Politics, like fashion, can be cyclical. And in the coming weeks, America is about to go through the economic version of the return of low-rise jeans — a baffling choice that even in theory benefits only a few select individuals, but in practice is a terrible look for everyone.
The debt ceiling, in case you’ve purged it from your memory, is the legal limit for how much debt the United States can take on as a country. Once that limit is hit, the U.S. Treasury can no longer issue bonds to raise funds to pay for, well, everything that the government does. During the Obama presidency, Republicans used the threat of the U.S. defaulting on its loans to force sharp budget cuts to nonmilitary spending. And now they’re set to do the same to President Joe Biden as Congress prepares to pass the cornerstone of his economic agenda.
However, when Donald Trump was in the White House, and the GOP controlled Congress, the debt ceiling apparently was less of a concern. The cap on government debt was boosted under Trump first in late 2017 for three months in a deal with the Democrats. That had to be raised again — thanks to the GOP’s huge tax cuts for the wealthy and businesses — as part of a broader spending bill he signed in 2018. Then, after Democrats took control of the House in 2019, Trump signed a budget that suspended the debt ceiling, then $22 trillion, entirely until this July.
We’ve clearly passed that point on the calendar by now — and Republicans have suddenly started warning that they won’t support another boost to the debt ceiling. "I can't imagine there will be a single Republican voting to raise the debt ceiling after what we've been experiencing," Senate Minority Leader Mitch McConnell, R-Ky., told Punchbowl News in July.
Bear in mind that raising the debt ceiling doesn’t approve more spending or even endorse old spending — it just allows the U.S. to keep paying the debts that have already been incurred and raise more money to pay for federal appropriations. As of July 31, the total spending subject to the ceiling totaled about $28.5 trillion, according to a Congressional Budget Office estimate.
So, what’s the big deal if the ceiling isn’t raised? Well, this is an extreme oversimplification, but if you’re not able to get the funds you need to pay off your credit card statement, banks will be mad. Your credit score will drop, and it’ll become much harder to borrow any new money.
Treasury Secretary Janet Yellen warned Speaker Nancy Pelosi, D-Calif., on Wednesday that we’re looking at the government-level version of that problem if the ceiling isn’t raised — and soon:
“A delay that calls into question the federal government’s ability to meet all its obligations would likely cause irreparable damage to the U.S. economy and global financial markets,” Yellen told Pelosi, D-Calif., in a letter dated Wednesday.
“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” she added.
Since Aug. 1, the Treasury has been taking “extraordinary measures” to keep things running, mostly involving holding off on payments to certain government retirement funds. That should keep the government in business through the end of the fiscal year, on Sept. 30, but the pandemic has made it hard to figure out exactly how much cash on hand Yellen has to work with.
Democrats could attach the debt ceiling increase to the huge budget reconciliation bill they’re teeing up — but they don’t want to. "We'll have several options. We'll make them well known to you as we narrow and go forward. But it has to happen," Pelosi said on Wednesday. "We won't be putting it in reconciliation. No."
The result is a rehash of what may be the dumbest set of fights from the last two decades.
Outside the budget process, though, any bill that raises the debt ceiling will need 10 GOP votes to pass the Senate thanks to the filibuster. Pelosi thinks that the GOP needs to be on the hook for the Trump era’s increase of $7 trillion in debt. "When President Trump was president, we Democrats supported lifting the debt ceiling because it's the responsible thing to do. I would hope that the Republicans would act in a similarly responsible way," she said.
That’s all well and good, but it still doesn’t get the votes needed to keep markets calm and the extremely wobbly economy from taking a nosedive. The result is a rehash of what may be the dumbest set of fights from the last two decades, one that — as a reminder — wound up having absolutely no effect on the debt or spending. After nearly taking the U.S. to default in 2011 and 2013, Congress regularly voted to waive the discretionary budget caps known as sequestration before the Budget Control Act of 2011’s effects officially ended this year.
Instead of Republicans learning how bad an idea taking the debt ceiling hostage is, we’re in a situation again where the GOP and McConnell in particular are betting against the United States in order to maximize their own political fortunes. If the American people and companies take a beating in a new recession what does it matter if during the midterm elections Biden and Democrats get the blame?