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Why Dems Must Defuse the Debt Ceiling ASAP
The GOP is preparing to use a fight over the debt ceiling to hurt the economy, but it can only happen if Dems let them.
The Debt Ceiling is back.
Washington, D.C. is focused on dealing with the Delta variant, passing the Bipartisan Infrastructure deal, the looming fights over voting rights and the Biden Build Back Better Plan. The greatest issue with the economy and the political standing of both parties is impending. Congress must raise something called the debt limit in the coming weeks or all the economic progress made under President Biden will be lost.
How the Democrats proceed on this arcane legislative matter could determine who controls Congress next year, Joe Biden’s odds of reelection, and the fate of the global economy.
Based on initial reporting, I am concerned that the Democrats may have forgotten one of the most important lessons of the Obama Era.
What is the Debt Ceiling?
The debt ceiling is the apotheosis of Congressional stupidity. Before World War One, Congress would authorize the Treasury Department to issue bonds whenever they needed to pay for an incurred debt. This was impractical during wartime, so Congress passed a law that authorized a “ceiling” on the amount of debt that could be incurred. If the amount of debt incurred exceeded the limit authorized, Congress would need to “raise the debt ceiling or debt limit.”
There are two essential things to know about the debt ceiling. First, raising the debt limit is NOT authorizing more spending. It is just a mechanism to pay the bills for the spending already authorized by Congress. Second, not raising the debt limit would have cataclysmic effects. If the U.S. defaults on its debt, it would likely cause a global economic meltdown. Social Security checks would stop going out in the mail. Medicare would not be able to pay seniors’ medical bills. The impact could make the 2008 financial crisis look like a blip on the radar. In other words, not raising the debt limit is a terrible idea.
For a long time, these debt limit votes were opportunities for pointless, partisan posturing. It was generally assumed that it was the responsibility of the president’s party to take the politically unpalatable vote to raise the debt ceiling. If the president’s party did not have enough votes, the other party would provide just enough to get it across the finish line. There was always drama. The members that voted to raise the debt ceiling would have ads run against them accusing them of being profligate politicians. But the outcome was never in doubt.
That changed in 2011 when the Republicans took control of the House of Representatives on a wave of Tea Party populism. The House Republicans refused to lift with debt limit without huge cuts in spending. This led to a months-long confrontation that tanked the market, slowed the already glacial economic recovery, and led to poor policy outcomes. The United States came so close to breaching the debt ceiling that the government’s credit rating was downgraded for the first time in history. I was working in the White House at the time. It was terrifying. We were on the precipice of a historic disaster.
A few years later, Senator Ted Cruz teamed up with the House Freedom Caucus to force another confrontation over the debt ceiling. This time, the Republicans were threatening to crash the global economy if Obama did not agree to repeal the Affordable Care Act. This was legislative terrorism, pure and simple. Having learned the lessons of 2011, Obama refused to negotiate the debt ceiling. Republicans could either do their duty or bear sole responsibility for crashing the economy. It was a brutal clash that almost killed me (literally!). In the end, the Republicans backed down and everyone backed off the dangerous politics of the debt limit. It was a weapon too dangerous to contemplate using.
The United States is perilously close to hitting the debt limit. Secretary of the Treasury Janet Yellen recently informed Congress that she was already implementing “extraordinary measures” to avoid crossing the red line. This means she is delaying certain investments and expenditures to buy Congress more time to resolve the issue. However, these sorts of “extraordinary measures” can only get you so far. Before long, we will be staring over the precipice of disaster. The market will react, and the economic uncertainty could endanger all the impressive gains of Biden’s economy.
It has been widely assumed (by myself included) that Congress would deal with the debt ceiling in the upcoming budget reconciliation bill. Including the debt ceiling in a bill that requires only 50 Senate votes would remove the risk of Republican shenanigans. However, a Democratic aide close to budget talks reported to Politico last week:
There will be no language on raising or suspending the debt ceiling in the budget measure Senate Democrats expect to unveil within days to advance a $3.5 trillion spate of liberal spending plans without Republican buy-in, according to a Democratic aide close to budget talks. Instead, the party is looking to a short-term funding bill designed to avert a government shutdown at the end of September as the next opportunity for debt limit action, one top lawmaker said — an approach that would require Republican support.
There is no risk in the House. Democrats have the votes to raise the debt limit. But under this plan, passing it in the Senate would require ten Senators to acquiesce. Republican Senators have pledged that they will not raise the debt limit without “major structural reforms.” In case you were wondering, “structural reforms” is a Right-Wing euphemism for cuts to Social Security and Medicare to pay for the giant corporate tax cut passed a few years ago.
The choice to pass the debt limit increase through regular order is a risky one with both short and long-term consequences for the economy and Democratic prospects in 2022 and 2024.
The prospects for a cataclysmic confrontation grew over the weekend when former President Trump called on Mitch McConnell to use the debt ceiling as leverage in the infrastructure negotiations.
What Dems Should Do
No final decision has been made. Punchbowl News reports that:
Top House Democrats are still actively considering a range of options to boost the debt limit this fall, including lifting it as part of a massive reconciliation bill that’s key to President Joe Biden’s legislative agenda, according to sources familiar with the discussions.
The White House is watching this very closely but has not yet weighed in publicly on how they would like to see the issue resolved.
There are two reasons to not include the debt ceiling measure in the budget reconciliation bill. First, that bill is the last, best chance to pass major legislation before the midterms. Getting a bill of that size and scope through such a divided congress is no easy feat. Finding a package that is big and bold enough for progressives but not too big or bold for moderates like Joe Manchin requires threading a needle. Adding a debt limit increase would add to the difficulty. As Democrats involved told Politico Playbook:
Centrist Democrats are already having a hard time swallowing the $3.5 trillion price tag. Adding a debt ceiling increase would only lead them to demand a slimmer package, Democrats involved in the matter tell us.
Secondly, there is some potential political upside in calling the Republican bluff. Do Republicans really want to head into the midterms on a message of cutting Social Security and Medicare? Senator Schumer is betting that Republicans will either back down quickly or cause themselves real damage before doing so. The nadir in Republican Party approval was immediately after the 2013 debt ceiling fight and government shutdown.
I understand these short-term considerations. Failing to pass a big jobs and families plan via budget reconciliation would be a political and substantive disaster. Therefore, avoiding the risk of the debt ceiling on that bill is very tempting.
Ultimately, I think avoidance would be a big mistake. It is essentially solving a small problem by creating a much bigger one. Democrats are going to have to take the vote eventually. There is no avoiding it. In terms of raw politics, it is easier if the debt ceiling is one small part of a much larger bill than if it was standalone, receiving wall-to-wall coverage. Even without the inclusion of the debt ceiling, performative centrist troublemakers like Senator Kyrsten Sinema and Congressman Josh Gottheimer will fabricate a reason to take their pound of progressive flesh out of the budget bill.
Voting to raise the debt ceiling is always politically painful. In this case, it's pain now or more pain later. Just pull the band-aid off and get it over with.
Not only would I include the debt limit increase in the budget bill, but I would increase it by such a margin that there is zero chance that Biden will have to confront the issue again in his first term. Ideally, they would just repeal the entire debt ceiling mechanism and put all of this stupidity behind us. However, I imagine that might be a bridge too far with such narrow margins in the House and Senate.
While I hope the Democrats will keep the House in 2022, we need to be prepared for the possibility they may not. A debt ceiling battle with a Republican House dominated by Big Lie-believing insurrectionists high on Tucker Carlson’s supply of racist agitprop would make the Obama debt ceiling fights look like pattycake. John Boehner had neither the courage nor the savvy to rein in his caucus and avoid damaging the economy, but he knew that breaching the debt ceiling would be a disaster. Kevin McCarthy makes John Boehner look like Nancy Pelosi.
The debt ceiling is an economic nuclear bomb. In times of divided government — like in the film Crimson Tide — it takes two people turning a key to prevent the missile from launching. McCarthy is weak and dumb. We simply cannot allow him to have his hands on one of those proverbial keys.
The 2011 debt ceiling fight was hugely damaging for Obama. Immediately following the subsequent credit downgrade, Obama’s approval rating dipped below 40 percent for the first and only time in his presidency. In our internal polling, Obama was losing reelection to a generic Republican and was well behind Mitt Romney. Consequentially, the debt ceiling battle damaged the economy, and the state of the economy was going to determine Obama’s political fate. Joe Biden and the Democrats have an opportunity to avoid all that turmoil and put the politics of the debt ceiling behind them until after the election.
They should take that opportunity. The Republicans are planning to use the debt ceiling to hurt the economy and improve their chances in 2022. That will only happen if we let them.