Debt ceiling returns, creating new headache for GOP
The legal limit on how much the United States government can borrow returns on Thursday, potentially setting up an intense political battle in Congress.
Lawmakers will have until sometime this autumn to raise the debt ceiling before the Treasury runs out of ways to make essential payments, putting the nation at risk of its first-ever debt default.
The debt limit is a major test for the Trump administration and Republican congressional leaders who’ve sought major spending cuts before previous increases in the debt ceiling.
The White House and Treasury Secretary Steven Mnuchin are pushing lawmakers to raise the ceiling as soon as possible, and Senate Majority Leader Mitch McConnell (R-Ky.) said Tuesday that Congress will “obviously” increase the limit.
But the highly charged political atmosphere, demands from fiscal conservatives, record high debt levels and the perpetual wild card that is Trump all make a quick and easy increase in the borrowing limit unlikely.
Democrats have warned that Republicans shouldn’t count on their votes.
“We’re not going to get what we want. We understand that. But if they think they’re going to get everything they want, then they’re going to have to get it with their votes,” said House Minority Whip Steny Hoyer (D-Md.).
The debt ceiling was temporarily suspended in November 2015 through a budget deal negotiated by President Obama and then-Speaker John Boehner (R-Ohio). That deal waived the debt ceiling until March 15, retroactively approving all borrowing up to that time.
Mnuchin urged congressional leaders last week to raise the debt ceiling “at the first opportunity,” while the Treasury takes extraordinary measures to pay bills without adding to the country’s roughly $20 trillion debt. Those measures include stopping payments into certain government funds, halting certain bond sales and selling government-held securities.
“There’s some expenses associated with it,” said Maya MacGuineas, president of the nonpartisan debt watchdog Committee for a Responsible Federal Budget. “It’s a little ponzi scheme with government trust funds, but in the end, everyone remains whole.”
The Treasury can likely delay the need to raise the debt ceiling until October or November, according to the nonpartisan Congressional Budget Office. At that point, Treasury will have exhausted extraordinary measures and would need to borrow more money to pay the country’s bills.
Lawmakers have squabbled over raising the debt ceiling, with the stakes escalating in recent years. The 2011 standoff over led to the creation of the sequester: automatic cuts touching every part of the federal budget, a policy now loathed by both parties for different reasons.
Republicans have previously demanded spending cuts or entitlement reforms for raising the debt ceiling, and leaders have been mum about what they’d seek this time around.
Trump has “expressed a commitment to work with Congress to raise the debt limit and to address the growing national debt,” a White House spokesperson told The Hill on Tuesday. “The President’s team is also looking into a variety of ways in which to ensure that our commitments are kept.” The spokesperson declined to go into detail.
With meager majorities in the House and Senate, the GOP can afford few defections to pass the debt limit increase on their own. Democratic leaders have warned Republicans not to attach unreasonable or unrelated measures to the debt ceiling, or they wouldn’t support it.
“We’ll cross that bridge when we come to it,” said Senate Minority Leader Charles Schumer (D-N.Y.). “[But] we’re going to have to have some of our Republican colleagues step up to the plate on this issue.”
Hoyer said “if there is a clean debt limit extension, I think Democrats would be inclined not to vote against it. But that’s a big if.”
“The problem will be that the hardliners will be more inclined or as inclined as the people who shut down the government last time,” said Hoyer. “If those hardliners continue in that position, then they’ll be responsible for shutting down the government.”
Several fiscal hawks said they wouldn’t support raising the debt ceiling without measures to reduce spending and the debt. House Freedom Caucus Chairman Mark Meadows (R-N.C.) said he’d support a hike only “if there is a real path to balance … but we have typically not shown the intestinal fortitude to do just that.”
Meadows’ Freedom Caucus colleague Rep. Mark Sanford (R-S.C.) called the “debt ceiling is a leverage point in forcing conversation about where do we go from here” and said he wouldn’t vote for an increase without cuts.
“If our prescription is simply to keep on doing what we’ve been doing, I think that we’re going to see one heck of a financial storm coming,” Meadows said.
The GOP’s ideological divide could be complicated by Trump. His only formal debt relief plan is a combination of ambitious economic growth promises and budget cuts with major impacts for government agencies but minor effects on the debt.
MacGuineas said Trump “has been all over the map when it comes to debt.”
“He kind of assumed the debt as a metric of his success or failure,” MacGuineas, but “he has yet to put forth any policies that would put us on a more responsible course.”
Observers and analysts ultimately expect Congress to raise the ceiling. Moody’s Investor Services expects the federal government to raise the debt ceiling before risking a default, and Fitch Ratings said Wednesday a debt ceiling crisis is less likely this year than in years past.
A former senior Senate aide said financial markets have come to expect contentious debt ceiling showdowns and trust the government to find a deal.
“Everybody warns about the debt ceiling but nothing ever happens, and until you see some sort of impact, someone calling in the money that they owe us,” said the former aide. “Cooler heads prevail under some sort of deal.”