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Topline
The federal government will reach its borrowing cap—known as the debt ceiling—as early as Thursday, forcing the Treasury to take “extraordinary measures” to meet its financial obligations over the next few months, setting the stage for a legislative showdown in which Republicans plan to demand steep spending cuts in exchange for a debt ceiling hike.
President Joe Biden meets with Congressional leaders at the White House in November 2022. (Photo by … [+]
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Key Facts
Treasury Secretary Janet Yellen warned in a letter to lawmakers last week that her ability to avoid a default, a scenario that would wreak havoc on the economy and threaten key spending programs such as Social Security and military pay, could end as early as June.
Congress will need to raise the debt ceiling before then to prevent the government from defaulting on its obligations for the first time in U.S. history, and some Republicans plan to ask for spending reductions, reforms to entitlement programs such as Medicare and Social Security and sweeping changes to President Joe Biden’s policies in exchange for a debt limit increase.
Indicating cuts to spending would be a key priority for House Republicans in the debt ceiling negotiations, House Speaker Kevin McCarthy (R-Calif.) told Fox News last week “one of the greatest threats we have to this nation is our debt.”
Republicans are already bracing for a stalemate, and have begun preparing instructions for the Treasury Department on which programs to continue funding if Congress cannot agree to raise the $31.4 trillion debt limit later this year, the Washington Post reported Friday, citing sources who said the GOP might instruct the Treasury to prioritize payments to Social Security, Medicare, veterans benefits and military funding if cap on borrowing isn’t raised.
Many experts say a debt prioritization plan would be tough to implement and wouldn’t eliminate the financial turmoil of a default, while the idea faces long odds of passing the Democrat-controlled Senate and being signed into law by Biden.
Meanwhile, White House Press Secretary Karine Jean-Pierre said last week a debt limit increase shouldn’t be subject to negotiations: “This is not political gamesmanship” and it “should be done without conditions,” she told reporters Friday.
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If McCarthy refuses to present a bill to increase the debt ceiling to the House floor, Democrats could bring a “discharge petition” that would force a vote on the issue, but they would need five Republicans to agree to the petition to reach the 218 majority threshold to force a vote.
Key Background
This isn’t the first time that the debt ceiling has generated partisan conflict: In 2011 and 2013, the GOP-controlled House feuded with Senate Democrats and President Barack Obama over the debt limit, bringing the federal government close to default. But Republicans’ slim four-seat majority in the House has given new authority to conservatives who proved during the GOP’s chaotic speaker elections the lengths they are willing to go to force McCarthy to prioritize their demands. He was elected after 15 rounds of voting and only after he agreed to a set of House rules changes that curtailed his power, including allowing just one member to kickstart the process for ejecting the speaker. The package also included a provision that requires the House to vote on a debt limit increase, rather than including it in a budget resolution. The GOP’s hopes for spending cuts in the debt limit talks stretch beyond the party’s hard-right faction, however. Rep. Jason Smith (R-Mo.), the newly appointed chair of the House Ways and Means Committee, threatened to propose a bill that would roll back Biden’s “radical” policies in exchange for agreeing to raise the debt limit, he told Axios in September. “If Republicans are trying to cut spending, surely he wouldn’t try to default. If we were trying to bring down inflation … trying to secure our border, surely he wouldn’t default,” he said.
Chief Critic
House Minority Leader Hakeem Jeffries (D-NY) and Senate Majority Leader Chuck Schumer (D-NY) warned “a default forced by extreme MAGA Republicans could plunge the country into a deep recession and lead to even higher costs for America’s working families on everything from mortgages and car loans to credit card interest rates,” they said in a statement last week.
Tangent
Former President Donald Trump has urged Republicans to “play tough” in the upcoming debt limit negotiations in a series of posts on his Truth Social platform. “Republicans can get back almost everything that McConnell gave up to the Radical Left. Be tough, don’t give in,” he wrote Sunday.
Big Number
$2.5 trillion. That’s the amount Congress last agreed to increase the debt limit by in December 2021. Congress has raised the debt ceiling 78 times since 1960, according to the Treasury.
Further Reading
U.S. Could Run Out Of Cash By Early June If Debt Limit Isn’t Raised, Yellen Warns (Forbes)
As Debt Ceiling Countdown Begins, Should Markets Be Concerned? (Forbes)
The Looming Debt Ceiling Crisis (Forbes)
