U.S. Treasury Secretary Janet Yellen warned Congress on Monday that the United States government ... [+]
Both the Congressional Budget Office and the Treasury Department warned Monday that the federal government is likely to exhaust its authority to pay its bills on June 1 if Congress fails to raise or suspend the federal debt limit before the end of this month. The fast-approaching deadline, which previous projections placed far later in the summer or early fall, creates new urgency for President Joe Biden and House Speaker Kevin McCarthy to strike a deal.
Republicans will either need to abandon their attempt to extract meaningful policy concessions in exchange for a debt limit increase or offer President Biden a short-term increase that creates room for a realistic negotiation process. Refusing to do so would be the height of irresponsibility and place the blame for causing the first-ever default on America’s national debt squarely on the GOP’s shoulders.
The federal government originally hit the debt limit, which caps the amount of outstanding debt the Treasury can issue to cover the difference between revenue and spending levels set by Congress, in January. But through the use of so-called “extraordinary measures” – accounting maneuvers that aren’t so extraordinary anymore after being invoked no fewer than nine times since 2011 – the Treasury has been able to free up cash and continue paying the bills on time.
Nobody knew exactly how long these measures could forestall a default because the amount of cash Treasury has on hand at any given point is determined by the unpredictable timing of financial transactions. But after a disappointing tax collection in April, forecasters believe the government is unlikely to have what it needs to cover all the payments it must make at the beginning of June.
Unfortunately, Congress appears ill-prepared for this accelerated timeline. It was only just last week that House Republicans were able to narrowly pass the Limit, Save, Grow Act that serves as the GOP’s opening bid in budget negotiations. Biden had previously refused to engage with Republican leaders until they came to the table with clear asks. This condition appeared reasonable but has now left both sides scrambling to find a deal.
The gap between the parties will be difficult to close during the two weeks both houses of Congress are in session between now and the date of potential default. Democrats have said that although they generally oppose spending cuts, they are willing to engage in budget negotiations after the threat of default is taken off the table by raising or suspending the debt limit, preferably through the end of Biden’s term.
The GOP’s position couldn’t be more different: The House Republican bill would slash domestic spending programs by $4.5 trillion over the next decade as a precondition for only raising the debt limit by $1.5 trillion, or enough to get through March of 2024. Such deep cuts are virtually impossible to square with McCarthy’s pledges not to touch Social Security, Medicare, national defense, or veterans’ benefits, which together comprise more than 85% of non-interest spending. These demands would gut virtually every other function of government and are even more extreme than the Republican position during the 2011 debt limit fight, which was to cut $1 of spending for every $1 increase in the debt limit. McCarthy is now seeking three times that amount, and an opportunity to slash even more from the federal budget less than a year from now.
Given these realities, it is clear that both parties are nowhere close to striking a deal in time for a June 1 deadline. That’s why party leaders must consider a two-step process along the lines of the bipartisan framework released by Reps. Ed Case (D-Hawaii), Scott Peters (D-Calif.), and Don Bacon (R-Neb.) in April. Two weeks ago, I argued that implementing this framework by suspending the debt limit until the end of the fiscal year on September 30 would create space for Biden and McCarthy to negotiate a longer-term budget deal and give both sides a win: Republicans could secure meaningful fiscal concessions before agreeing to raise or suspend the debt limit through the remainder of this Congress, and Democrats could negotiate these concessions as part of the normal budget process instead of incentivizing Republicans to use the unconscionable threat of imminent default as leverage.
Support for this position is growing now that the deadline for action is significantly earlier than previously anticipated. Rep. Brendan Boyle (D-Pa.) – the ranking Democrat on the House Budget Committee – said on Bloomberg TV Tuesday that there would be “advantages in syncing the timing between the debt ceiling increase and appropriations calendar.” Meanwhile, even some Republicans as far to the right as Sen. Rick Scott (R-Fla.) expressed openness to a short-term debt limit increase if it is accompanied by meaningful engagement from the Biden administration.
For this process to be successful, Democrats must engage in good-faith negotiations and offer real concessions on spending after securing a short-term debt limit increase. Although Democrats cannot be expected to consider fundamental changes to social spending so long as Republicans are unwilling to entertain even a dollar of new revenue, spending will need to be more constrained under divided government than it was during unified Democratic control – particularly as inflation remains stubbornly high. But after making an agreement, Republicans must also then be willing to raise the debt limit through the end of 2024. It would be the height of hypocrisy to agree on a certain spending level, refuse to raise the revenues necessary to meet that level of spending, and then default on the lenders who enable the Treasury to make up the difference.
However it is resolved, this whole episode points to the need for broader budgetary reforms. No party should have the ability or incentive to take the full faith and credit of the United States hostage to advance its ideological agenda. Lawmakers must pursue a better budget process to tackle the chronic gap between tax revenues and spending that leads to the accumulation of growing debt, without resorting to dangerous brinkmanship around allowing the Treasury to pay the bills Congress has racked up when they come due.
