Infrastructure bill could upset debt limit timeline
The passage of President Biden’s sweeping economic plan could shorten the time frame in which Congress must act to avert a debt default even as Democrats remain divided over how to raise the borrowing limit.
The U.S. last week exhausted the $480 billion in new debt authorized by a bipartisan deal last month and may need to raise or suspend the ceiling shortly after December begins. The Treasury Department has already begun taking “extraordinary measures” to avert a default, but Treasury Secretary Janet Yellen warned it may not be able to do so beyond Dec. 3.
While budget experts say the Treasury Department should be able to keep the U.S. solvent beyond that date, a provision of the bipartisan infrastructure deal could accelerate that countdown.
The $1.1 trillion measure would transfer $118 billion from the Treasury’s General Fund to the Highway Trust Fund. It’s unclear when Treasury would have to make that transfer, but doing so before a debt ceiling increase would deplete cash that could be used to avert a default.
“We don’t know if they’re going to need to make the transfer before that time frame. They might not need to — it’s a matter of certain interpretation of the law,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, in an interview.
“But that’s at least one variable that’s playing into this.”
The think tank estimated Friday that the “x-date,” the day when the U.S. no longer has enough cash to stay current on its bills, will likely land between mid-December and mid-February. While that range is both later and broader than Treasury’s target for action, Akabas said Congress should act quickly lest a sudden dip in revenue or unforeseen expense bring the U.S. close to peril.
“Nobody knows when exactly the date will be,” Akabas said. “But they’re right that we’re getting pretty close to that time frame again.”
If the U.S. reaches the x-date, the Treasury would be forced to prioritize some payments and miss others for the first time in the country’s history. A default could cause both a recession in the American economy and chaos in global financial markets as trillions of dollars of sovereign debt becomes irredeemable.
Despite those risks, there is a little hope for a bipartisan breakthrough after Senate GOP leaders last month briefly caved from their refusal to help Democrats keep the country solvent.
Republican senators have warned since summer that they would block Democrats from raising the debt ceiling by filibustering any measure to do so. While both parties have voted against debt ceiling hikes before or held them up to extract concessions, the GOP refusal to even consider raising the borrowing limit was unprecedented.
GOP leaders insisted that Democrats must raise the debt ceiling through the budget reconciliation resolution — the vehicle for Biden’s $1.75 trillion social service and climate bill — which only requires a simple majority to pass in each chamber.
Budget reconciliation would not only require Democrats to raise the debt ceiling to a specific number, instead of suspending it until a certain date, but also require a potential marathon of amendment votes. Democratic leaders refused to raise the debt ceiling through reconciliation, arguing it would take too long and set a precedent for future GOP obstruction.
As Democratic leaders refused to reconsider reconciliation with less than two weeks until a potential default, they agreed to a deal offered by Senate Minority Leader Mitch McConnell (R-Ky.) designed to stave off a crisis until Dec. 3.
While McConnell faced intense backlash from conservative senators over his willingness to cut a deal, he said Senate Majority Leader Charles Schumer (D-N.Y.) poisoned the well for future bipartisanship with a provocative speech following the vote.
“Your lieutenants on Capitol Hill now have the time they claimed they lacked to address the debt ceiling through standalone reconciliation, and all the tools to do it. They cannot invent another crisis and ask for my help,” McConnell warned in a letter to Biden.
Budget experts say raising the debt ceiling through reconciliation would likely take two weeks from start to finish, which gives them more than enough time to act before Dec. 3.
While Democrats have already used the process to pass the March stimulus bill and are on track to pass the Build Back Better plan using reconciliation as well, they can still introduce a separate resolution to raise the debt ceiling to a specific amount.
While Yellen has insisted that raising the debt ceiling is a bipartisan responsibility, she told The Washington Post in a recent interview that acting through reconciliation is a “viable” last-ditch effort.
“If Democrats have to do it by themselves, that’s better than defaulting on the debt to teach the Republicans a lesson,” Yellen said.
“To me, as the person who has to pay the bills and watches this on a daily basis — our funds dwindling in our account over time — I very much want to make sure that this is addressed.”
House Budget Committee Chairman John Yarmuth (D-Ky.) also told reporters at the Capitol last week the Democrats have the time and authority to pull off a debt limit hike through reconciliation.
“We have the tools to do it,” Yarmuth said.
“The issue for a lot of our members is that if you use recon to raise the debt limit, you actually have to specify a figure,” he continued. “There are a lot of members who don’t want to vote for that number.”
Some of Yarmuth’s fellow House Democrats are resigned to having to raise the debt limit through reconciliation with Republicans unlikely to relent.
“It might show some weakness, but don’t forget they’re not cooperating with anything,” said Rep. Bill Pascrell (D-N.J.) of Senate Republicans.
Even so, most Senate Democrats remain opposed to raising the debt ceiling through budget reconciliation.
The Senate, unlike the House, would be forced to go through an obstacle course of amendment votes that could delay the process and create future legislative and political headaches. Democrats are also wary of setting a precedent of absolving Republicans for their role in the country’s fiscal health.
“We have to continue to require this to be a bipartisan commitment. At the very least Republicans need to allow us to do it with 50 votes through regular order,” echoed Sen. Chris Murphy (D-Conn.).
“Once you do it once, you will be required to use reconciliation every single time for the debt ceiling. That would be a terrible precedent for the country.”