe the nation will be in danger of a catastrophic default sometime this fall — roughly overlapping with the deadline Congress needs to hit to avoid another government shutdown.
The upcoming debt limit battle marks the first with a GOP-controlled Congress, handing Republicans more power as Obama again looks to hold a hard line against any efforts to use the threat of a catastrophic default as bargaining leverage.
Exactly what Republicans could pair with a borrowing boost, and how hard they would push those demands, is the major question in and out of the party.
Republicans now enjoy the majority in both chambers. But with power comes responsibility, and the burden for raising the nation’s borrowing cap has historically fallen on the party in charge.
Aware of his party’s rocky record during previous standoffs, Senate Majority Leader Mitch McConnellMitch McConnellLawmakers push one-week stopgap funding bill Overnight Finance: Inside Trump's tax plan | White House mulls order pulling out of NAFTA | New fight over Dodd-Frank begins Dem rep: Trump's tax plan as believable as 'magic, unicorns or Batman' MORE (R-Ky.) has repeatedly said he has no designs on a government shutdown or debt default. He reiterated that message earlier this month but also noted that some “other important legislation” could accompany a limit increase.
Some GOP lawmakers appear to be growing tired of high dramatics, especially after the party failed to halt the president’s immigration executive action by delaying funding to the Department of Homeland Security.
Sen. Jeff FlakeJeff FlakeTrudeau, Trump speak for second night about US-Canada trade Trump says he may break up 9th Circuit Court after rulings go against him Trump administration weighing order to withdraw from NAFTA MORE (R-Ariz.) said Thursday that the nation needed to come up with a long-term fiscal plan. But noting the GOP’s failed effort on immigration, he openly questioned using the debt limit to advance that debate.
“The last high-wire act didn’t turn out too well,” he said. “It’s a tough hostage to take…I’m always for anything that gives us a discussion on what to do long term, but I just don’t know if this is going to be the place.”
Senate Finance Committee Chairman Orrin HatchOrrin HatchOvernight Finance: Inside Trump's tax plan | White House mulls order pulling out of NAFTA | New fight over Dodd-Frank begins GOP leaders, top tax writers: Trump principles will be 'critical guideposts' Senators push 'cost-effective' reg reform MORE (R-Utah) also seemed unenthused about another pitched debt limit battle, echoing Lew’s argument that a borrowing boost does not curtail spending already authorized.
“The debt ceiling is kind of a phony issue anyways,” he said. “Whatever it takes to not shut the place down, I’m all for.”
But other Republicans still view the need to raise the limit as a critical juncture to push fiscal priorities, and make the administration pay attention to their priorities.
“I’ve consistently been one of those who’ve felt that we should use the debt ceiling as a vehicle to drive further reforms. I would like to see that,” said Sen. Mike CrapoMike CrapoBattle begins over Wall Street rules Lawmakers call for pilot program to test for energy sector vulnerabilities Senators war over Wall Street during hearing for Trump's SEC pick MORE (R-Idaho).
And House Budget Committee Chairman Tom Price (R-Ga.) has raised the idea of reviving the “BoehnerJohn BoehnerLobbyists bounce back under Trump Business groups silent on Trump's Ex-Im nominee Chaffetz won't run for reelection MORE Rule,” demanding a dollar in spending cuts for every dollar in extra borrowing.
A McConnell spokesman said discussions over the limit are ongoing, but did not offer specifics.
With the limit looming, the Treasury Department has already begun deploying its oft-used set of “extraordinary measures” – the tools it can use to free up space under the nation’s borrowing limit so it can continue to pay bills due.
On Friday, Treasury Secretary Jack LewJack LewWhite House divide may derail needed China trade reform 3 unconventional ways Trump can tackle the national debt One year later, the Iran nuclear deal is a success by any measure MORE told lawmakers he was beginning to use those measures, and urged Congress to maximize speed and minimize drama when it comes to another boost.
Lew also warned Congress not to view the borrowing cap as a “bargaining chip,” indicating that the White House will again be looking for a “clean” debt limit increase, free of other policy prescriptions from GOP lawmakers.
Some Republicans believe the administration’s position is untenable, particularly given the new makeup of Congress.
“The vast majority of the American people would say at some point we need to balance,” said Sen. James Lankford (R-Okla.). “The White House is in a tough position if they say to endlessly raise the debt ceiling with no consequence.”
While a debt default would be a disaster for financial markets, Wall Street is showing little sign of anxiety as the debate kicks off.
Alec Phillips, a political economist for Goldman Sachs, said investors see little reason to believe that this latest debt limit debate will be worse than any other in recent memory.
“My own view is that recent comments from Republican leaders imply it might be a little bit smoother than some of the previous debates,” he said.
How much success Republicans find in agreeing on a budget could be a key indicator for the debt limit fight. Both chambers are preparing to unveil their budget plans in the coming days, and if Congress can unify around a single budget, it opens the door to a debt limit plan exclusively backed by Republicans.
If Congress agrees on a budget, that opens the door to handling the limit via budget reconciliation, which only requires a simple majority in the Senate.
That means that Republicans in the House and Senate could theoretically send their own debt limit package to the president, and dare the White House to reject it.
Phillips said such a move would be uncharted territory for markets.
“How do outside observers react to a veto of a debt limit increase?” he said. “That might add some unpredictability to it.”
Congress agreed to suspend the nation’s borrowing limit until March 16 at the beginning of 2014. Under that agreement, all government borrowing that occurred during the suspension period would automatically be included in the new limit.
The end result is that as of Monday, the nation’s borrowing limit is roughly $18 trillion. And the government is already at that cap.
The good news for lawmakers is that they will have plenty of time to debate the issue. The Congressional Budget Office estimates the nation will not be in danger of missing any payments until October or November.
Debt fight to dominate
By Peter Schroeder - 03/15/15 10:30 AM EDT