Debt drama looms for Congress

Debt drama looms for Congress
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Congress has a long list of unfinished business for the fall, with highway funding, tax break legislation, a budget deal and a spending package all awaiting action.

But it’s the need for an increase in the debt limit that looms largest of all.

The nation is again coming close to hitting the “ceiling” for overall debt, which Congress set at $18.1 trillion in February of 2014.

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While the deadline for lifting the limit is uncertain, Treasury Secretary Jack LewJack LewOvernight Finance: House GOP plans short-term spending bill | Senate Republicans not happy | Yellen intends to finish term Lew: Don't paint Wall Street execs with 'broad brushstroke' Dumping Obama’s faux foreign tax legislation should be high on Trump's to-do list MORE warned last month that the “extraordinary measures” now preventing a debt default could be exhausted by the end of October.

Debt limit increases have been among the fiercest legislative battles of President Obama’s tenure, most memorably in the summer of 2011, when the nation suffered its first-ever debt downgrade after budget talks ended in acrimony.

Lew is expected to give lawmakers another update on the debt limit after the August recess. When he does, it could be the catalyst for action on a broader fiscal agreement.

“I think that will be the precipitating factor,” said Steve Bell, former staff director to the Senate Budget Committee and senior director of economic policy at the Bipartisan Policy Center.

Assuming Congress passes some kind of spending bill in September to avoid a government shutdown, the debt ceiling will likely be next on the agenda.

The Bipartisan Policy Center predicts the deadline for raising the borrowing cap will arrive in late November or early December. But the constant flow of funds in and out of the Treasury makes pinpointing that deadline, especially this far in advance, inherently challenging.

“If we’re wrong, and it’s earlier than that, you’re going to have a mess that’ll be worse than ever, but they’re still going to have to deal with it,” Bell said.

The deadlines for Congress have piled up, with both the House and Senate having left Washington for the month-long August recess.

Congress will have to pass another extension of the Highway Trust Fund by Oct. 31, and many expect lawmakers to strike another budget deal to increase the spending limits under sequestration.

With the 2016 election on the horizon, some outside experts predict lawmakers will be eager to avoid another dramatic standoff over the debt limit.

“My sense is that lawmakers won’t want to appear dysfunctional at the same time their electioneering goes into high gear,” said Mark Zandi, chief economist at Moody’s Analytics.

Senate Majority Leader Mitch McConnellMitch McConnellDriverless car industry embraces Trump’s Transportation pick Trump flirts with Dems for Cabinet Lawmakers eye early exit from Washington MORE (R-Ky.) vowed at a press conference before the recess that Congress would ensure the nation’s financial obligations are met.

“We're not doing government shutdowns and we're not threatening to default on the national debt,” said McConnell, who suggested the debt ceiling could be wrapped into a mega-negotiation over the budget and spending.

“Each side will have to give some things they don't want to give, and we'll get to an agreement,” he said.

But the White House has warned Republicans that the debt limit is not to be used as a bargaining chip, the same position that Obama took in 2013. 

“The president’s been very clear. This is not something to be negotiated with, taken as a hostage,” Office of Management and Budget Director Shaun DonovanShaun DonovanOvernight Finance: Dems turn up heat on Wells Fargo | New rules for prepaid cards | Justices dig into insider trading law GOP reps warn Obama against quickly finalizing tax rules Obama requests .6B in aid for Louisiana floods MORE said at a Wall Street Journal event in June.

The administration notes that that the debt limit increase would cover spending already approved by Congress.

“We’re certainly not going to be negotiating over the debt limit,” Donovan said. “This is something Congress needs to do and it’s something they need to do without any conditions.”

Before leaving town for the August recess, senators said they had no idea how the fall’s fiscal battles would play out.

Sen. Angus KingAngus KingAngus King: Trump's not draining swamp, he's adding alligators Overnight Cybersecurity: Last-ditch effort to stop expanded hacking powers fails Intel Dems push for info on Russia and election be declassified MORE (I-Maine) told The Hill the debt limit “will certainly be a factor” in guiding the negotiations.

Asked if a debt ceiling increase could be attached to a new budget agreement that lifts the $1.017 trillion budget cap, King said, “It’s possible. At this point, anything is possible.”

Sen. Roy BluntRoy BluntKey Republicans ask Trump to keep on NIH director Overnight Defense: Trump reportedly picking Mattis for Defense chief Dem senator: Petraeus would have ‘real challenge’ on confirmation MORE (R-Mo.), vice chairman of the Senate Republican Conference, told The Hill “I don’t know” when asked if the debt-ceiling and the budget increase could be tied together.

The confluence of spending matters could get complicated, particularly if the Republican presidential contenders throw up hurdles in the Senate.

“It is certainly possible that those in Congress running for President may feel compelled to use the debt limit issue to attract attention and boost their campaigns,” Zandi said. “That would make for very bad economics, but from their perspective it may be good politics.”

The outcome could hinge on when the debt deadline ultimately falls.

While an earlier deadline around October could speed up budget talks, it would also leave lawmakers with little time for action. A later deadline in November or December could be more manageable.

Doug Elmendorf, former director of the Congressional Budget Office (CBO), warned it would be risky if all of the fiscal matters were combined.

“I think it makes good sense to raise the debt limit as part of the budget negotiations that need to occur this fall, but it would be dangerous to use the threat of defaulting on the debt as a way of forcing agreement,” he said.

After the August recess, the House will have about 45 legislative days left before the end of the calendar year. The Senate will have about 60 days.

Elmendorf headed the CBO during the “fiscal cliff” negotiations in 2013, when lawmakers were in session at 2 a.m. on New Year’s Day trying to avert tax increases and spending cuts that threatened a recession.

Soon-to-be dean of Harvard’s Kennedy School of Government, Elmendorf said he hopes Congress avoids a repeat of that scenario.

“I lived through New Year’s Eve. It wasn’t very fun,” he said. “The idea that Congress would voluntarily do that again is a little tough for me to get my mind around.”