WASHINGTON – Senate Republicans on Wednesday threatened to vote against an increase to the debt ceiling unless Congress first agrees to new spending cuts or other reforms, raising the potential for a major political showdown that could carry vast implications for both the global economy as well as President Joe Biden’s agenda.
The new ultimatum marked a reversal for Republicans, who agreed to address the debt ceiling – the statutory amount the government can borrow to pay its bills – multiple times to advance policies under President Donald Trump that helped add $7 trillion to the federal debt during his term.
“We had a pandemic that drove a lot of [spending], but what’s been added on top of it, and what [Democrats] plan to spend moving forward on top of that, I think it calls for some level of sanity,” Sen. Marco Rubio, R-Fla., said.
“Generally, the debt limit is not very good leverage for that,” he continued. “But at this point, I mean, there really is no other way to make people here wake up and live in the real world.”
The renewed Republican threats arrived only 10 days before a current agreement that suspends the debt ceiling is set to expire. If Congress cannot reach a deal to raise or suspend the ceiling by month’s end, the government would have to rely on what are known as “extraordinary measures” to keep paying its bills. Such tactics could give lawmakers breathing room until October or November, according to a new analysis from the Congressional Budget Office, at which point the country would be at risk of default if it did not act.
The drama intensified earlier Wednesday, after Senate Minority Leader Mitch McConnell, R-Ky., told Punchbowl News that his party is unlikely to vote for an increase. Instead, he said Democrats should tackle it alone as part of a roughly $3.5 trillion budget deal that they plan to pass through a process known as reconciliation. The move would allow Democrats to advance spending priorities using 51 votes, rather than the normal 60, provided the entire party sticks together.
Democrats, however, have signaled that they are disinclined to take that route. The mere prospect that it could fall on them to solve the debt ceiling conundrum left some party lawmakers seething, particularly after they joined Republicans to raise and suspend the ceiling under Trump out of a belief that the issue is too dire to politicize.
“This is once again the McConnell double standard,” an incensed Sen. Ron Wyden, D-Ore., the chairman of the chamber’s Finance Committee, said as he exited a meeting Wednesday with Senate Majority Leader Charles Schumer, D-N.Y.
“When Donald Trump was president, they made sure everything happened,” Wyden added. “Now we have covid debt, we have Trump debt, we’ve got a double standard. And we want to make it clear, nobody is going to hold the American economy hostage.”
The White House showed no sign of planning to negotiate with Republicans. “We expect Congress to act in a timely manner to raise or suspend the debt ceiling, as they did three times on a broad bipartisan basis during the last administration,” White House press secretary Jen Psaki said Wednesday.
The U.S. government spends much more money than it brings in through tax revenue, and that annual gap is known as the deficit. In 2021, the government is expected to spend $5.8 trillion and bring in $3.5 trillion in revenue, leaving a deficit of $2.3 trillion, according to CBO.
To finance the gap between spending and revenue, the Treasury Department borrows money by issuing debt. But the government can issue debt only up to the limit set by Congress, which is why the debt ceiling must be raised or suspended periodically. The government currently has more than $28 trillion in debt subject to the limit, and it is expected to pay $300 billion in interest on this debt in 2021, according to CBO.
The Republicans’ move Wednesday immediately invoked the specter of 2011, when party lawmakers similarly embarked on a game of brinkmanship over the debt limit under President Barack Obama. The high-stakes move nearly pushed the nation to default, a doomsday scenario in the eyes of economists that could wreak havoc globally if the United States is essentially unable or unwilling to pay its bills.
This standoff during the Obama administration that spooked markets worldwide. Although the GOP ultimately worked out an agreement with the White House, it still resulted in massive constraints on spending for domestic programs. Democrats allege that these spending limits made it harder to fund federal health, science and education agencies – holes they are now trying to fill under Biden.
The new Republican threat came on a day when the Senate forged ahead with its plans to consider a roughly $1 trillion package to improve the nation’s roads, bridges, pipes, ports and Internet connections. The infrastructure package, which Democrats and Republicans have negotiated for months, is part of Biden’s broader, roughly $4 trillion agenda, which Democrats hope to advance in the coming weeks.
Lawmakers from both parties say their infrastructure proposal is financed in full, and Democrats stress that a second, roughly $3.5 trillion budget deal they are seeking through reconciliation similarly will be paid for – largely through tax increases on wealthy Americans and corporations. Both endeavors still have infuriated some Republicans, who have criticized their price tags and vehemently opposed tax increases to pay for new federal programs.
McConnell took to the Senate floor Wednesday to lambaste some of the new proposed spending, stressing that tax increases to pay for it would “crush our country.” He later joined other GOP lawmakers at a news conference to blast Democrats for their agenda, which includes combating climate change, expanding Medicare and offering universal prekindergarten programs.
“I don’t think Republicans want to enable [Democrats] to spend trillions and trillions of dollars that we believe simply are designed to grow government,” said Sen. John Thune, R-S.D.
The criticism has set the stage for Sen. Lindsey Graham (S.C.), the ranking Republican on the Budget Committee, and other GOP lawmakers to seek cuts or other reforms specifically timed to the debt ceiling. They began issuing their demands this spring, after Democrats adopted a roughly $1.9 trillion coronavirus relief package. Senate GOP leaders even included in their party’s official yet nonbinding rules a pledge that they would oppose a debt ceiling increase unless Congress slashed spending or made other structural reforms.
“It’s always been our position that without structural reforms in our finances that just raising the debt ceiling is not a responsible action,” Sen. John Cornyn, R-Tex., said on Wednesday. Although he declined to say whether he would vote against an increase in the debt ceiling, Cornyn said Democrats needed to address “long-term insolvency of things like our entitlement programs,” a category of spending that includes Medicare and Social Security.
Behind the scenes, GOP lawmakers have started to rally support for those efforts. Graham, for example, circulated a letter among his colleagues last week putting forward a few ideas – including legislation that would set up panels to study the solvency of Social Security and Medicare along with other possible avenues for cuts to spending. Sen. Ron Johnson, R-Wis., on Wednesday also touted legislation he helped craft that automatically funds the government in the event that Congress can’t pass appropriation bills and forces lawmakers to debate until they reach agreement on the annual budget process.
Wyden, however, strongly rebuked the Republicans’ requests with what he described as a basketball analogy – calling it “stall ball to essentially hold the economy hostage.” He said lawmakers prefer to address this through regular order, suggesting that Democrats may not be willing to add it to their reconciliation package. Tackling it in this way could sidestep likely GOP opposition, but it could open Democrats to political criticism, because they would have to raise the debt ceiling by a specific amount rather than suspend it as lawmakers did under Trump.
“The 11 years I’ve been here, any time the debt limit came up, it always involved a pretty big discussion and negotiation about spending and spending caps,” GOP Sen. Roy Blunt (Mo.) said Wednesday. “But I don’t think we’re in an environment where that’s a real possibility. So I think the idea that the Democrats need to put it in something that Democrats are all going to vote for is probably the best way to get it done.”
Sen. Bernie Sanders, I-Vt., the chairman of the Budget Committee, similarly blasted McConnell for what he described as hypocrisy. As he shepherds that reconciliation package to passage, he said Wednesday that they are “looking at various approaches.”
Earlier in the day, Sen. Elizabeth Warren, D-Mass., said: “There is no compromise here. We don’t compromise with America paying its bills. The Republicans are trying to extract something, and say that their leverage is having the United States default on its legal obligations, which is fundamentally wrong.”
She added: “Democrats went along during the Trump administration and we signed onto raising the debt limit three different times. We didn’t try to negotiate for something, we didn’t ask for something special.”
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The Washington Post’s Felicia Sonmez contributed to this story.