US debt-limit brinksmanship has become a political game
WASHINGTON — For nearly two decades, lawmakers in Washington have made an increasing display of ferocity over the federal government’s ability to borrow money to pay its bills. They have forced administrations on both sides to take aggressive action, putting the country dangerously close to economic disaster. But he never actually tipped the United States into default.
The dance is repeating this fall, but this time the dynamics are different – and the risk of default is greater than ever.
Republicans in Congress have refused to help raise the nation’s debt limit, even though the need for borrowing stems from the bipartisan practice of running a large budget deficit. Republicans agree the US will have to pay its bills, but on Monday they are expected to block a measure in the Senate that would enable the government to do so. Democrats, insisting that Republicans help pay for past decisions to boost spending and cut taxes, have so far refused to use a special process to raise the limit on their own. .
Observers inside and outside Washington are concerned that neither side will budge in time, stirring up financial markets and affecting the economy’s nascent recovery from the pandemic’s slowdown.
If the limit isn’t raised or suspended, Treasury Department officials have warned, the government will soon exhaust its ability to borrow money, leaving officers with military salaries, Social Security benefits and interest for those investors. who have financed America’s spending spree.
Yet Republicans have threatened to thwart any attempt by Senate Democrats to pass a simple bill to increase borrowing. Party leaders such as Senator Mitch McConnell of Kentucky want to force Democrats to raise the limit on their own through a fast-track congressional process that bypasses a Republican filibuster. It could take weeks to come to fruition, betting every day that Democratic leaders refuse to pursue that option.
The problem is compounded by the fact that no one is sure when the government will run out of money. The COVID-19 pandemic continues to wreak havoc on the United States in waves, often disrupting economic activity and complicating the Treasury’s ability to measure its cash flow with the taxes the government collects. Estimates for what is known as an “ex-date” range are estimated from October 15 to mid-November.
Understand the Infrastructure Bill
- A trillion dollar package passed. The Senate passed a comprehensive bipartisan infrastructure package on August 10, capping weeks of intense talks and debate over the biggest federal investment in the country’s old public works system in more than a decade.
- final vote. The final tally in the Senate was 69 in favor of 30. The legislation, which will still have to pass the House, will touch almost every aspect of the US economy and strengthen the country’s response to the warming of the planet.
- Main areas of expenditure. Overall, the bipartisan plan focuses on spending on transportation, utilities and pollution cleanup.
- transportation. About $110 billion will be spent on roads, bridges and other transportation projects; $25 billion for airports; and $66 billion for the railways, providing Amtrak with the most funding it has received since its founding in 1971.
- utilities. The senators envisioned $65 billion to help connect rural communities to high-speed Internet and sign up low-income city residents who can’t afford it, and to western water infrastructure. Includes $8 billion.
- pollution cleaning: About $21 billion will be spent on cleaning up abandoned wells and mines and Superfund sites.
Amid that uncertainty, Congress leaders and President Biden are not even trying to negotiate a resolution. Instead, they are feuding over who should be voted on which can be used against them, raising the possibility that partisan stubbornness will drive the country into a financial unknown.
It all adds up to an inherent impasse in political messaging, midterm campaign advertising and Republican leaders’ willingness to do whatever they can to oppose Mr Biden’s economic agenda, which also includes a $3.5 trillion spending bill that Democrats called for. Let’s hope to pass along party lines. Fast track budgeting process.
Republicans say they will not supply any votes to lift the debt cap, despite running up to trillions in new debt to pay for 2017 tax cuts, additional government spending and pandemic aid during the Trump administration. In contrast, Democrats in 2017 and 2019 voted for President Donald J. Helped Trump increase borrowings.
“If they want to tax, borrow and spend historic amounts without our input,” McConnell said on the Senate floor this week, “they would have to raise the debt limit without our help.”
So far, Biden and Democratic leaders in Congress have refused to do so, even though employing that process would eliminate the risk of default.
John Lieber, a former aide to Mr McConnell who is now with the Eurasia Group, a political-risk consultancy in Washington, wrote in a warning to clients this week that there is a one in five chance of pushing the country to a standstill. In at least one technical debt default – forcing the government to choose between paying off bondholders and honoring all of its spending commitments – this fall.
“It’s crazy high for an event like this,” Lieber said in an interview, noting that the odds are significantly higher than in the previous standoff. “But I really believe we should have a level of panic.”
President George W. Under Bush’s leadership, Democrats, including Biden, voted against raising the debt limit in 2006, citing Bush’s budget deficit, exacerbated by tax cuts and wars in Iraq and Afghanistan. He did so despite warnings from administration officials that a default would damage the country’s credit rating and economy.
Mr Biden, like many other Democrats, said he could not stop Mr Bush’s fiscal decisions. But his party did not cast a vote and was able to pass an increase in the debt limit along Republican party lines. White House officials say Mr Biden’s vote was symbolic, noting that Republicans’ ability to raise the debt limit was never in question.
Leaders of both parties have, at times, given a version of the original argument in favor of raising the limit: that it is a way of allowing the government to pay bills already spent. Both sides have shown no sign of slowing the country’s borrowing pace, which accelerated last year as lawmakers approved trillions of dollars in aid for people and businesses grappling with the pandemic slowdown. Each party has recently taken over the White House and controls Congress, but neither has in recent years come close to approving a budget that will balance within a decade—that of additional borrowing and debt. – There is no need to increase the limit.
Biden administration officials, former Treasury secretaries on both sides and business executives across the country have urged lawmakers to raise the borrowing limit as quickly as possible.
“I think it’s scary for consumer confidence and confidence in American businesses and potential credit ratings,” Amazon chief executive Andy Jesse said on CNBC earlier this month.
Biden’s 2022 budget
The 2022 fiscal year for the federal government begins on October 1, and President Biden has revealed what he intends to spend since then. But any expenditure requires the approval of both houses of Congress. Here’s what’s included in the plan:
- Ambitious total spend: President Biden wants the federal government to spend $6 trillion in the 2022 fiscal year, and increase total spending to $8.2 trillion by 2031. This would take the United States to its highest sustained level of federal spending since World War II, while running a deficit of more than $1.3 trillion during the next decade.
- Infrastructure Plan: The budget outlines the president’s desired first year of investment in his American Job Plan, which seeks to fund improvements to roads, bridges, public transportation and more, with a total of $2.3 trillion over eight years.
- Family Plan: The budget also addresses other major spending proposals Biden has already launched with his American Family Plan, which aims to support the United States by expanding access to education, reducing child care costs, and supporting women in the workforce. The social safety net is to be strengthened.
- Mandatory Programs: As always, mandatory spending on programs such as Social Security, Medicaid and Medicare form a significant portion of the proposed budget. They are increasing as the US population ages.
- discretionary spending: Funding for individual budgets of agencies and programs under the executive branch will reach about $1.5 trillion in 2022, a 16 percent increase from the previous budget.
- How Biden will pay for it: The president will largely fund his agenda by raising taxes on corporations and high-income earners, which will begin to reduce the budget deficit in the 2030s. Administration officials have said the tax hike would completely wipe out the Jobs and Families plans over the course of 15 years, which the budget request backs up. Meanwhile, the budget deficit will remain above $1.3 trillion every year.
Democrats say Republicans have a responsibility to help raise the limit, noting that Trump helped when he needed to do so. White House officials called Mr McConnell’s position hypocritical.
“Republicans in Congress have spent a decade ushering in a new era where the prospect of default and a global economic downturn has become a dangerous political football,” White House spokesman Michael Gwynn said in an email. “As we recover from the deep recession caused by the pandemic, it is now more important than ever to put biases aside, remove this cloud from our economy, and responsibly address debt limits — just like the Democrats did three times under the previous administration. “
Mr Lieber and other analysts worry that party leaders are talking to each other. Experts suggest it will take a week or two for Democratic leaders to increase the debt limit through the fast-track budget process. This can put the government in the grip of a sudden crisis. On Friday, the bipartisan policy center said the government may run out of cash to pay its bills by mid-October.
Mr Lieber said he was concerned about the “risk of miscalculation on both sides”, as this impasse is not under Mr Obama. “Republicans are not asking for anything,” he said. “So their position is that there is nothing you can do to get us to vote for the loan limit increase. This is a dangerous situation.”
Researchers at Goldman Sachs warned in a note to clients this month that the volatile nature of tax receipts this year, a product of the pandemic, makes credit limits “riskier than usual” for the economy and markets. He said the impasse was at least as risky as in 2011, when brinkmanship disrupted bond yields and the stock market.
Other financial analysts believe that, as they have in the past, the parties will eventually find a settlement — mainly because of the consequences of the failure.
“We are confident that Congress will raise or suspend the debt limit,” S&P US chief economist Beth Ann Bovino wrote this week. “A lapse by the US government would be far worse than the 2008 collapse of Lehman Brothers, devastating global markets and the economy.”
Meanwhile, Republicans await a vote by Democrats to raise the limit. Florida Senator Rick Scott, who heads the Republican campaign wing in the Senate, told an NBC reporter He was eager to highlight Democratic support for raising the threshold in midterm ads.
#debtlimit #brinksmanship #political #game