The debate over the debt limit will likely flare tensions between centrist and far-right Republicans the closer the country gets to the real deadline sometime later in the year. (Photo by Getty Images)
WASHINGTON — When Republicans won unified control of government during the November elections, they also won the responsibility to address the country’s debt limit after the current suspension expires on Jan. 1.
Lawmakers will have a few months of wiggle room thanks to accounting maneuvers to broker a deal before the country would default for the first time in history — which most economists believe would kick-start a global financial crisis.
How long the Treasury Department will be able to use what’s known as extraordinary measures to give Congress more time to find agreement will lead to a high-stakes guessing game on Capitol Hill.
The debate will also likely flare tensions between centrist and far-right Republicans the closer the country gets to the real deadline sometime later in the year.
“That is always a tortured path,” West Virginia Republican Sen. Shelley Moore Capito said during a brief interview. “A lot of people that are here probably never voted for a debt limit increase, so I think it’s probably going to be a negotiated settlement with some, maybe constraints on spending and other things that would go along with that.”
Capito, who will become the Republican Policy Committee chair next year, said she doesn’t anticipate Congress will simply raise or suspend the debt limit without caveats.
President-elect Donald Trump threw a curve ball into those negotiations in late December when he publicly announced he wanted the party to suspend the debt limit for at least four years or eliminate it entirely before he takes office.
GOP leadership tried to suspend the debt limit for two years as part of a larger spending package, but ultimately withdrew that provision to avoid a government shutdown.
The 48-hour fiasco set the stage for considerable Republican disagreement next year.
“Congress must get rid of, or extend out to, perhaps, 2029, the ridiculous Debt Ceiling,” Trump posted on social media. “Without this, we should never make a deal. Remember, the pressure is on whoever is President.”
What is the debt limit, and why does it matter?
The debt limit allows the Treasury Department to borrow money to pay all the country’s bills in full and on time.
That borrowing authority is necessary because Congress has established a tax code that brings in far less revenue than the federal government spends on hundreds of programs.
During fiscal year 2023, the federal government brought in $4.4 trillion in revenue and spent $6.1 trillion, leading to an annual deficit of $1.7 trillion, according to data from the nonpartisan Congressional Budget Office.
When the difference between taxes and spending, or the deficit, is added up over decades, it accounts for the country’s $36 trillion-plus debt.
Congress requires itself to regularly give the Treasury Department more borrowing authority to pay for all the spending not covered by revenue. Lawmakers failing to take action to raise or suspend that debt limit would lead to a default.
How to reduce the deficit?
There are several ways for lawmakers to reduce the annual deficit of nearly $2 trillion, though most experts agree it will take a combination of tax increases and spending cuts.
Congress would also need to take a look at the major drivers of government spending — Social Security, Medicare and Medicaid.
At the moment, Republicans are talking about using their unified control of government to pass two major packages on their own.
The first would focus on border security, defense and energy policy. The second package the GOP plans to move through the complex budget reconciliation process is aimed at cutting taxes.
One of the biggest questions GOP leaders will face in the new year is whether to go at it alone, relying solely on their members to raise the debt limit, or to negotiate with Democrats, which would require major concessions.
The debt limit has become something of a political hot potato for GOP lawmakers during the past couple decades, with many in the party viewing it as an inflection point to press for spending cuts.
That’s not likely to change next year, though Republicans won’t be able to rely on Democratic votes to carry the bill across the finish line like they have in the past, if they choose to move it through the budget reconciliation process.
If, alternatively, the GOP moves a debt limit bill through the regular process, they’ll need the support of Democrats to get past the Senate’s legislative filibuster, which requires at least 60 senators to move bills toward a final passage vote.
Tax increases and spending cuts
Douglas Elmendorf, professor of public policy at the Harvard Kennedy School of Government, told the House Budget Committee during a hearing in December that getting the country’s borrowing under control in the long term will require both tax increases and spending cuts.
Elmendorf testified that stabilizing the country’s deficit over the next three decades would “require policy changes totaling a little more than 2% of (gross domestic product), which amounts to about $600 billion per year today.”
“Cutting spending that much would require large cuts to popular and important government programs and raising taxes that much would require large tax increases for many people,” Elmendorf said. “So the only realistic way forward is through a combination of those changes.”
California Republican Rep. Tom McClintock rebuked his own party during the hearing for not approaching reconciliation as a genuine way to reduce the deficit by bringing revenue and spending into alignment.
He argued that Republicans misused budget reconciliation when they had unified control of government during 2017 and 2018, the first two years of Trump’s last presidency.
McClintock said GOP leaders at the time “squandered this authority to chase shiny political objects — repealing Obamacare, then tax reform.”
“And because of the fiscal constraints of reconciliation, Obamacare ended up in this mangled mess that collapsed in the Senate and the tax cuts had to be made temporary,” McClintock said. “And we seem to be poised to repeat the same mistakes that got us here and that would be an immense national tragedy.”
Instead, McClintock said the Budget Committee should focus its attention next year on making the types of tough choices that would begin to reduce the annual deficit and then use the reconciliation process to put those in place.
Drivers of debt
Reconciliation is typically used only when one party controls the House, Senate and White House as a way to implement policy changes without getting the bipartisan support required to get past the Senate’s 60-vote legislative filibuster.
When Republicans hold that power, they typically use it to cut taxes, but don’t always pay for those reductions in revenue, further exacerbating the deficit.
Georgia Republican Rep. Buddy Carter said during the same Budget Committee hearing that Congress must address the largest drivers of government spending, like Social Security, Medicare and Medicaid, if it wants to bring spending closer to revenue.
“If we don’t address that, we can do away with everything else and still not balance our budget,” Carter said.
He also cautioned his party against going at it alone, saying “it would be political suicide for one party to try to do it by themselves.” That would mean the GOP needs to negotiate with Democrats, likely eroding some of the party’s goals.
‘Mortgaging our children’s future’
Wisconsin Republican Sen. Ron Johnson said during a brief interview the debt limit is “supposed to concentrate everybody’s minds on the fact that we are mortgaging our children’s future and that we ought to stop the madness.”
Johnson said Republicans could use the reconciliation process they’re planning to use to address defense priorities, border security, energy policy and taxes to cut spending, but he said deficit hawks will be constrained by the rules that govern the special legislative process.
“I’m completely supportive of doing two separate reconciliations — do something pretty simple, primarily focused on the border with real spending cuts. I don’t want to see any gimmicks in this thing. So, you know, I’ll approach it that way,” Johnson said.
Iowa Republican Sen. Chuck Grassley said in an interview before Trump’s announcements that GOP lawmakers have begun to discuss how exactly to address the debt limit next year, though he said no agreements have been reached.
“Some people want a separate debate on it and some people want to put it in reconciliation,” Grassley said. “I prefer reconciliation, but I guess whatever we decide to do, we’re going to have to do it.”