Democrats move forward with debt limitation vote amid stalemate with GOP
WASHINGTON – A partisan fight to raise the government’s borrowing limit is set to rise this week, with Democrats pushing ahead with a vote in the face of strident GOP opposition, raising doubts as to whether Congress will take action before the federal government runs out of money. .
The deadlock has alarmed Wall Street analysts and business leaders, who in recent weeks have issued warnings of a growing risk of technical failure, in which the government may not be able to make all of its regular payments. in full and on time. The threat of such a default could derail the markets and hurt US economic growth.
Democrats are tackling debt ceiling as they work to resolve a host of issues regarding their $ 3.5 trillion social and climate plan, including divisions over overall pricing, costs prescription drugs, tax changes and climate proposals.
House Majority Leader Steny Hoyer (D., Md.) Said on Friday the chamber would vote this week on a measure to suspend the debt ceiling and a short-term measure extending government funding to the – beyond its expiration at the end of the month. Democratic leaders have yet to say whether the suspension of the debt limit will be tied to the spending patch, although aides have indicated it is likely.
The House “will make sure America pays its bills on time,” Hoyer said in a letter to House Democrats on Friday.
The increase in the debt limit does not authorize new spending, but rather allows the Treasury Department to issue new debt to cover expenses that Congress has already authorized, including payments to bondholders. , social security beneficiaries and ex-combatants.
Republicans have said they will not help Democrats increase the borrowing limit, amid a protest against the trillions of dollars in new spending the party is pushing through Congress. A combined spending and debt ceiling program could pass the Democrat-led House against GOP opposition, but such a move would struggle in the Senate, where at least 10 Republicans are expected to join Democrats in pushing forward the bill through the same divided chamber.
Instead, Republicans urge Democrats to tie the debt ceiling measure to their $ 3.5 trillion welfare program, which goes through a special process called reconciliation that only requires a simple majority in the Senate. . Democrats said they didn’t want to do this.
“Let me be perfectly clear on this: Republicans are united against raising the debt ceiling,” Senate Minority Leader Mitch McConnell (R., Ky.) Told reporters last week. “If they want to do all of this on a partisan basis, they have the ability and the responsibility to make sure that the federal government does not default, and they will have to deal with it,” said Mr. McConnell.
Mr McConnell acknowledged that lawmakers last raised the debt limit under former President Donald Trump’s administration on a bipartisan basis, but said this time around was different because Democrats unilaterally approved a $ 1.9 trillion Covid-19 relief plan earlier this year and are currently working on the $ 3.5 trillion social protection package.
Democrats stressed that they had voted with Republicans to suspend the debt limit three times during the Trump administration, including in the fall of 2017, when the GOP sought to push forward on debt cuts. taxes using budget reconciliation.
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“We haven’t played games. We did not risk the country’s credit. We did it, ”Senate Majority Leader Chuck Schumer (D., NY) told reporters last week.
In a September 13 letter, the heads of several business groups in the financial services industry urged congressional leaders to raise or suspend the cap and underlined the vital importance of the US Treasury market to investors around the world.
A coalition of real estate and mortgage groups sent a similar letter on September 16 warning of potential housing market instability resulting from a debt limit deadlock and ever higher borrowing costs.
Treasury Secretary Janet Yellen said her agency may run out of money to continue paying government bills during the month of October. Goldman Sachs analysts said the Treasury could likely continue to pay its bonds until late October and possibly early November, according to other independent estimates. After that, unless Congress raises the cap, the agency may have to withhold more than 40% of its payments, including some to U.S. households, they estimated.
Even if a technical default does not occur, a prolonged deadlock on the debt limit could lead to a further downgrade of the US sovereign credit rating, as happened in 2011, and weaken demand for Treasury bills from foreign investors, driving up yields and reversing the cost of government debt, JPMorgan analysts warned last week.
“With no clear path to resolving the short-term debt limit, we are at the point where it could start to impact financial conditions,” they said in a note to clients.
The White House issued a clearer warning on Friday: Failure to suspend the debt ceiling could lead to a recession, at a time when the Delta variant has already clouded the economic outlook.
“We would permanently damage the US economy,” Bharat Ramamurti, deputy director of the National Economic Council, said in an interview. “It would immediately increase costs for every household and every business in the country. “
Raising the debt limit would not make future spending easier, and Congress is expected to raise the debt limit further this fall even if no major new spending plans are adopted.
That’s because Congress has already approved spending and tax policies that lead to large budget deficits, which the Congressional Budget Office says will total $ 12 trillion over the next decade. In recent years, these budget gaps have been caused by major bipartisan budget deals, a GOP tax cut and more than $ 5,000 billion in pandemic relief.
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