The political stalemate over the debt ceiling begins in earnest as the Treasury Department maxes out its credit card to honor the country’s obligations.
But the White House‘s insistence that the debt ceiling be lifted through a bipartisan effort is being resisted by House Republicans, who, fresh from a bruising speakership fight, are pressing to slash federal government spending.
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The Treasury Department reached the $31.4 trillion debt ceiling Thursday morning, with Secretary Janet Yellen introducing extraordinary measures so the country can meet its existing commitments until June. This is not the first time the United States has faced the prospect of a default, coming close under former President Barack Obama in 2011. But the White House is being criticized for not learning from Obama, who, like President Joe Biden, was adamant that he would not negotiate with congressional Republicans and that the borrowing authority should be extended on a bipartisan basis without conditions.
Bipartisan Policy Center Senior Vice President Bill Hoagland, a federal budget expert, blasted Biden’s White House’s “my way or the highway” approach, particularly amid political polarization and “what we witnessed in the House” during the speakership standoff.
Hoagland believes the White House’s position is its opening negotiating stance considering the possible consequences of not lifting the debt ceiling and his intuition is reflected by the market’s relative stability.
“He had to negotiate, and in the process of negotiating, we ended up raising the debt limit and putting in a super committee and other things that came along with it,” Hoagland told the Washington Examiner of Obama.
American Enterprise Institute fellow Mark Warshawsky implored Biden to propose “a realistic fiscal path” forward regarding federal debt, dismissing Biden’s claims he has decreased deficits as “disingenuous.”
For Warshawsky, Social Security, Medicare, and Medicaid create the most opportunities for cuts since they, as mandatory spending, account for 60% of the budget. But the politics surrounding those entitlement programs will make changes almost impossible two years before the 2024 elections. Sen. Rick Scott (R-FL), the former chairman of the Senate Republicans’ campaign arm, for example, has been hammered by Democrats and Republicans for the last 12 months after pitching that they be reevaluated every five years.
Instead, Hoagland predicts negotiations will center on discretionary spending, which represents 30% of the budget, as House Speaker Kevin McCarthy (R-CA) seeks to keep promises pledged to detractors concerning leaving spending at 2022 levels. Part of that deal did encompass a reassessment of the budget process and mandatory spending, in addition to not passing “a debt limit increase without a budget agreement or ‘commensurate fiscal reforms.'”
“It’ll probably be focused on 15% of federal spending, which is just the nondefense discretionary spending,” Hoagland said of the negotiations. “We’re headed toward some form of a cap on discretionary spending at around $1.5 trillion, which would be some $30 billion less than what we spent this year.”
Although the coming months will be economically and politically fraught, Warshawsky described the process as “incredibly important” and “sensitive,” contending that negotiations be reframed so lawmakers reduce debt compared to gross domestic product.
“Sometimes, the political system is a little messy, but you use the mechanisms that you find and that are available,” he said. “Obviously, we do have to pay our bills, but at the same time, we have to deal with this fiscal situation.”
The White House and House Republicans, such as Rep. Chip Roy (R-TX), are planning contingencies in case the country does default on its loans for the first time in history. Roy’s payment prioritization framework emphasizes debt service, Social Security, Medicare, and veterans, as well as military funding.
Brookings Institution economist Louise Sheiner is confident the debt ceiling will eventually be lifted, though “how long it takes to get there, what concessions are made, and how much damage the impasse does to the economy” remain uncertain.
“If the markets get very nervous, and the stock market tumbles, that will put pressure on both sides to get a deal,” she said. “When that happens is hard to know.”
The repercussions of protracted negotiations depend, too, on their length. A stock market crash or a credit rating downgrade could “lead to lasting damage for the economy,” Sheiner added.
“This is putting at risk the perception of the Treasury market as the safest and most liquid in the world,” she said. “Losing that status would be costly for taxpayers as it would raise the interest rate that Treasury has to pay on its debt. A debt ceiling crisis would also further erode Americans’ faith in their government.”
Obama administration officials defended the White House’s strategy, reiterating that it is Congress’s responsibility to safeguard the country’s fiscal standing. The U.S.’s S&P Global Rating was lowered from AAA (outstanding) to AA+ (excellent) in 2011, despite the debt ceiling being lifted.
“This is not a moment to push a pet project or your ideological bent on the role of government,” Obama spokesman Eric Schultz said. “This means the contrast between the two parties could not be more clear: If Republicans choose to act recklessly, it will be another episode demonstrating they cannot be trusted with power in Washington.”
House Republicans lifted the debt ceiling three times under former President Donald Trump, according to White House press secretary Karine Jean-Pierre. She has repeated her “no negotiations” talking point from the briefing podium this week but did add Wednesday that Biden’s legislative affairs aides have spoken to “members from both sides of the aisle” so “they know who to reach out to.”
“Our outreach is deliberate to ensure Congress knows that the debt ceiling must be addressed, again, without conditions,” she said.
Jean-Pierre’s colleagues have amplified her complaints about “hard-line MAGA Republicans,” including White House deputy press secretary Andrew Bates, who warned the GOP could “ruin of millions of American livelihoods, 401k plans, and small businesses, all in the name of scorched earth partisanship.”
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“Default would needlessly plunge the country into economic chaos, collapse, and catastrophe while giving our competitors like China a historic boost against us,” he said. “This president and the American people will not stand for unprecedented economic vandalism. Full stop.”
