How Congress Can Get Rid of the Debt Ceiling

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US Treasury Secretary Janet Yellen speaks as US President Joe Biden holds a meeting with business leaders and CEOs regarding the debt limit at the White House in Washington, United States, October 6, 2021.

Kevin Lamarque | Reuters

Raising the debt ceiling was once routine in Washington, but over the years it has become more of a partisan battleground, resulting in perpetual crises that threaten to undermine global confidence in U.S. markets and plunge the economy. US economy in recession.

The nation is weeks away from another situation like this. After raising the debt limit with days to spare earlier this month, Congress must act again before a certain point in December. And another partisan brawl is brewing over giving the Treasury Department the ability to pay for programs lawmakers have already authorized.

Given how predictable and potentially catastrophic this deadlock is, it’s astonishing that Congress hasn’t completely revised or removed the borrowing cap.

There are ways to do it, although it probably won’t be until the next deadline. Important players on both sides of the aisle have come up with solutions. Treasury Secretary Janet Yellen and GOP Leader Mitch McConnell have supported dramatic debt limit rewrites over the years.

Ten years ago, McConnell pioneered the idea of ​​making the president responsible for lifting the borrowing limit subject to congressional review. Last month, Yellen told the House she would support a bill outright wiping out the cap or giving the Treasury Secretary the power to reset it from time to time.

It might be time for Republicans and Democrats to consider the possibilities. Without action to raise or suspend the debt limit, the Treasury says it only has enough funds to pay the country’s bills until early December.

Drop the debt ceiling

One option is the outright repeal of the debt limit.

Yellen told House lawmakers in September that she supported a few laws that effectively strike down the borrowing limit in its current form. She noted that Congress decides on taxes and spending, but should also provide a better way to pay those obligations.

“If in order to fund these tax expenditures and decisions it is necessary to issue additional debt, I think it is very disturbing to put the president and myself, the secretary of the treasury, in a situation where we could be. unable to pay the bills resulting from these past decisions, ”she said on September 30.

There are at least two similar bills in the current Congress that could appeal to Yellen.

The first, introduced in May by Sense Democrats Chris Van Hollen, Brian Schatz and Michael Bennet, would repeal the cap.

“Paying our debts should be an automatic act, not a politicized weapon used as leverage,” Schatz said in a press release issued in May. “It is clear that the debt ceiling is not a question of fiscal responsibility, but of unnecessary tricks.”

More recently, House Budget Committee Deputy Chairman Rep. Brendan Boyle and Budget Committee Chairman John Yarmuth introduced the Debt Ceiling Reform Act, legislation that would free Congress from its authority over the borrowing limit and would transfer that power to the Treasury Department.

The two House Democrats presented their bill in two sentences in late September.

Asked to expand on Yellen’s thoughts, the Treasury Department and the White House declined to comment.

The McConnell Field

An alternative suggestion came in 2011, when Senate Minority Leader Mitch McConnell, R-Ky., Proposed a plan to avoid a then impending sovereign default.

With Congress closer than ever to the country’s deadline and S&P’s decision to lower the US credit rating, McConnell launched a plan that would have secured the president’s demands for new government borrowing powers. .

“The president, as the nation’s CEO, would inform Congress of the new level of the debt ceiling, and Congress could block it with a joint resolution,” said Tom Block, policy analyst at Fundstrat Global Advisors.

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There are smart and pragmatic elements in the plan that McConnell presented 10 years ago.

Since the bulk of federal spending is tied to presidents’ election promises, McConnell’s strategy would force the White House to take responsibility for raising the debt ceiling. If Congress finds the plan too extreme, then lawmakers could pass a bill to prevent the White House from adjusting the cap as proposed.

Bill would then proceed to the Oval Office where the President would presumably veto a bill challenging the administration’s suggestion. This disapproval would allow the debt ceiling to rise as planned or lead Congress to attempt to override the veto with a two-thirds majority.

It is rare in the current partisan era to find enough politicians to achieve a majority, let alone a qualified two-thirds majority. This means the McConnell plan would likely not meet debt ceiling increases unless the president’s proposal is so absurd that it unifies 67% of federal lawmakers.

A representative for McConnell declined to comment for this story.

The idea has legs. Sen. Joe Manchin, the powerful conservative Democrat from West Virginia, said on Tuesday he would support such reform of the debt ceiling procedure.

It should be put in place so that “the president has the right to make this decision, we have the right to override it if we think he has gone too far,” he said.

While the minority leader may have been open to such a plan in 2011, there is little evidence to suggest he supports it now. Plus, the bill that solved that year’s debt ceiling crisis likely appealed to McConnell given the language that held back government spending and deficits.

Senator Lamar Alexander, R-Tenn., Senator John Barrasso, R-Wyo., Senator Orrin G. Hatch, R-Utah, and Senatorial Minority Leader Mitch McConnell, R-Ky., At a press conference after the Senate Republican Political Luncheon at the United States Capitol.

Scott J. Ferrell | CQ-Roll Call, Inc. | Getty Images

Manchin’s remarks, in particular, came as he pushes to cut President Joe Biden’s social and climate spending plan. Raising the debt ceiling does not authorize new public spending. Instead, it allows the Treasury Department to continue paying the bills Congress has racked up from legislation it has already passed.

Yet that hasn’t stopped Republicans and Democrats from using the threat of the country’s first-ever default and economic calamity to score political points.

Most economists, including Yellen and former living Treasury secretaries, say a default would trigger a recession and jeopardize the full faith and credit of the United States. US debt would be less attractive to bondholders around the world, leading to spike in interest rates and undermining the stability of the US dollar as the global reserve currency.

The next confrontation

While leaders of both parties have called for significant changes to the debt ceiling from time to time, it is not clear that lawmakers will be able to muster enough support anytime soon.

Without major restructuring, lawmakers have two options for acting before the looming December deadline.

The first requires bipartisanship: Democrats can try to persuade 10 Republicans to vote with them to block a GOP obstruction with 60 votes. That way, the GOP would be empowered to make demands, which would likely include a severe reduction or outright abandonment of the Democrats’ $ 2,000 billion reconciliation bill.

Speaker of the House Nancy Pelosi (D-CA) and Senate Majority Leader Chuck Schumer attend a press conference with mothers assisted by child tax credit payments at the United States Capitol in Washington, United States, July 20, 2021.

Élisabeth Frantz | Reuters

Given that Democrats campaigned by promising to overhaul the country’s physical infrastructure and enact legislation on progressive priorities such as climate change and poverty, this option is unrealistic.

McConnell, meanwhile, vowed that all Republicans would oppose a compromise on the debt ceiling since Democrats have chosen to force much of their agenda through the Senate through reconciliation.

Democrats will then be forced to use reconciliation, a special process that allows bills to wipe out the Senate by simple majority, to raise the debt ceiling in December.

While this is their only realistic option, Democrats may not like the idea of ​​adopting an increase in the debt ceiling through reconciliation because it would force the party to vote for a dollar amount.

While Democrats have so far argued that the debt limit is a bipartisan responsibility, House Speaker Nancy Pelosi signaled on Sunday that she was open to Democrats acting alone through reconciliation.

“It’s a path. But we still hope to have a two-party system,” she said on CNN’s “State of the Union.”

CNBC’s Nate Rattner contributed to this report.


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