The Beginning of the End of the Debt Ceiling
When Republicans took control of the House of Representatives in January 2011 after sweeping then-Speaker Nancy Pelosi out of the majority, one of the first things they did was to take a hostage. The nation’s statutory debt limit, they decided, would no longer automatically be increased when Congress passed a budget; instead, the House would only vote to raise the debt ceiling if it was accompanied by equivalent spending cuts and reforms.
The debt limit was, as then-House Majority Leader Eric Cantor said at the time, a “leverage moment”—a way to force President Barack Obama and congressional Democrats to adopt the fiscal restraint Tea Party Republicans had promised during the 2010 campaign. The ensuing brinkmanship nearly led to a economically calamitous U.S. default and prompted Standard and Poor’s to downgrade the nation’s credit rating for the first time.
Six years later, President Trump is poised to release the hostage that so bedeviled his predecessor. In a White House meeting with congressional leaders on Wednesday, he asked Republican and Democratic leaders why Congress needed to vote on the issue at all. The topic came up as Trump was agreeing to a proposal from Senate Minority Leader Charles Schumer and House Minority Leader Nancy Pelosi to lift the debt limit for three months as part of a deal in which Congress would also approve aid for states devastated by Hurricane Harvey and a continuing resolution to keep the government open through the fall.
At the meeting, Schumer seized on Trump’s question and floated the idea of eliminating the debt ceiling altogether, according to a person briefed on the discussion. Schumer and Pelosi resolved to talk through the possibility with their respective caucuses with an eye toward a final agreement in December, when Congress will next have to confront the debt limit and federal spending. “There are a lot of good reasons to do that,” Trump told reporters in the Oval Office, acknowledging that the era of debt-ceiling drama could be nearing an end.
News that the president might bargain away the debt ceiling entirely just after striking a smaller fiscal deal with Democrats ran into immediate resistance from Republicans, many of whom would have found the suggestion laughable had it come from Obama. “No,” replied Speaker Paul Ryan at a Thursday morning press conference. “I think there’s a legitimate role for the power of the purse and Article 1 powers, and that’s something that we defend here.” Texas Senators Ted Cruz and John Cornyn reportedly offered similar sentiments.
Despite these initial protests, however, the debt-limit’s demise may only be a matter of time. Republican leaders stopped trying to extract concessions in exchange for lifting it late in Obama’s tenure, and now that they are in charge of both Congress and the White House, what leverage it held for them has disappeared completely. To the extent the debt ceiling remains a hostage, it now belongs equally to Democrats and to conservatives who can withhold votes to raise it.
Illustrating the new dynamic, it was Ryan and Senate Majority Leader Mitch McConnell who pushed for authorizing the equivalent of trillions more in borrowing than Democrats: They wanted the debt-ceiling increase to last 18 months, long enough to push the next vote in Congress until after the 2018 elections. Schumer and Pelosi offered only a three-month extension so they could come back and negotiate again, and Trump sided with them.
Indeed, when Ryan explained his rationale for opposing—initially—the Democrats’ proposal for a short-term debt ceiling hike, he couched it in terms of economic health and stability. “The longer the better, for the stability of the credit markets. That’s my strong opinion,” he said. “I’m worried about the credit markets, and doing this on a short-term basis... We can’t keep doing it that way.”
Under that line of reasoning, the best solution for guaranteeing market stability would be to do away with debt-limit votes entirely. Democrats like Pelosi point to the Constitution, interpreting its reference to “the full faith and credit” of the United States to mean that the Treasury has de facto authorization to borrow as needed to pay the nation’s bills. Under Democratic House majorities, Congress followed a procedure created by former Representative Richard Gephardt of Missouri in which the debt ceiling was automatically deemed to be increased with the passage of the budget. The thinking was that lawmakers would approve payments at the same time as they authorized spending.
Congress could return to that tradition, or they could resurrect a process that McConnell developed during the Obama years which gave the president authority to raise the debt limit subject only to a “resolution of disapproval” by the House and Senate. Because a two-thirds majority was required to block a debt-ceiling increase, Republican lawmakers could register their opposition to the president without fearing the consequences of default. Democrats would have to voluntarily relinquish the leverage they just exerted over Trump and the Republicans, but it might be worth it if it meant that a future Democratic president wouldn’t have to beg a GOP Congress for debt-ceiling increases as Obama did.
To conservatives, however, the debt limit still carries the hope, however faded, of fiscal restraint. “I don’t like the debt ceiling, but it’s an effective tool to force action, and that’s why getting rid of it would be a massive victory for the swamp,” said Adam Brandon, president of FreedomWorks, a conservative group that advocates for the small-government ethos embodied by the Tea Party. “People from our side look at this as a moral issue: It’s immoral to bankrupt the country.” Brandon pointed out that the law which emerged from the debt-limit standoff in 2011, the Budget Control Act, remains the only example of spending caps that Republicans won under Obama.
The Budget Control Act triggered across-the-board cuts to defense and domestic spending known as sequestration, which will extend through 2021. But those reductions have also become a headache for both parties in Washington, and they could be cancelled as part of a year-end spending deal to satisfy Trump’s demand for more military spending. And if sequestration is the most consequential concession to arise out of the debt-ceiling drama of the Obama years, its reversal could be another impetus for Trump to cut his own deal and move on from a standoff that’s caused more political stress than lasting fiscal reform.