The dumbest debt ceiling fight yet

The dumbest debt ceiling fight yet

Republicans don't want to raise it and don't want to bargain either

Matthew Yglesias

Sep 16

When the federal government’s spending obligations exceed its tax revenue, the Treasury Department fills the gap by selling bonds. But Treasury’s ability to sell bonds is limited by the statutory debt ceiling, which needs to be periodically raised or suspended in order to allow the normal functioning of government to continue. If it isn’t, the government will fail to meet some of its legal obligations — including its obligation to pay the holders of older debt.

This is a clumsy institutional design that has a weird history and was for a time the subject of some obnoxious political theater with no real significance. Then, during Barack Obama’s presidency, House Republicans irresponsibly began to wield the debt ceiling as a weapon to try to force policy concessions and damage the economic recovery. It faded as an issue during Obama’s second term, and under Donald Trump, it again became a routine piece of legislative arcana that was simply dispensed with on a regular basis.

But the debt cap was un-suspended on August 1, per the terms of the last congressional action, and ever since then, Treasury has been relying on the so-called extraordinary measures to keep paying bills without new borrowing. Current estimates are that Treasury will run out of room to use those measures some time in late October, at which point disaster will strike.

Democrats take the view that Republicans should provide them with the votes needed to raise or suspend the debt ceiling on a bipartisan basis, thus overcoming the filibuster and averting this catastrophe. Republicans say they don’t want to do that. But unlike the Republicans of John Boehner’s era, they also aren’t saying what they do want to do.

I’ve commented before on Republicans’ unhinged moderation, and this is perhaps the ultimate example. Relative to the situation 10 years ago, the current iteration of the GOP is much more procedurally radical but has diminished policy ambitions. So while they once held the full faith and credit of the United States hostage in an effort to force massive cuts to Social Security, Medicare, and Medicaid, they are now threatening the same financial catastrophe with no goal in mind at all.

A brief history of the debt limit

The debt limit has come to be seen as a constraint even though it was initially intended as the reverse.

In the 19th century, Congress had to individually authorize debt issuances, which was a significant impediment to the Treasury’s ability to borrow money, but given the 19th century monetary and fiscal situation, it was not a huge deal. Countries operated on the basis of the gold standard, which itself put hard constraints on borrowing money. And the government did not, in general, run routine budget deficits. In fact, a big issue in Gilded Age politics was what to do about the persistent federal budget surplus. There was no welfare state at that time, but there were high tariffs intended to protect domestic industry. Republicans generally wanted to spend more and more money on pensions for Union soldiers, but Democrats tended to resist that idea and instead urged lower tariffs. During periods of gridlock, surpluses would accumulate.

Things changed during World War I. Everyone was going off the gold standard and borrowing money, and Congress decided to delegate and simply give the Treasury authority to borrow up to some numerical threshold rather than having Congress vote for specific bond issues.

For decades this was really not a big deal until Ronald Reagan cut taxes during peacetime on the theory that this would generate so much additional economic growth as to actually raise revenue. That wasn’t true, and ever since then, “the budget deficit” has been an issue in American politics. In the 1990s and 2000s, the sporadic raising of the debt ceiling was a well-known set piece in deficit politics (there’s even a scene from The West Wing about it).

But this Posturing Era of debt ceiling politics is probably best exemplified by then-Senator Barack Obama, who in 2006 voted against a debt ceiling increase. Why did he want the country to default on its obligations? Well, he didn’t really explain. He just said he disagreed with George W. Bush’s fiscal policy:

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. Over the past 5 years, our federal debt has increased by $3.5 trillion to $8.6 trillion. That is ‘‘trillion’’ with a ‘‘T.’’ That is money that we have borrowed from the Social Security trust fund, borrowed from China and Japan, borrowed from American taxpayers. And over the next 5 years, between now and 2011, the President’s budget will increase the debt by almost another $3.5 trillion.

Eventually, he concluded:

Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘‘the buck stops here.’’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

I therefore intend to oppose the effort to increase America’s debt limit.

This makes no sense. Nothing that was bothering Obama about Bush-era fiscal policy would have been improved by failing to raise the debt ceiling. But crucially, everyone knew the debt ceiling would go up. Obama wasn’t bargaining or trying to accomplish anything at all; he was bullshitting. This was silly but ultimately unimportant. Then he became president, and things got real.

Debt ceiling brinksmanship

Obama took office amidst a severe recession that called for large-scale fiscal stimulus. But he also took office as a true believer in the view he’d articulated in 2006: the nation’s post-Bush fiscal trajectory was unsustainable.

So from the beginning, deficit reduction was a major theme of his presidency. The Affordable Care Act was not only fully paid for, it was explicitly designed to “bend the healthcare cost curve” and slow the long-term growth of Medicare expenditures, including in ways that the Congressional Budget Office wouldn’t score. Obama promised to partially repeal the Bush tax cuts (and eventually achieved this) and did not propose to use those tax hikes to finance new spending. It was actually just the opposite. Obama pursued the idea of a “grand bargain” on the deficit in which Republicans would agree to raise taxes on a bipartisan basis (thus allowing for larger tax hikes than Democrats could achieve on their own), and in exchange, Democrats would agree to cut Medicare and Social Security spending.

Republicans then adopted two views:

Deficit reduction was suddenly so important that even token fiscal stimulus was inappropriate.

Deficit reduction had to come entirely through spending cuts.

The GOP held so firmly to this commitment to drastic spending cuts that they wanted not just to cast show votes against the debt ceiling but to use the majority they obtained in the U.S. House of Representatives to force Obama to do things their way. Initially, the Obama White House actually welcomed this tactic. Some Democrats in Congress wanted to raise the debt ceiling as part of a package of bills agreed to in the lame-duck session in late 2010, but the administration thought it would be useful to force Republicans to the bargaining table.

But ultimately, the brinksmanship proved very damaging. Republicans wouldn’t raise taxes and Democrats wouldn’t agree to draconian cuts in Social Security and Medicare. Out of time to negotiate, they reached a deal to raise the debt ceiling and appoint a “super committee” to keep negotiating. And this time, the threat to the super committee was the imposition of big automatic cuts in both defense and non-defense spending — you may recall people talking about “the sequester” — if members didn’t reach an agreement.

They did not. Both the drama around the debt ceiling and the resulting austerity budgeting hurt the economy. Republicans kind of backed away from this tactic during Obama’s second term but didn’t disavow it.

When Trump became president, Democrats had two plausible options for thinking about the debt ceiling and naturally took neither. One would have been to say “turnabout is fair play” and engage in some brinksmanship of their own. The other would have been to say “this debt ceiling stuff is really dumb, instead of agreeing to raise it, we should eliminate it.” But instead, Democrats just agreed to bipartisan suspensions, leaving the debt ceiling weapon lying around until the next Democratic administration.

Default on the debt to own the libs?

In early August when the extraordinary measures began, McConnell addressed the debt limit in a floor speech that didn’t make a lot of sense:

“If our colleagues want to ram through yet another reckless tax and spending spree without our input, if they want all this spending and debt to be their signature legacy, they should leap at the chance to own every bit of it,” the Kentucky Republican said on the floor.

“So let me make something perfectly clear: if they don’t need or want our input, they won’t get our help with the debt limit increase that these reckless plans will require,” McConnell said. “I could not be more clear. They have the ability to control the White House, to control the House, to control the Senate. They can raise the debt ceiling.“

A few problems with this:

The debt ceiling would need to be raised whether or not Democrats pass their reconciliation bill because there’s a large structural deficit going back (at a minimum) to the Bush tax cuts.

Passing Democrats’ reconciliation proposal doesn’t require any additional increase in the debt ceiling because, as McConnell himself notes, their plan is to raise taxes.

As you have probably heard, outside the context of reconciliation, it takes 60 votes to pass a bill through the Senate, so Democrats actually can’t raise the debt ceiling on their own.

Again, this time Republicans are not making policy demands in exchange for raising the debt ceiling. They’re just saying they won’t do it. But in his most recent public remarks on the subject, McConnell himself acknowledged that “the debt ceiling needs to be raised.” He just insists that “it’s [Democrats’] obligation to do it.”

One possible interpretation is that Republicans would agree to not filibuster a bill raising or suspending the debt limit so Democrats could pass it with 50 votes (plus Kamala Harris), and then Republicans could complain about it. As I’ve said many times, I think this is how all legislation should work, so I wouldn’t object to McConnell deploying this approach.

And yet, he’s not actually saying that, in part because it would be somewhat hard to commit to credibly. McConnell himself might like the idea, but he can’t necessarily prevent one of his 50 members from objecting to closing debate, at which point you need to hold a cloture vote. It used to be the case that there was a tradition of senators sometimes voting to invoke cloture on a measure and then voting no on final passage (as recently as 2003, this happened on a major Medicare bill). But not only is that tradition now dead, Mitch McConnell played a crucial role in killing it. My view is that the old, pre-McConnell filibuster was a much more workable and stable system, to the point where you can now see McConnell himself wanting to invoke its logic. Republicans should be allowed to vote “no” on the thing in order to register their objection without actually blocking it. But again, it’s McConnell who is most individually responsible for eliding the difference between the procedural vote and the substantive vote and creating the norm where everything is filibustered.

Within that new senate, there’s no question — it has to be a bipartisan bill.

What most Senate Republicans have said in a joint letter is that Democrats should raise the debt limit in their reconciliation bill. But that’s never been done before, and it’s not clear that you could do it. The parliamentarian already ruled that a minimum wage increase doesn’t count as a primarily fiscal measure, even though it does raise tax revenue and reduce welfare state spending. The debt ceiling doesn't change taxes or spending at all. It’s also not clear that Democrats will have a reconciliation bill ready to pass by mid-October. It really seems like you need a bipartisan bill.

Republicans can try to bargain for something if they want to (though that’s irresponsible), but they can’t just cut themselves out of the equation.

What do Republicans want to do?

The lack of demands is fascinating because it highlights one of the core political strengths of the post-Trump iteration of the Republican Party: its apparent lack of policy agenda.

Lots of people, of course, find the whole Trumpian mélange to just be incredibly offensive and objectionable. And a partially overlapping group of people are progressives who support a bold agenda to tackle climate change and expand the welfare state. But traditionally, Democrats have counted on winning the votes of a certain number of people who are mostly just afraid Republicans are going to take the programs they love away. You saw between 2016 and 2018 the swing of the difference between a culture war about Trump’s personality and an election that combined that with a backlash to Republicans trying to cut Medicaid. A weird myth has grown up that the populist element of Obama’s 2012 campaign was just personalized attacks on Mitt Romney’s private equity work, but Republicans’ threats to cut Medicare were a huge deal. In 2006, there was a backlash to Bush’s effort to privatize Social Security.

In 2022, many of the GOP’s critics are like “these are a bunch of bozos with no agenda for governing.” But to many voters, “no agenda” sounds a lot better than welfare state rollback. If McConnell were to demand a massive debt reduction package focused on spending cuts, that would have some ill portent for the country but be very convenient for Democrats trying to come up with a better message in the midterms.

So wisely, he’s not making demands. But if you’re not going to put a program for deficit reduction on the table, then what’s the point of objecting to the accumulation of debt? It’s just a kind of reflexive desire to fight. But what’s the fight about?