Democrats face GOP blockage on raising debt ceiling as time is running out

By Phil Mattingly and Matt Egan, CNN

Treasury Secretary Janet Yellen had a clear and dire message for Senate Minority Leader Mitch McConnell: The US economy, still emerging from a pandemic-driven economic collapse, can’t afford a self-inflicted catastrophe.

The message about the repercussions of the first US default in history wasn’t framed through a political lens, or even an attempt at persuasion, according to multiple people familiar with the arranged August 14 call. It was a concise road map of the potential devastation that loomed in the coming weeks without congressional action.

McConnell’s response was similarly to the point, and didn’t diverge from his repeated public statements on the looming need for a debt ceiling increase.

Democrats were on their own.

McConnell fully understood the consequences of default, from the halted federal payments to the clear potential for recession and a credit crisis.

The Kentucky Republican had, over the course of his time as leader, repeatedly voted for and even shepherded debt ceiling increases or suspensions.

But Democrats wouldn’t have Republican support this time around. Democrats had the ability to raise the debt ceiling without GOP support, and given their ambitious legislative agenda, it would fall entirely on their shoulders to do the heavy — and politically precarious — lifting.

The private call served to underscore a public reality: Washington is careening towards a debt ceiling debacle that would be catastrophic for Wall Street and Main Street alike. At stake is far more than political positioning or gamesmanship. Federal payment to millions, from government workers to Social Security and Medicaid recipients, would be halted. Military salaries would be frozen. A self-inflicted credit crisis would likely take hold, with increased borrowing costs rippling throughout sectors.

President Joe Biden and the top two congressional Democrats, House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer, have rebuffed McConnell’s call to raise the debt ceiling through partisan means.

It’s an option that exists through the procedural mechanism they are utilizing in their effort to advance Biden’s sweeping economic and climate agenda without the need for any Republican votes. It’s an option that was considered, people familiar with the discussions say, but ultimately shelved in favor of the position that for a debt load authorized almost entirely during the administration of former President Donald Trump, the vote to increase or suspend the limit was a shared responsibility.

After weeks of calling explicitly for a “bipartisan” vote to remove the default threat, Democratic leaders announced Monday they would tie a debt limit suspension to a must-pass government funding bill slated for House vote this week.

Democrats don’t necessarily think McConnell is bluffing, but they’re not willing to let him dictate the terms of what happens next, according to officials and congressional aides. There is no appetite for negotiations tied to the debt ceiling, according to multiple people familiar with the thinking of Democrats, though McConnell has yet to lay out any demands. He’s unlikely to do so, allies say, having laid out his position in July with no plans to waver.

The result is a toxic convergence of politics and policy that has driven the flirtation with catastrophe back to the forefront, with no agreement on a clear pathway out of a boxed canyon of lawmakers’ own making.

And the clock is ticking.

“The US has always paid its bills on time, but the overwhelming consensus among economists and Treasury officials of both parties is that failing to raise the debt limit would produce widespread economic catastrophe,” Yellen wrote this weekend in the Wall Street Journal.

Another ‘entirely avoidable’ crisis

There is a now a clear risk that Congress fails to raise the federal borrowing limit before the US Treasury runs out of cash and accounting maneuvers, according to lawmakers and administration officials involved in the process.

It’s a game that has been played several times over the course of the last decade, rattling markets and public confidence and at one point even leading to a downgrade of the US sovereign credit rating by one credit rating firm in 2011. Further downgrades would raise the cost of borrowing — making it, ironically, that much more expensive to pay down America’s mountain of debt.

Yet lawmakers have always found a way to address the issue before an actual technical default on its legal obligations, an unthinkable scenario for the world’s only superpower and largest economy.

With McConnell and 45 of his colleagues pledging to vote against any debt ceiling increase or suspension — and several moderate Republicans also cool to the idea — the bipartisan pathway explicitly sought by Biden and congressional Democrats, at least at the moment, is nowhere to be seen.

The stakes are enormous and could affect with everything from payments to bondholders to Social Security. It also comes as the economy remains in a recovery after the worst collapse since the Great Depression due to the 2020 pandemic and the lockdowns that followed.

“We are just now emerging from crisis,” Yellen wrote. “We must not plunge ourselves back into an entirely avoidable one.”

It’s a reality that creates an even more fluid and potentially dangerous dynamic than normal — economic data has been jumpy and difficult to predict for months. While the Treasury Department has broadly said they expect to hit the limit at some point in October, the volatility of an economy still emerging from a once-in-a-century pandemic has created anxiety for government officials and private forecasters alike.

Republicans unbowed in face of Democratic pressure

White House officials and their Democratic congressional counterparts have sought to create a bipartisan path to avoid calamity, even in the face of GOP opposition.

The frustration with McConnell’s position, particularly given his regular support for raising the debt ceiling and the fact roughly 97% of the current US debt was accumulated prior to the Biden administration, has grown palpable.

“Should Republicans careen our country towards a default, our country could actually be plunged into recession, laying off millions, making it harder for people to pay for the food on the table and their mortgages and their rents,” Schumer said Monday on the Senate floor, before zeroing in directly on McConnell. “Shame, shame on the leader, the Republican leader.”

Democrats have steadily mapped out a pressure campaign designed to ramp up over the course of the last several weeks, waiting for lawmakers to return to Washington from their August recess to fully engage in a deliberate and calculated strategy to lean on business interests and groups with closer ties to Republicans and state and local officials to hammer the urgency of the moment.

Within the last week, letters to congressional leaders arrived from the top trade groups representing the banking and finance industry, the US Conference of Mayors, the National League of Cities and the National Association of Counties.

“Failure to lift the US federal debt limit to meet US obligations would produce an otherwise avoidable crisis and pose unacceptable risk to the nation’s economic growth, job creation and financial markets,” Walmart president and CEO Doug McMillon, the chairman of the powerful Washington trade group the Business Roundtable, and Joshua Bolten, the group’s president and CEO, wrote to congressional leaders on September 15.

Those efforts, leveraging more traditional GOP allies, are scheduled to continue in the days ahead, according to a White House official. Yellen has also made calls to business executives, as well as House Republican Leader Kevin McCarthy, a California Republican.

Yet McConnell has remained unbowed, something McCarthy warned Yellen directly was a position that would not change, according to a person familiar with the call.

“Their strategy for all this transformational borrowing, spending and tax hikes was deliberately designed to include no Republican input and to receive no Republican votes,” McConnell said Monday on the Senate floor. “Since Democrats decided to go it alone, they will not get Senate Republicans’ help with raising the debt limit.”

And GOP lawmakers and aides say the vast majority of his conference is not only behind him, but unabashedly so.

“Our guys see what Democrats want to do and view it as an actual threat to the country,” one Republican senator said of Biden’s legislative agenda. “We’re not going to be party to facilitating that if we don’t have to. And in this case, we don’t.”

It’s a position without recent precedent, and one that has infuriated Democrats.

Read that quote, one Democratic aide responded: “Complete and utter bull****.”

Potential Democrat alternative carries political implications

Democrats do have a mechanism to raise the debt ceiling on their own — something senior White House advisers and top congressional Democrats weighed in a series of call earlier in the summer.

And they have moved an increase without bipartisan support before — in 2010. But that was a rare occasion, as Pelosi laid out in a letter to her colleagues this weekend.

“Since 2011, every time the debt limit has needed to be raised, Congress has addressed it on a bipartisan basis, including three times during the last Administration,” Pelosi wrote. “When we take up the debt limit this month, we expect it to be bipartisan once more.”

The decision was initially made earlier in the summer to press forward on for bipartisan action, something Yellen explicitly advocated for on the basis of both past precedent and the value of maintaining a shared approach to the burden in the future.

White House and congressional officials, while cagey on the vehicle any suspension or increase would come up for a vote on until Monday, have been consistent on one message: it must be bipartisan.

“We know where the politics is coming from,” White House press secretary Jen Psaki told reporters last week. “But our argument is that this is about — this is not a political issue, shouldn’t be a partisan issue. It hasn’t been throughout history.”

There has been, up to this point, a prevailing view inside the White House that the fight is worth having, officials say. Tying the debt ceiling to a must-pass government funding bill is viewed as creating its own level of leverage for that fight.

White House officials view past government shutdown and debt ceiling fights as battles that have typically played worse for the party opposed to either or both. If the business community pressure doesn’t bring along Republicans, then the public pressure that comes from a government embroiled in a crisis of its own making just may.

That’s not to mention the pressure that would come along with sending global financial markets into a tailspin, something that has played a considerable role in moving congressional action in the past.

But the political considerations are also clear. Moving on a partisan basis, as McConnell wants, through a budgetary process known as reconciliation, would likely force Democrats to raise the debt ceiling to specific number instead of utilizing the option of simply suspending the debt ceiling to a future date.

The latter is a mechanism utilized to shield both sides from the inevitable campaign ads tied to a specific number.

Taking that off the table poses a clear political risk to front-line Democrats up for reelection in 2022 — something Republicans are keenly aware of, according to multiple people familiar with the dynamics.

McConnell and Republicans don’t take the position that the warnings about a default are overblown — far from it.

“The consequences for our country would be catastrophic,” McConnell said. But he made clear those consequences would only occur if Democrats didn’t act on their own to raise the debt ceiling.

To this point only one Senate Republican, John Kennedy of Louisiana, has said he would consider voting for the Democratic proposal packaging the funding bill with the debt limit suspension, primarily because it would include disaster relief for his home state ravaged by hurricanes.

But he made clear to reporters on Monday that in his view, McConnell “isn’t bluffing.” As for whether nine other Republicans would consider joining him in supporting the measure, he flatly said no. “And the White House knows that,” Kennedy said.

The battle has created a heightened degree of uncertainty about the next steps, as discussions between the White House and its congressional allies have continued over the course of the last several days.

Biden spoke with Pelosi and Schumer about the issue late last week.

The debt ceiling and the strategy forward was a central piece of Biden’s discussions with senior advisers over the weekend, according to one person familiar with the discussions.

Throughout the course of last week, congressional Democrats waited for a final decision on whether the debt limit increase would be included in the government funding bill the House plans to move this week, according to multiple people familiar with the behind-the-scenes discussions.

The official decision didn’t come until Monday afternoon.

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