Saturday, July 20, 2024

The Debt Ceiling Is Dangerous. Here’s Why It Probably Isn’t Going Anywhere.

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All-out partisan conflict has jammed the gears in the U.S. Senate in recent years, causing a virtual standstill. We’ve seen the Republican Party block a presidential nominee to the Supreme Court without a hearing or vote. We’ve seen both parties increasingly use the filibuster when they’re in the minority to impede the opposition from passing legislation. And we’ve seen a ratcheting up of brinkmanship over the debt ceiling, which establishes how much money the federal government can borrow to pay its existing financial obligations.

The use of the debt ceiling as a legislative hostage started in earnest in 2011, when a divided government in Washington nearly caused a debt default. Energized by the tea party movement, Republicans refused to back an increase in the debt ceiling unless then-President Barack Obama agreed to budget cuts, and they also refused to raise taxes as part of a bipartisan bargain. A last-minute agreement followed, but the delay still led to a downgrade in the country’s credit rating. Yet we’ve seen continued clashes over the cap ever since.

Those conflicts have escalated further in the current round. Although Democrats and Republicans have just about reached a deal to go ahead with a simple majority vote on a short-term debt ceiling increase, Republicans remain intent on filibustering a straight up-or-down vote on a longer-term suspension or increase of the limit in December. Democrats control the Senate, which is split 50-50, through Vice President Kamala Harris’s tie-breaking vote. But that’s well short of the 60 votes required by the filibuster to advance to a final vote.

“What I see as new here is filibustering debt limit increases and forcing a Senate majority party that doesn’t have 60 seats to try to come up with some way to raise the debt ceiling — even though it doesn’t have 60 seats and can’t get any help from the minority party,” said Frances Lee, a political scientist at Princeton University who studies congressional politics.

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Failing to raise the debt limit would result in a default on U.S. debt, which could cripple the economy and cause terrible repercussions for everyday Americans. The date the country runs out of money is quickly approaching: Treasury Secretary Janet Yellen recently said it could be as soon as Oct. 18. While the parties seem set on a short-term agreement to push that deadline back to at least December, Republicans continue to say that, for a longer-term increase, Democrats must raise the cap on their own using the more complex reconciliation process, which allows passage of certain fiscal legislation with only a simple majority. And, while there are paths out of this predicament, this amplified disagreement is emblematic of the dangers the debt ceiling presents to our political system, especially when partisan enmity is so high

Here, then, is a look at how we got here; what could prevent politicians from using the debt ceiling to put Congress in a political stranglehold; and why it’s unlikely that the debt ceiling will go away anytime soon.

How the battle over the debt ceiling escalated

Congress has always placed limits on federal debt, but it first established the debt ceiling in 1917 over concerns about debt piling up during World War I. About two decades later, in 1939, the cap came into its modern form after modifications applied it to nearly all federal debt. The idea was that aggregating most debt would give the Treasury Department more flexibility to manage it while maintaining Congress’s constitutionally mandated control of the nation’s finances. Over time, the state of the debt ceiling has also come to symbolize the federal government’s frugality or wastefulness.

Yet the limit’s means as a check on spending is questionable considering that the national debt has only gone up since the late 1930s. More importantly, as a share of the nation’s gross domestic product, debt has surged since the 1980s, following a long-running decrease after World War II, as the chart below shows. In other words, the country’s debt-to-GDP ratio — a measure of our debt that factors in our ability to pay it off by looking at it relative to the size of the nation’s economy — has grown immensely.

Who’s to blame? Well, both parties, and … circumstances. The steepest rises in debt-to-GDP ratio came during the presidencies of two Republicans (Ronald Reagan and Donald Trump) and one Democrat (Barack Obama). However, some of these increases happened partly because of crises. When Obama came into office during the Great Recession, a loss of tax revenues due to the economic downturn and a $831 billion stimulus package led to large budget deficits. And in 2020, during Trump’s presidency, stimulus efforts to combat the negative economic effects of the COVID-19 pandemic contributed to a further rise. Yet much of this was of their own making, such as the tax cuts passed during the presidencies of Reagan and Trump that ballooned deficits and increased the national debt.

It’s never been an easy vote, but Congress has raised the debt ceiling more than 100 times. Its history as a political tinderbox long predates our current era. “The debt ceiling has been a problem going back to the 1950s, because it’s difficult for Congress to support an increase,” said Lee. “It looks to their constituents like they are free spending, don’t care about the deficit, that they’re voting themselves a blank check. That’s how it gets understood.” This misunderstanding of the debt ceiling — which affects only our ability to pay what we already owe — continues to be a problem, too, as many Americans still mistakenly believe it authorizes new spending.

What’s different in the latest debt-ceiling fight

Prior to this current fight, if one party had full control but lacked 60 seats in the Senate, the minority party wouldn’t block the majority from advancing debt ceiling legislation. With a looming deal to allow a short-term increase, that has remained true — for now. But later this year, Republican opposition may compel Democrats to raise the cap on their own using reconciliation, a special legislative process that requires just a simple majority but can only be used sparingly. While it’s not unheard of to increase the limit via reconciliation, having the minority force the majority to raise it this way is new.

Laura Blessing, a senior fellow at Georgetown University’s Government Affairs Institute who studies budgetary politics, viewed this fight as potentially “a new era of just insane levels of brinkmanship” because there doesn’t appear to be any path to a bipartisan agreement on a long-term debt ceiling increase. Blessing noted that it was then-Vice President Biden and Senate Minority Leader Mitch McConnell who came together at the last minute to salvage things in 2011. But McConnell “has changed his tune in terms of how he thinks the debt ceiling should work,” she observed, as he now argues the party in power has sole responsibility for raising it. “And there is not, at least not publicly, any sort of negotiating position that [Republicans are] using this for,” said Blessing.

“It seems that de facto, they’re attempting to slow down the Biden administration legislative train by putting this kind of a roadblock in the works. It’s just the most dangerous roadblock that you can possibly imagine.”

Why it’s going to be hard to remove the debt ceiling cudgel from our politics

As we’ve seen, the debt ceiling has done little to reduce federal spending, in part because the cap affects the country’s ability to pay off already-existing financial obligations and is handled separately from legislation that actually authorizes expenditures. Additionally, the debt ceiling has provided opportunities for partisan maneuvering that can take us to the brink of default. So it’s probably past time to rethink the debt ceiling. “You’ve got this fiscal tool that is antiquated and can only harm people and that virtually no other country around the world has,” said Blessing. “You could procedurally blunt this.”

One move would be to reinstitute some version of the Gephardt Rule, which from 1979 to 1995 linked an increase in the debt ceiling to the passage of the budget. When Congress passed its fiscal plan, it simultaneously authorized any necessary borrowing. But after the GOP captured all of Congress in the 1994 election, it mostly did away with this rule. Unfortunately, reinstating this rule might not be enough, in part because the budgetary process hasn’t functioned properly for years now. “The federal budget process has been broken for the past 10 years. We have not passed a budget resolution most of the time,” observed Blessing. “So even if you went back to a classic fix, that classic fix would be a problem because things have broken down so much.” In fact, after Democrats captured the House in 2018, they implemented a new version of the Gephardt Rule that suspends the debt limit rather than establishing a new ceiling. That hasn’t fixed things, partly because the Senate still has to approve of the suspension. Blessing said that Senate rules could also be adjusted to include something similar to the Gephardt Rule, but that could be difficult to do in such a narrowly divided chamber.

In a similar but more ambitious vein, Georgetown University law professor David Super has argued that Senate Democrats could use a stand-alone reconciliation vote to pass legislation that directly ties the debt ceiling to whatever the national debt happens to be. And with Senate Republicans opposed to assisting a long-term debt ceiling hike, Democrats may indeed have to raise it via reconciliation. In a bit of good news for Democrats, though, Punchbowl News reported earlier this week that the Senate parliamentarian has ruled that a separate reconciliation vote on the debt ceiling wouldn’t disrupt Democrats’ ongoing legislative efforts to pass a large social spending package, which is also being done via reconciliation. Democrats could try to mimic Super’s plan or raise the debt ceiling to an astronomically high number that would essentially make it meaningless for the foreseeable future. Democratic Rep. John Yarmuth of Kentucky, chairman of the House Budget Committee, said in late September that he was in favor of “eliminating the law or raising the debt limit to a gazillion dollars.”

However, it’s not clear whether Super’s approach or raising the debt ceiling to an extreme might be palatable to many Democrats, who may instead prefer a smaller increase. “It’s a painful vote for members of Congress,” said Lee. “They don’t want to have to vote for it because it makes them look irresponsible to their constituents.” And sure enough, Republicans are licking their chops at the prospect of using this vote in the 2022 midterms, especially by linking it to the Democrats’ ambitious spending plans. For instance, Florida Sen. Rick Scott, who leads the National Republican Senatorial Committee, recently said that the committee’s midterm election ads will hit Democrats on a debt limit increase.

And therein lies the rub with the debt ceiling: It’s really a political tool, not a fiscal instrument. “A reason why it’s hard to reform is that it’s a valuable mechanism for forcing a conversation about deficits and gives Congress leverage to demand concessions,” said Lee. “In the case of unified government, it’s the chance for the party out of power to make some political headway against the party in power, to say they’re governing in an irresponsible manner.” 

Moreover, even if many Democrats want to change how the debt ceiling works, Blessing pointed out that such a reform could be too much for members of Congress to take on while Democrats are also trying to pass a still-developing social spending plan. “I don’t see them having the bandwidth to do that right now,” said Blessing. “You’re asking a lot of people to take votes that are going to make them a little squeamish, particularly for well-known and moderate Democrats, and asking them to deal with debt limit reform on top of that. That is kind of a big ask.” The short-term deal to raise the debt ceiling does give Democrats a little more space to work out the party’s exact social spending legislation, but it’s unclear whether they’ll have enough time to finish those deliberations before the debt issue once again becomes pressing.

Yet another wrinkle is that the Republican filibuster of a long-term debt ceiling hike has also reanimated discussions within the Democratic caucus over changes to the traditional filibuster. Some Democrats, including President Biden, have raised the idea of altering the rules to allow a simple majority vote to raise the debt ceiling, or even something less specific, such as a one-day elimination of the filibuster. However, West Virginia Sen. Joe Manchin and Arizona Sen. Kyrsten Sinema have publicly opposed changes to the filibuster rules. And earlier this week, Manchin pushed back on adjusting the filibuster for a debt ceiling hike. Still, Lee wondered if there may have been some calculation by the Democratic leadership in not trying to address the debt limit earlier this year, even though everyone knew well ahead of time that the fight was coming. “This is not a surprise, so why are they letting it come to crisis now at the same time as they have to deal with the infrastructure bill and the reconciliation negotiations on the Build Back Better plan?” asked Lee. “I’m totally speculating, but it is a pressure point for the filibuster.” The filibuster’s future may have played into McConnell’s decision to yield on a short-term increase, as forcing senators such as Manchin and Sinema to choose between defending the filibuster and avoiding default could have generated enough pressure to truly threaten the filibuster.

However, changes to the filibuster remain unlikely, and while there are other, more outrageous ideas for overcoming the debt ceiling, it’s not at all a surprise that Congress has opted to kick the can a few feet down the road with a short-term increase. Come December, Congress will be right back at this same juncture. But as long as the debt ceiling exists in its current form, Congress will keep having these fights over raising it — even if doing so seems to align with Einstein’s definition of insanity. “As a good governance person, I would like them to procedurally blunt this thing, because I don’t think that they have the votes to get rid of it,” said Blessing. “It’s just, how do you crowbar that into the congressional calendar with everything else that they’re handling, I think is the real question.”

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