Shutdown risk grows as both parties balk on debt ceiling hike

Shutdown risk grows as both parties balk on debt ceiling hike.

by Susan Ferrechio ยท August 8, 2017

Both Democrats and Republicans in Congress are poised to stand in the way of lifting the nation’s borrowing limit next month, increasing the chances of real problems for House and Senate leaders as they try to increase the debt ceiling by an end-of-September deadline.

House and Senate conservatives have long insisted that debt ceiling increases be accompanied by spending reforms, and that hasn’t changed this year, even under a Republican president who is insisting on a “clean” debt ceiling increase.

The House Freedom Caucus, a conservative bloc of more than three dozen GOP lawmakers, has signaled it wants spending cuts in exchange for supporting a debt ceiling increase, but at minimum will push for reforms to how federal dollars are spent as the debt ceiling approaches.

Potentially more troubling for the prospects of a debt ceiling increase, the largest group of conservatives, the Republican Study Committee, announced Tuesday it will also oppose a straight increase without spending cuts.

That means if a “clean” debt ceiling hike is to happen, it will need support from a majority of Democrats. But this year, that may not happen.

Democrats have warned they plan to extract significant concessions on tax reform, a major GOP agenda item, in exchange for their debt ceiling vote.

Minority Leader Chuck Schumer, D-N.Y., has signaled his party may refuse to vote for a debt ceiling increase unless the GOP promises to abandon any tax cut plan that would add to the deficit.

Tax reform “is coming at just the right time from the Democratic perspective,” Senate Minority Whip Dick Durbin, D-Ill., said in a Capitol interview before leaving town for the August recess. “We hope to have constructive conversations.”

Durbin said Democrats are keenly aware of the value of their vote to the GOP majorities in the House and Senate.

Without their help, a vote on the debt ceiling could fail, resulting in a partial government shutdown and a possible shakeup of the financial markets.

Such a scenario would be politically disastrous for Republicans if past polling is any indication. Surveys have found that voters tend to blame the GOP for spending showdowns and government closures.

A brief partial closure of the federal government following an Oct. 13 spending showdown in Congress, for example, led to the lowest favorability rating, 28 percent, for the GOP ever recorded by Gallup.

Democrats are emboldened in the debt ceiling debate as a result of the March spending deal that some called a big win for their party. Republicans, eager to avoid a spending fight under the newly minted Trump administration, gave in to the demands of Democrats and kept from the bill key conservative wish list items, including money for a southern border wall and a provision to defund Planned Parenthood.

The deal also included $295 million sought by Democrats to bail out Puerto Rico’s struggling Medicaid program.

“When they didn’t want to be saddled with shutting down the government, they were more attentive to bipartisan needs,” Durbin said.

But Republicans are unlikely to agree to the terms set by Democrats when it comes to tax reform. The two parties have long differed fundamentally on how to count tax cuts against the deficit.

Republicans do not believe tax cuts should be offset with cuts or other revenue increases, while Democrats insist that tax cuts should be treated as a move that adds to the deficit.

Majority Leader Mitch McConnell, R-Ky., said before leaving town that the GOP would go it alone on tax reform by using a budgetary procedure to avoid a Democratic filibuster.

“Most of the principles that would get the country growing again, they are not interested in addressing,” McConnell said last week when asked about a bipartisan attempt at tax reform. “So I don’t think this is going to be 1986, when you had a bipartisan effort to scrub the code.”

If Democrats are shut out of tax reform and decided to withhold their support for the debt ceiling, Republicans may have to make a deal with their own party.

Some conservatives have suggested they may be willing to drop their demands for big spending cuts in exchange for a provision that would change the way the government spends and borrows money as it approaches the debt ceiling.

Such a bill has been introduced by Rep. David Schweikert, R-Ariz. The Debt Ceiling Alternative Act would prevent the threat of default by allowing the Treasury liquidate certain assets, such as property and mortgage-backed securities.

The legislation won praise from FreedomWorks, a key conservative group.

“This bill would hold the federal government accountable for the money it borrows from the American people,” the organization said in a statement praising Rep. Trent Franks, R-Ariz., a co-sponsor. “It would take a fiscally conservative stance in response to reaching the debt ceiling by requiring the Secretary of the Treasury to issue GDP-linked bonds to pay the principal and interest on public debt.”

But Democrats have opposed these ideas in the past, and it may not even be enough to satisfy conservatives in Congress or outside groups seeking real-time spending reductions now that Republicans control the House, Senate and White House.

“Our nation’s structural deficit is driven by historically irresponsible levels of federal spending,” Heritage Action Vice President Dan Holler said in a statement on Monday. “Any increase in our nation’s debt ceiling should be paired with serious spending reforms that begin reducing federal spending in real, meaningful ways.”

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