Gearing Up for the Next Debt Ceiling Fight
It looks like House Republicans are at it again. With another deadline for a congressional vote to raise the debt ceiling looming this fall, recent reporting confirms that House Republicans are strategizing on how to best hold hostage the full faith and credit of the United States in return for even more spending cuts. (Note: The CBO reports that congressional action on the debt ceiling will be necessary sometime in October or November, after the Treasury has exhausted its full arsenal of extraordinary measures to stay under the current debt limit, which is just under $17 trillion.)
Recall that in August 2011 the GOP threatened sovereign default in order to force their agenda—dollar for dollar spending cuts in exchange for their votes to raise the debt ceiling, a habitually pro forma vote (see Table 7.3 for a record of how many times the debt ceiling has been voted on). President Obama ultimately capitulated to this bribe, signing the Budget Control Act (BCA) in exchange for a debt ceiling increase and thus solidifying our country’s pivot from prioritizing post-recession job creation policies to instead pushing policies of austerity. That debt ceiling showdown and the legislation it generated has not only stymied our recovery, but additionally led to a slew of other bad stuff, including the downgrading of our credit rating and the implementation of one of the worst pieces of fiscal legislation to come out of the Obama Administration: sequestration and the discretionary spending caps.
Because discretionary spending has now been slashed to the point where significant savings can no longer be found, Republicans are looking to force cuts to mandatory programs, along the lines of what the Ryan budget outlines (remember, this is a budget that, if passed, would have decreased GDP by an estimated 1.7 percent and nonfarm payroll by 2 million jobs in 2014 relative to current policy). The GOP is working to create a “menu of options” to offer the president in exchange for raising the country’s borrowing limit. This menu will supposedly include large options, such as moving Medicare to a premium support system or privatizing Social Security, as well as smaller options such as cutting food stamps, agreeing to the Chained CPI for Social Security, or block-granting Medicaid.
It’s probably futile at this stage to point out that the debt ceiling must be raised by Congress to pay for policies that Congress has already voted to enact or keep in place (an analogy often used equates raising the debt ceiling to paying one’s credit card bill—the purchases have already been made, yet actually paying off the credit card must be done to avoid getting into trouble). For instance, Congress voted, in the American Taxpayer Relief Act of 2012, to keep most of the Bush tax cuts in place, at a cost of about $2.7 trillion over ten years. Voting the other way would have meant significantly more revenue in our national coffers, and thus would have shrunk the total amount being added to our debt levels. Yet the Bush tax cuts were for the most part extended, and now Congress must vote to authorize the Treasury to raise the ceiling so that our country can borrow enough to include policy decisions such as this one.
Of course logic does not have a place here—the GOP knows the power they hold by threatening to default on our debt and completely derail our already-weak recovery. And by providing the White House with a menu of options, they are perhaps trying to appear flexible at the negotiating table. However as the debate heats up, it is safe to assume that Congressional Republicans will remain as inflexible as ever—and will likely demand the implementation of some very harmful policies in exchange for not leading our country to the brink of disaster.