As lawmakers on Capitol Hill struggle to advance a bipartisan bill to invest in the country’s critical infrastructure, the most powerful Republican in Washington signaled that his party’s cooperation with Democrats has limits.
Specifically, Senate Minority Leader Mitch McConnell said on Wednesday that he does not expect members of his party to support a measure authorizing the government to borrow the money it will need to meet its obligations later this year.
Because the amount of debt the U.S. Treasury can issue is capped by statute, whenever Congress approves spending that exceeds revenues – which it has done with every budget since 2001 – the country threatens to butt up against that limit, commonly known as the “debt ceiling.”
The current national debt totals a jaw-dropping $28.5 trillion, or 26% more than the U.S. gross domestic product.
In an interview with Punchbowl News, published Wednesday, McConnell said, “I can’t imagine a single Republican in this environment that we’re in now – this free-for-all for taxes and spending – to vote to raise the debt limit.”
Democrats, McConnell said, will have to take full responsibility for increasing the federal debt, suggesting that they do so using a process called “budget reconciliation,” which allows a bill to bypass the 60-vote margin in the Senate imposed by the filibuster.
Later on Wednesday, South Dakota Sen. John Thune, the third-ranking Republican in the Senate, echoed McConnell, saying “I don’t think there’s a single Republican senator who views increasing the debt limit so that Democrats can expand government and spend massive amounts as something they in the end would want to support.”
Congressional Democrats furious
Democrats in Congress were quick to point out the misdirection inherent in McConnell and Thune’s statements. Many of the obligations that the Treasury will have to meet later this year, and which will require more borrowing, have nothing to do with legislation currently being considered in Congress. Instead, they stem from decisions made in the past, when Republicans held control of one or both chambers of Congress.
In particular, Democrats pointed to tax cuts passed in the first half of the Trump administration – when Republicans controlled Congress – which severely reduced federal revenue. They also point out that the government’s initial response to the coronavirus pandemic while the Republicans were in charge of the White House and the Senate was also a driver of the debt.
Calling McConnell’s position “shameless, cynical, and totally political,” Democratic Senate Majority Leader Chuck Schumer said Wednesday, “This debt is Trump debt. It's COVID debt. And the bottom line is that leader McConnell should not be playing political games with the full faith and credit of the United States. Americans pay their debts.”
Asked about McConnell’s suggestion that Republicans would not support a debt limit increase, President Joe Biden pointed out that Democrats had twice voted for debt limit increases during his predecessor’s four years in office.
“I was hoping that wouldn’t be the case. You know, for the last four years, they've just extended the debt limit,” Biden said.
“The reason for the significant debt is because of their ... tax cut,” he added. “And there are going to be a couple of very difficult decisions that are going to have to be made to get through the end of the year. And one of them is the debt limit and extending the debt. So, I don’t have an answer for you, but it’s – I hope we can get by it.”
If the United States were to fail to pay its debts on time – whether that means interest payments on bonds, Social Security benefits checks, or government payrolls – the results could be catastrophic for both the U.S. and for the broader global economy.
Debt issued by the Treasury is the closest thing to a risk-free asset that investors can purchase, and is used to benchmark any number of other assets in the capital markets. Were the value of those securities to be suddenly placed in doubt, there would be severe repercussions throughout the global economy.
The enormity of the fallout from a U.S. default would be so profound that many assume that it will never be allowed to happen. But lawmakers have danced very close to the edge in the past. In 2011, when House Republicans battled with Democratic President Barack Obama over the federal debt, the bond rating firm Standard & Poor’s issued the first-ever downgrade of U.S. sovereign debt, sparking a major stock market sell-off.
Some hope for cooperation
Not everyone believes that McConnell and Senate Republicans will necessarily succeed in forcing Democrats to shoulder full responsibility for the debt limit increase.
Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget, said he believes that Democrats have at least a chance of persuading some Republicans to agree to a backdoor increase of the limit, which could be achieved with a vote to “suspend” it rather than increase it.
“I wouldn't rule out a bipartisan debt limit increase,” Goldwein said. “I think that's the most likely option.” That could be achieved by attaching a suspension to the bipartisan infrastructure bill currently being written in the Senate, he said, or in a massive budget bill at the end of the fiscal year, assuming the Treasury doesn’t run out of money beforehand.
The very existence of the debt limit as a sticking point in U.S. politics is an accident of history. The limit was originally intended to make issuing debt easier – not more difficult. Congress used to be required to vote on every issuance of debt by the Treasury, a process that became unwieldy as the country and government grew larger.
In 1917, with the country raising money via bond issuances to support its involvement in World War I, Congress gave blanket approval to all debt issuance up to a specific amount. It was only decades later that the debt ceiling became a tool of obstruction. However, as Goldwein points out, it’s a problem the country regularly brings upon itself.
“So long as we keep borrowing money, we're going to have to keep raising the debt limit or suspending it,” he said. “That's been a reality in the United States for a very long time.”