How Do We Get Out of the Debt Limit Crisis?

A unity budget among Senate centrists is the best way to circumvent default

I wrote last week how the GOP’s weaponization of the debt limit is an antidemocratic gambit to achieve unpopular policy outcomes that would be unobtainable under normal circumstances. We can lament what is happening all we want, but the new House rules and the narrow margin of the House GOP’s majority give substantial powers to a tiny faction of House members to push the nation into a default. They may well be willing to do it. So, we need to think hard about a pathway to get out of this crisis.

Much of what I have read on the topic so far are a series of ideas that are not going to work. 

The most popular concept is that legislation will make it to the floor of the House that will be passed by Democrats and moderate Republicans from swing districts.  House Democratic leader Hakeem Jeffries claimed that "we will find a vehicle legislatively," that can be passed with "a handful of reasonable Republicans."

While it makes sense that the Republicans that won tight races in blue states would benefit politically by helping Democrats frustrate massive budget cuts and resolve the debt limit crisis, this solution belies everything we know about the modern GOP. The party does not have a unified set of policy goals, but rather is defined primarily by “negative partisanship” (opposing whatever Democrats are for) and “owning the libs” (harshly mocking liberals and their values). Any moderate House Republican that crosses the ultraconservatives on their core project of using the debt limit to achieve massive cuts in (as of yet unidentified) wasteful government spending are likely to be exorcised from the party – probably through a primary challenge. 

That is what happened to the ten House members who confronted the MAGA base by voting for Trump’s impeachment following the Jan. 6 riot.  Four of the ten chose retirement rather than facing a Trump-sponsored primary challenger. Of the six who ran for reelection, four lost in GOP primaries. Two of candidates that beat an incumbent impeachment supporter lost to Democrats in marginal districts in the general election, showing that the base will not hesitate to eat their own even when it works against the electoral interests of the GOP as a whole.

So for a Republican moderate, teaming with Democrats, either by signing a discharge petition or some other maneuver would be career suicide. Democrats holding their breath for this to happen better have strong lungs.   

Other ideas are even worse. I do not believe the Biden Administration is going to mint a multi-trillion dollar coin, and even if it did, that solution might spook the bond market. Nor will the Biden Administration buy into the Republican idea that default can be avoided by prioritizing bond repayments over legally mandated government spending (like reimbursing Medicare beneficiaries). 

I believe the most promising pathway to end the crisis (but hardly a guaranteed success) is Senate-initiated bipartisan budget negotiation. 

Let me be clear – I am not advocating a redux of the 2011 Obama-Boehner “grand bargain” that attempted to reduce the accumulation of debt via entitlement reforms. To the contrary, I think Biden is absolutely correct not to give policy concessions to McCarthy in exchange for a debt ceiling increase for a variety of reasons. 

First, Biden should stand firm on the principle that Congress has a duty to raise the debt limit to pay for the spending and tax cuts that both Democrats and Republicans have enacted over past 23 years since the budget was last balanced. The President should not set the precedent that there is a quid pro quo to be gained by threatening to throw the country into a catastrophic default. If he does, the ransom will be even greater in the future.   

Second, McCarthy and the GOP are not deserving of concessions since they bear responsibility for much of the current $31 trillion debt due to their proclivity toward tax cuts, defense spending, and even certain forms of domestic discretionary spending (for example the expensive Medicare Part D prescription drug benefit passed under George Bush). 

Finally, negotiating with McCarthy over spending cuts would be like trying to nail jello to the wall.  No matter what Biden agreed to, it would never be good enough for extremists in the House majority who believe that anything that Democrats are willing to do must, by definition, be evil.

Furthermore, it is clear that the House Republicans have no idea what they really want to achieve in these negotiations. They have stated that they want to exempt Social Security, Medicare, veterans’ health care and defense from spending cuts, while cutting taxes and balancing the budget in 10 years. Ultimately, this would mean massive cuts (somewhere between 50-75%) to the Obamacare health insurance subsidies, Medicaid, federal employee pensions and a raft of domestic spending programs ranging from the border patrol to agriculture crop support payments, and highway construction. Once these proposed cuts were announced, GOP members would quickly learn that these are programs that many of their constituents rely on for their health care and the economic vitality of their communities.  It is not at all clear to me that many in the House GOP majority will be able to overcome the cognitive dissonance that will occur when it becomes apparent that the imagined world in which trillions in spending can be eliminated by getting rid of only “liberal” programs does not exist. Negotiating with this crowd will not be a fruitful endeavor.

So, while I recommend against a grand bargain negotiation with House Republicans, I do think there is a possibility of using the normal budget resolution process to reach a bipartisan agreement in the U.S. Senate. My optimism is based on what happened at the end of last year, when 18 Senators joined all the Senate Democrats to support an omnibus bill to fund the government until September, which also included a major bipartisan reform of the retirement savings system. This legislation came after two other major bipartisan accomplishments – the Infrastructure Investment and Jobs Act and the CHIPS Act.   

The 15 Republican Senators from this group that returned to the Senate would certainly like to see lower levels of spending and deficits than will be proposed in Biden’s upcoming budget, but they also will be strongly opposed to the games that the House GOP is playing with the country’s financial future. Whether there is a sweet spot in the middle that could attract a bipartisan majority (only 50 votes are needed to pass a budget) remains to be seen, but it is worth a try.

Let’s say that a centrist compromise of the budget emerges that attracts the votes of 20 Republicans and 40 Democrats. This budget puts caps on domestic discretionary spending for the next two years and reduces the deficit to levels that are lower than what the Biden Administration is projecting. Perhaps it even attempts a modicum of entitlement reform, although this is difficult to manage politically. The budget would also include provisions raising the debt ceiling, which has been accomplished through this process on many occasions in the past.   

If the Senate produces a budget that conservatives like Mitch McConnell and John Cornyn feel comfortable supporting, it might be something that McCarthy could sell – not to the 30 or so members of the Freedom Caucus – but to 150 members of his majority ranging from moderates to mainstream conservatives. He would be able to claim that Republicans have put a break on the Biden Administration’s “runaway spending,” and avert the financial disaster with which some in his caucus seem willing to flirt.

This plan only works if the Democrats play ball. Hakeem Jeffries would have to supply 70 votes from Democrats to pass this compromise budget and debt limit increase. Democrats would also have to promise McCarthy that they will provide enough votes for him to remain as Speaker if the Freedom Caucus members try to bring him down (as the new rules give them the power to do).

Why would Democrats want to agree to any of this? 

First, this is a crisis and the right thing to do is to put country over politics. 

Second, a bipartisan budget that contains spending levels below what Democrats want, but at least provides some modest increases in spending is probably a better result than can otherwise be obtained with divided control of Congress. If the Senate and House majorities pass 100% partisan budgets, I don’t see any way to reach a budget agreement or even to pass a single appropriation bill to fund the government. At some point we will end up with a government shutdown, which is usually resolved by a continuing appropriation that keeps the government running based on the prior year’s funding levels. It is reported, however, that one of McCarthy’s side deals to obtain votes for Speaker provides that no continuing resolution will be allowed to come to the floor that funds the government at more than 98% of current levels. If the bipartisan budget funds the government at, let’s say, a 2% increase, that is a policy victory for Democrats over the 2% cut that would occur if the government had to rely on continuing appropriations for the next two years.

Finally, even though a debt-limit induced default would have been caused by the House Republicans, the resulting economic chaos would happen on President Biden’s watch. In the likely event that Biden is the Democratic candidate in 2024, that becomes a political liability for Democrats. For them, it is worth finding a way to circumvent this crisis now and hope to retake control of the House in the next election. 

I concede that this is a long-shot scenario. 

If it doesn’t come to pass, Biden’s last resort would be to declare the debt ceiling an unconstitutional impingement on his duty to “take care” that the taxation and spending laws passed by Congress are “faithfully executed.”  I’ll examine the merits of this constitutional debate in a future post. But my final point is that I think Biden will be in a much better position to advance this argument if he and Senate Democrats have at least tried to engage in a bipartisan negotiation to address our fiscal future. If a bipartisan budget plan is passed by a wide margin in the Senate, and the House still refuses to take it up, even though there are clearly over 218 votes to pass it, Biden will have demonstrated that he has done everything possible to avoid this constitutional standoff. 

One thing is for sure, it is going to be a rocky spring and summer.