Democrats are under pressure to raise the federal debt limit before a likely loss of control in Congress next year to prevent a potential showdown with Republicans.
The U.S. has almost a year until experts say the federal government will hit its borrowing limit, which gives Congress plenty of time to avert a default.
But experts say a pledge by the GOP to use the debt ceiling as leverage, if they take a chamber of Congress, could lead to a partisan clash with devastating effects, should the government default.
A standoff among lawmakers could imperil the U.S. financial system and the global economy at large.
“The political acrimony and the real hostilities and lack of respect for each other presents a significant risk of things going off the rails,” said Ben Koltun, research director at Beacon Policy Advisors.
Democrats already have a packed agenda to finish off in the few remaining weeks of the year, giving President Biden’s party little time to push through another debt ceiling increase. And only the lengthy and complicated budget reconciliation process allows Democrats to raise the ceiling without Republican support.
But that doesn’t mean they aren’t looking at their options.
Sen. Elizabeth Warren (D-Mass.) said on Tuesday that Congress should take immediate action to “deal with the debt limit and it ought to be a bipartisan vote,” but she added lawmakers “must avoid default by any means necessary.”
Sen. Tim Kaine (D-Va.), who has introduced legislation that would allow the executive branch to act to raise the debt ceiling, told The Hill on Tuesday that he is continuing “to work to build support” for the measure.
Kaine warned if the nation were to default on its debt, the outcome would yield damaging effects for Americans, including higher mortgage and borrowing costs, and “threaten payments for Social Security recipients, veterans and others.”
Some Democrats have also pressed for the debt limit to be abolished entirely, though that idea has already received pushback from others in the party, including Biden.
But if Democrats are unable to raise the ceiling themselves, some experts fear a showdown in 2023 could upend a financial system already on edge in a further divided Congress.
“All of the economic and financial turmoil that’s going on right now around inflation and interest rate increases … adds an extra level to the concern,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, a nonpartisan thinktank that closely tracks the debt limit.
“So much of what’s going on right now in the economy and financial markets is unsettled. That exacerbates the risks and dangers.”
Both parties have squabbled over raising the debt ceiling for more than a decade without allowing the U.S. to default, which, if allowed to happen, could cause a global financial crisis.
The debt limit caps the amount of debt the U.S. government is allowed to hold while paying for spending approved by Congress and the president. Biden last year signed a measure to raise the limit to $31.4 trillion, which experts expect the U.S. to hit sometime after next September.
While the debt ceiling doesn’t control how much money the federal government can spend, it does limit how much debt the Treasury Department can take on while paying for expenses already approved by lawmakers and the White House.
If the federal government fails to raise the debt ceiling, the U.S. could miss payments on debt owed and slip into default, plunging the global economy into chaos. The U.S. already suffered credit downgrades and financial market turmoil after down-to-the-wire showdowns in 2011 and 2013, and experts don’t want to see another.
“We should get back to the period where you lift the debt ceiling, either on the date or at the moment when it’s officially being hit, and then not do these crazy trust fund juggling acts that are extraordinary measures to buy extra time,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said. “We should treat the formal deadline as the actual deadline.”
But there is concern of even steeper risks next year as Republican lawmakers express a desire for spending cuts should they win the House, and even the Senate.
“We’ll provide you more money, but you got to change your current behavior. We’re not just going to keep lifting your credit card limit, right?” House Minority Leader Kevin McCarthy (R-Calif.) told Punchbowl News in an interview last week.
McCarthy was also pressed about the potential for entitlement reforms to be on the table in a debt limit debate, to which he said he wouldn’t “predetermine” anything.
Democrats pounced on the comments in the following days, accusing Republicans of wanting to cut Social Security and Medicare after recent reporting that some House GOP members were eyeing potential changes to the programs for future debt limit talks.
House GOP leadership has since sought to quell concerns that Republicans want to use these negotiations to get concessions on entitlement programs that have existed for decades.
However, Republicans and some fiscal hawks say debt limit negotiations and spending reforms must go hand in hand, particularly at a time the nation has seen high spending in response to the coronavirus pandemic.
“When you lift the debt ceiling, you take a pause, think about whether your fiscal situation is healthy,” MacGuineas said. “And if it’s not, it’s a great opportunity to put in place either policies or processes that could make it better.”