Republicans Reprise 2011 Debt-Limit Fight in Budget Talks

Monday, 03 Dec 2012 06:15 AM

 

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Republicans are renewing attempts to use a debt-limit increase to force deeper spending cuts, replicating the 2011 showdown that caused the U.S. to come within days of default and led to a credit-rating downgrade.

As in 2011, many Republicans in Congress see the need to raise the $16.4 trillion limit on public debt in early 2013 as leverage to force President Barack Obama to cut entitlement programs such as Medicare and Medicaid. House Republicans view the U.S. budget deficit, which topped $1 trillion in each of the past four years, as a crisis requiring immediate action.

“There has to be a reality out there that says we are in serious trouble,” said Representative Tim Walberg, a Michigan Republican. “We can’t just keep raising it because it’s been traditional to do it.”

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The prospect of another debt-ceiling showdown is complicating the stalled talks to prevent more than $600 billion of spending cuts and tax increases from taking effect in January. Republicans, who say they didn’t suffer politically from the 2011 fight, are reprising their tactics. The administration wants to include a debt limit increase in a fiscal cliff deal and prevent Congress from wielding default as a weapon in the future.

Talks on averting the fiscal cliff are at a standstill. Democrats continue to demand higher tax rates for top earners, while Republicans want to cut spending on entitlements and other programs.

Bond Market

While lawmakers are making deficit reduction a rallying cry, the bond market shows nowhere near the same level of concern. As the national debt exceeded $16 trillion from less than $9 trillion in 2007, U.S. borrowing costs tumbled. The yield on the 10-year note touched a record low 1.379 percent July 25, down from more than 5 percent in mid-2007.

House Speaker John Boehner last week said a debt-limit increase would come with a “price tag,” which he has defined as spending cuts equal to the size of the additional borrowing.

Congress followed the “Boehner Rule” in 2011, which led to the $1.2 trillion of automatic cuts set to start in January. Replacing those spending reductions would require other cuts beyond what would be needed to pay for another debt-limit increase, said Representative James Lankford, an Oklahoma Republican who will be a member of his party’s House leadership next year.

Long Term

“To get our members to support anything, there’s going to have to be a commitment by Senate Democrats and the White House to undertake fundamental spending reforms over the long term,” said Representative Jim Gerlach, a Pennsylvania Republican. “If that’s not included in any proposal, then it’s going to be very difficult to pass anything in the House.”

The Obama administration, which accepted a deal in 2011 that didn’t guarantee higher taxes, is entering this set of talks with a bolder position. Treasury Secretary Timothy F. Geithner told Republicans last week that the administration is proposing to eliminate the 95-year-old requirement that lawmakers approve additional borrowing authority.

Failure to enact a debt limit increase would cause the U.S. to default on some of its obligations, either promised spending such as Social Security payments and federal workers’ paychecks or interest on bonds.

Era Over

“Democrats and Republicans should all come together and say now that the era of threatening the default of the United States is over,” Gene Sperling, director of the president’s National Economic Council, said on Bloomberg Television’s “Political Capital with Al Hunt” Nov. 30. “That should not be part of our budget negotiations going forward.”

Democrats including Senate Majority Leader Harry Reid want Congress to address the debt limit as part of the fiscal cliff, rather than setting up a two-step process. The U.S. will reach the limit late this year and the Treasury Department can use so- called extraordinary measures to delay the need for an increase until at least mid-February, according to the Congressional Budget Office.

“It’s anachronistic,” said Senator Max Baucus, a Montana Democrat and chairman of the Finance Committee. “We’ve already voted on spending and revenue, and so the debt ceiling is just a confirmation of what we voted on.”

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More Latitude

In 1917, during World War I, Congress created the forerunner of the debt limit as a way to give President Woodrow Wilson’s administration more latitude. The limit was designed to “eliminate the need for Congress to approve each new debt issuance and provide Treasury with greater discretion” in how it finances government borrowing, according to a 2011 Government Accountability Office report.

Congress in 1939 consolidated several limits into a single one, according to the Congressional Research Service. Lawmakers have raised the limit dozens of times since then, including 11 times since 2001, according to CRS.

The debt limit has become a political weapon because of the severe effects of inaction, and it’s one that Democrats and Republicans have used in the past. As a senator, Obama voted against a 2006 debt-limit increase, a decision he regrets, White House Press Secretary Jay Carney said last year.

In some ways, the debt limit mirrors the automatic tax increases and spending cuts in the fiscal cliff that Democrats see as leverage, because one side’s unwillingness to act has consequences.

Republicans criticized Geithner’s proposal on the debt limit.

Political Leverage

“Silliness,” Boehner said on “Fox News Sunday” yesterday. “Congress is never going to give up this power,” he said. “It’s the only way to leverage the political process to produce more change than what it would if left alone.”

In 2011, Republicans used the potential of default to force spending cuts. The legislation allowed a $2.1 trillion increase in the debt ceiling. It also required cuts of more than $900 billion in domestic spending and set up $1.2 trillion in automatic spending cuts, half to defense programs, scheduled to begin in January.

“Spending has to be dealt with, first and foremost,” said Representative Marsha Blackburn, a Tennessee Republican. “The position we have is really where the American people are, which is to cut the spending, get it under control and deal with the long-term systemic fiscal issues that we’re facing.”

House Majority

Republicans point to the fact that they kept their House majority after the 2011 debt-limit fight as proof that the party didn’t pay a political price. Republicans stayed in the majority after the 2012 election although they suffered a net loss of eight seats.

“I don’t think it matters,” said Representative Devin Nunes, a California Republican who said the administration and Democrats don’t share his view that spending is a “crisis” that must be addressed immediately. “At the end of the day we won, because we came back.”

In 2011, 66 Republicans voted against the debt-ceiling agreement that Boehner and Obama reached, many criticizing the deal because it didn’t go far enough in addressing entitlement spending and subjected the military to automatic spending cuts.

Democrats, who say failure to raise the debt ceiling would cause catastrophic harm they can’t countenance, are preparing to engage in what Representative John Yarmuth called the “same ridiculous pointless debate” as in 2011.

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Republicans “do that at their peril if they try to hold any kind of deal hostage for that,” said Yarmuth, a Kentucky Democrat. “The government will stop functioning, because we won’t be able to pay for it, and that will send this country into a massive depression.”

Walberg and other Republicans see the long-term fiscal trajectory of the country as an urgent problem and one that demands immediate attention.

“People believe,” he said, “that Congress just doesn’t get it.”


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