The federal debt ceiling dispute

This column may be a relic by the time you read it. It’s about the federal debt ceiling dispute, and, by today, the factions may have reached a compromise settlement. But that looks pretty unlikely as I write (Sunday evening, May 21), and since the players still have a few days before D-Day (Default Day, apparently June 1), I’ll go ahead and share my views on the situation.

Since 1917 the United States government has operated with a congressionally-imposed ceiling on the amount of debt it is allowed to borrow. Congress raised that ceiling at least 90 times in the 20th Century, and another 24 times in the current century. Those increases have taken place under the presidencies and congressional control of both parties. Frequently the debt ceiling has been a cause of controversy.

Most of the impasses over the debt ceiling have occurred when the President is a Democrat and at least one house of Congress is Republican, or when Republicans are able to filibuster proposed debt ceiling increases in the Senate. The current battle over raising the ceiling is such a case, with a Democratic President, a Republican House of Representatives, and enough Republicans in the Senate to forestall an agreement if they so choose.

Past impasses, like the one we’re experiencing now, have occurred when Congress insists on imposing limits on future federal spending before agreeing to a higher debt ceiling.

That gambit amounts to an alternative to the “regular order” of budgeting in Congress. Under “regular order,” the various committees in both houses hammer out the budgets of government departments and agencies, and send them to the President for his signature. If the President vetoes the budget, and Congress proves unable to muster enough votes to override the veto, then the budgeting process would reactivate and an alternative budget would be reached and forwarded to the President for signing.

That’s how it’s supposed to work. But the number of times “regular order” has prevailed in federal budgeting in recent years is pitifully small.

Republicans in Congress are now trying to force the President and his party to accept specific limits on future federal spending before they will agree to a higher ceiling for federal borrowing.

If the sides can’t reach agreement before the government runs out of money---estimated to be around June 1, about a week from now---then the government risks defaulting on its debt obligations.

No one knows exactly what would happen if that took place, but we have historical evidence of a similar situation a dozen years ago.

In 2011 congressional Republicans tried exactly the same tactic to force spending cuts for the following fiscal year’s budget by stonewalling a debt ceiling increase. The result: a downgrade of the U.S. government credit rating and a drop in the Dow Jones Industrial Average of 2,000 points in late July and August.

The Governmental Accountability Office (GAO) at that time estimated the debt ceiling delay raised the government’s borrowing costs by $1.3 billion that year, and a

calculation of future borrowing costs pegged the 10-year total at an increase of $18.9 billion. Those results forced the factions to agree to raise the ceiling.

Two years later, in 2013, congressional Republicans tried the same tactic, with similar results, and Congress ended up raising the ceiling again.

Today the various sides appear to have conflicting priorities. Whether they’re too far apart to avoid another crisis is the question. Here’s the way it looks to this old guy in west central Iowa:

President Biden and most, possibly all, congressional Democrats have a higher debt ceiling, avoiding default, as their top priority. A few Democratic progressives also want increased spending in several discretionary categories, but they probably don’t have the clout to override an agreement between Biden and congressional Republicans.

Republican Senate Minority Leader Mitch McConnell probably has the same top priority as Biden: to avoid default on the national debt. Most Senate Republicans, although they certainly desire an agreement to limit spending, would probably line up behind McConnell.

The House of Representatives, narrowly controlled by Republicans, is another matter. Speaker of the House Kevin McCarthy maintains his position on a very short leash, thanks to a few extreme right-wing Republican members. Avoiding a debt crisis is not their top priority. Rather, they want to reduce future federal spending.

(Former President Trump is on record to that same effect: if an agreement to cut spending doesn’t accompany an agreement on the debt ceiling, the government should default.)

McCarthy likely risks his speakership if he bucks his extremists. So he has adopted their hard-nosed position, hoping he can exert enough pressure on Biden to force some level of future federal spending cuts.

Biden earlier said he would not negotiate on the debt ceiling, and McCarthy said he would not agree to a ceiling increase without spending cuts. They both played chicken. When neither backed down, they have started to confer to see if some accommodation can be reached.

I think McCarthy holds the key. He has to decide if he is willing to risk his speakership in exchange for the country’s financial stability. He labored many long years to finally achieve his current position.

And if he decides to buck his hardliners, it may take a few House Democrats to support him when his party’s extremists vote “no confidence” in his leadership. So Democrats may have a tough call to make as well: should they agree that McCarthy can maintain his speakership in order to achieve a debt ceiling compromise?

As they always say, politics ain’t beanbag.