Both Congressional Budget Office and the Treasury Department warned Monday that the federal government is likely to exhaust its authority to pay its bills on June 1street if Congress doesn’t raise or suspend the federal debt limit before the end of this month. The fast-approaching deadline, which previous projections placed much later in the summer or early fall, creates a new urgency for President Joe Biden and House Speaker Kevin McCarthy to reach a deal. . Republicans will need to abandon their attempt to extract significant political concessions in exchange for a debt limit increase or offer President Biden a short-term increase that creates space for a realistic negotiation process. To refuse to do so would be the height of irresponsibility and squarely blame the Republican Party for causing America’s first national debt default.
The federal government originally hit the debt limit, which limits the amount of outstanding debt the Treasury can issue to cover the difference between revenue and spending levels set by Congress, in January. But through the use of so-called “extraordinary measures”: accounting maneuvers that are no longer so extraordinary after they have been invoked. no less than nine times since 2011 – The Treasury has been able to release cash and continue paying bills on time. No one knew exactly how long these measures could prevent a default because the amount of cash the Treasury has available at any given time is determined by the unpredictable timing of financial transactions. But after a disappointing tax collection in April, forecasters think the government is unlikely to have what it needs to cover all the payments it is due in early June.
Unfortunately, Congress appears to be ill-prepared for this accelerated timeline. It was only last week that House Republicans were able to barely pass he Law of Limit, Savings, and Growth that serves as the GOP’s opening offer in the budget negotiations. President Biden had previously refused to engage with Republican leaders until they came to the table with clear requests. This condition seemed reasonable, but has now left both sides scrambling to find a deal.
The gap between the parties will be difficult to close in the two weeks that both houses of Congress are in session from now until the date of the possible default. Democrats have said that while they generally oppose spending cuts, they are willing to engage in budget negotiations after the threat of default is removed by raising or suspending the debt limit, preferably through the end of President Biden’s term. .
The GOP position couldn’t be more different: The House GOP bill would cut domestic spending programs by $4.5 trillion over the next decade as a precondition for raising the debt limit by just $1, 5 trillion, or enough to reach March 2024. So deep the cuts are virtually impossible to reconcile with McCarthy’s promises not to touch Social Security, Medicare, national defense or veterans’ benefits, which together comprise more than 85% of the expense without interest. These demands would destroy virtually every other function of government and are even more extreme than the Republican position during the 2011 debt limit fight, which was to cut one dollar of spending for every dollar of increase in the debt limit – McCarthy is now seeking three times that amount and the opportunity to cut even more from the federal budget less than a year from now.
Given these realities, it is clear that both sides are nowhere near reaching an agreement in time for the June deadline. That is why party leaders should consider a two-step process along the lines of bipartisan framework posted by Reps. Ed Case (D-Hawaii), Scott Peters (D-Calif.) and Don Bacon (R-Neb.) last month. Two weeks ago, I argued that implementing this framework by suspending the debt limit until the end of the fiscal year on September 30he it would create space for Biden and McCarthy to negotiate a longer-term budget deal and give both sides a win: Republicans could get significant tax concessions before agreeing to raise or suspend the debt limit for the rest of this Congress, and Democrats could negotiate these concessions as part of the normal budget process rather than incentivize Republicans to use the outsized threat of imminent default as leverage.
Support for this position is growing now that the deadline for action is much earlier than previously anticipated. Rep. Brendan Boyle (D-Penn.), the ranking Democrat on the House Budget Committee, said on Bloomberg TV yesterday that there would be “advantages in synchronizing the time between the increase in the debt ceiling and the allocation schedule.” Meanwhile, even some Republicans as far to the right as Sen. Rick Scott (R-Fla.) voiced opening to a short-term debt limit increase if accompanied by evidence of significant commitment from the Biden administration.
For this process to succeed, Democrats must enter into good faith negotiations and offer real concessions on spending after securing a short-term debt limit increase. While Democrats cannot be expected to consider fundamental changes in entitlement spending as long as Republicans are unwilling to take even a dollar of new revenue, spending will need to be more restrained under divided government than under unified Democratic control, particularly because inflation is stubbornly maintained. high. But after reaching a deal, Republicans must also be willing to raise the debt limit through the end of 2024. It would be the height of hypocrisy to agree on a certain level of spending, to refuse to increase the revenue needed to meet that level of spending. , and then defaulting on lenders who allow the Treasury to make up the difference.
However it is resolved, this entire episode points to the need for broader budget reforms. No party should have the ability or the incentive to take hostage the full faith and credit of the United States to further its ideological agenda. Legislators must seek a better budget process to address the chronic gap between tax revenue and spending that leads to the accumulation of mounting debt, without resorting to dangerous brinkmanship to allow Treasury to pay the bills that Congress has racked up when due.