“Now the fight moves to spending cuts,” anti-tax activist Grover Norquist tweeted a few hours before the House voted on legislation to extend the 2001 and 2003 tax cuts (PL 107-16, PL 108-27) for individuals reporting less than $400,000 in income and families earning up to $450,000.
“Our opportunity here is on the debt ceiling,” Sen. Patrick J. Toomey, R-Pa., said on MSNBC on Wednesday. “The president’s made it very clear. He doesn’t want to have a discussion about it because he knows this is where we have leverage.”
There’s no clear consensus on what a government default on its debt obligations would look like.
Toomey and other tea-party-backed lawmakers argued last year that Treasury could prioritize payments to bondholders so the government would not actually default on its debt. Geithner ruled out such a possibility, saying it would still mean a government default on its obligations, but Toomey appeared to return to that argument again Wednesday, dismissing concerns about causing chaos in financial markets.
“A temporary disruption because we have to furlough the workers at the Department of Education or close down some national parks or not cut the grass on the Mall — that’s not optimal, it’s disruptive, but it’s a hell of a lot better than the path that we’re on,” he said.
Steve Bell, senior director of economic policy at the Bipartisan Policy Center and a former top congressional budget aide, is skeptical that the federal government could pick and choose its expenditures and worries that breaching the debt limit would inflict economic damage.
“The impact of failing to pay our debt on time and in full, and I mean all of our debts, it’s unimaginable,” he said. “It is inconceivable to me that the United States government would ever do that.”
Obama and congressional Republicans are likely to seek a debt ceiling increase in legislation that replaces the budget sequester set to take effect March 1, but it is unclear who would blink first if the deadline approaches without an agreement.
Many Republicans think Obama would ultimately fold, recalling how they secured more than $2 trillion in spending reductions over 10 years as part of the 2011 debt ceiling law (PL 112-25). The White House has already ruled out claiming that the Constitution’s 14th Amendment allows the president to raise the debt ceiling unilaterally, a position that may constrain Obama’s choices and resign the White House to something of a stare-down.
But in seeking to build support for the tax cut deal he helped devise, Vice President Joseph R. Biden Jr. assured nervous Democrats during the week that Obama would not again engage in such negotiations. Top Senate Democrats have argued that Republicans will not find much support from the public if they are seen as holding the global economy hostage to secure cuts to health programs for the elderly.
And if financial markets start to teeter on worries about the U.S. fiscal situation, GOP lawmakers might quickly change their tune.
At least for now, members of the financial industry do not seem too worried about the prospect of breaching the debt limit.
“Congress will need to raise the debt ceiling towards the end of February,” said Scott Talbott, senior vice president of public policy for the Financial Services Roundtable. “Failure to raise the debt ceiling would prevent the U.S. from borrowing new money to cover its expenses. This casts a pall over the U.S.’s credit rating.”
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