WASHINGTON (AP) – The federal government is on track to max out its $31.4 trillion borrowing authority as soon as this month, starting the clock on an expected showdown between President Joe Biden and the new House Republican majority that will test both parties’ abilities to navigate a divided Washingtonwith fragile global economy at risk.
Once the government bumps up against the ceiling — which could happen any time in the next few weeks or longer — the Treasury will be unable to issue new debt without congressional action. The department plans to implement what are known as “extraordinary measures” to keep the government running. But when those measures expire, likely in midsummer, the government could risk default unless lawmakers and the president agree to lift the limit on the U.S. government’s ability to borrow.
The expected showdown over the debt limit would be a stark display of the new reality for Biden and the Democrats, who enjoyed one-party control of Washington for the past two years. That would foreshadow the challenges that come with achieving even the modest ambitions Democrats bring to the task of legislating in a divided Capitol.
The White House has insisted it will not allow the nation’s credit to be held captive by the demands of newly empowered GOP lawmakers. But the admissions made by new House Speaker Kevin McCarthy on his bumpy road to securing the job raise questions about whether he has the ability to cut any kind of deal to resolve a conflict.
McCarthy, there only secured his post has said, after 15 rounds of voting and major compromises with hardline members of his caucus, that his fellow Republicans will agree to raise the debt ceiling only in exchange for spending cuts of an unspecified amount. And a new rule allowing any lawmaker to trigger a vote for McCarthy’s removal could make even the most urgent of votes a problematic affair.
McCarthy said he has spoken with Biden about the upcoming debt ceiling and told the president “it doesn’t have to come to that” — meaning a federal government shutdown over spending levels.
“This is our moment to change behavior,” McCarthy said Tuesday on Fox’s “Hannity.”
But the new speaker stopped short of saying Republicans now in charge of the House would go so far as to refuse to pass the annual spending bills needed to fund the government, as they did more than a decade ago during an earlier debt ceiling showdown in Congress.
“We will look at every single dollar spent,” McCarthy said.
The stakes are treacherous. Previous forecasts suggest that a default could immediately bury the country in a deep recession, just at a moment of slowing global growth as the US and much of the world faces high inflation due to the pandemic and Russia’s invasion of Ukraine.
The White House has ruled out executive action to avert a default.
“Congress is going to have to raise the debt limit without — without — conditions, and it’s just that simple,” White House press secretary Karine Jean-Pierre said recently. “Trying to use the debt ceiling as leverage will not work. There will be no hostage taking.”
On Capitol Hill, Republican Rep. Chip Roy of Texas, one of McCarthy’s cohorts and an outspoken critic of government spending, has not ruled out trying to oust McCarthy if he does not follow through on his promise to seek spending cuts along with possibly increase in the debt limit.
“We will use the tools of the House to enforce the terms of the agreement,” Roy told CNN on Sunday.
Rep. Rep. Bob Good, R-Va., said in a Fox News interview Monday that the debt limit will be “the real test” for conservatives. Republicans need to start “using the power to get what you need to get,” he said. Good fought McCarthy’s bid to become speaker until the final vote, when he answered “present.”
That debt ceiling debate is a form of political theater — it encourages lawmakers to engage in brinkmanship in the name of fiscal responsibility — even though past showdowns have done little to change the long-term rise in the federal debt.
House Republican leaders liken the debt ceiling to a credit card limit and promise to put “mechanisms in place so you don’t keep maxing it out,” in the words of House Majority Leader Steve Scalise of Louisiana.
“We will confront this, and I think the American people have called on us to confront this,” Scalise said.
Any attempt to compromise with House Republicans could force Biden to bend to his own priorities, whether it’s funding the IRS to make sure wealthier Americans pay what they owe or domestic programs for children and the poor.
Pinpointing the exact date the government will hit its debt ceiling is difficult because payments and revenues vary from day to day, especially with the income tax filing deadline in April. The current balance suggests the debt ceiling could be reached as early as this week or as late as March.
When the Treasury takes extraordinary measures to keep the government running, it can stop payments to pension funds and borrow from accounts to manage changes in the exchange rate, freeing up cash to meet its other obligations.
Treasury first used these measures in 1985 and has been using them at least 16 times ago, according to the Committee for a Responsible Federal Budget, a fiscal watchdog. But the emergency measures only work for so long and are likely to run out — putting the U.S. at risk of default — sometime around the summer.
If the government were to default, the financial markets could be expected to go down. Several million workers may be laid off. The world could feel the aftershocks of the crisis in the coming years. Moody’s Analytics called this risk “catastrophic” in a 2021 forecast ahead of the previous debt ceiling hike, suggesting the resulting chaos would be due to government dysfunction rather than the underlying health of the US economy.
“Debt limit negotiations are always protracted and almost always contentious, and the political trends seem likely to exacerbate those trends and create a volatile situation,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, which predicts the so-called X date when the government exhausts its extraordinary measures.
Akabas told the Associated Press that the X date “has probably moved forward” from this year’s third quarter because of rising interest rates and a student loan repayment pause recently extended by the Biden administration. A more precise date will become available when the Congressional Budget Office updates its outlook later this month.
Regardless, lawmakers know the risks they are taking with the livelihoods of people across the country by having this dispute. Economists have warned them many times.
A 2013 Treasury report drew on the debt ceiling impasse in 2011, when Republicans had also just won a majority in the House. It outlined how impasses are contributing to long-term scars on financial markets, noting that business and household confidence fell to levels typically only seen during recessions.
“It took months for confidence to recover, although in the end there was no default,” the report said.
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Associated Press writers Kevin Freking, Zeke Miller and Lisa Mascaro contributed to this report.
