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Budget Stand-off Could Again Impact US Credit Rating

  • Michael Bowman

The U.S. Capitol building, November 2011 file photo.

The U.S. Capitol building, November 2011 file photo.

Republican lawmakers are not ruling out using America’s debt limit as a bargaining chip in looming deficit reduction battles with congressional Democrats and the Obama administration. A similar partisan dynamic in 2011 led to a downgrade of the nation’s credit rating.

A new year and the swearing in of a new Congress have not erased familiar battle lines between Democrats and Republicans when it comes to reining in America’s runaway national debt.

The Senate’s top Republican, Minority Leader Mitch McConnell, appeared on numerous U.S. television programs Sunday. He repeatedly was asked if his party will link raising the federal government’s borrowing limit to deep spending cuts. This was his response on CBS’ Face the Nation program.

What I am willing to say is, if the president will not lead us in the direction of reducing this massive spending addiction that we have, then we have to use whatever leverage we have. And there are some examples of leverage coming along. The debt ceiling is one of them," he said.

Failure to grant additional borrowing authority could cause the federal government to run out of funds in coming months, and could shake global confidence in U.S. credit worthiness.

As in 2011, many Republicans today are demanding a dollar in spending cuts for every dollar increase in the debt ceiling. But unlike two years ago, President Barack Obama says he will not bargain over the debt limit - a stance that all but dares Republicans to follow through on a threat that economists warn could inflict massive damage to the U.S. and global economy.

Democrats, like House Minority Leader Nancy Pelosi, point out that a higher debt ceiling is required to cover spending Congress already approved. She argues it is a separate issue from looming budget battles over future federal spending.

“Right now we have to pay the bill that has been incurred. If you want to cut spending for what we do next, [that is] fine. But you cannot say, ‘I am not paying the past debt’," she said.

Republicans counter that absent dire consequences for inaction Congress will never agree to the painful spending cuts and reforms required to solve America’s fiscal woes. Democrats point out they have already voted in favor of more than $1 trillion in federal spending cuts. President Obama has said he is open to reforming costly programs that provide health care and other benefits to retirees.

Last week, Congress approved a measure to avert automatic tax hikes and delay deep spending cuts mandated under the so-called “fiscal cliff." The last-minute deal raised income tax rates for top earners.

President Obama says a mix of spending cuts and additional revenues will be needed to reduce America’s trillion-dollar federal deficit. Republicans say taxes have already been dealt with, and debt-reduction efforts must now focus on spending alone.