With the fight over fiscal cliff issues only just resolved, the battle lines already are being drawn and important policy and economic implications measured for a coming showdown on the federal debt ceiling.
The federal government is expected to run out of borrowing authority by the end of next month, and both parties are readying a high-stakes game of chicken, with Republicans hoping to leverage new spending cuts in return for a debt limit increase and Democrats promising to hold firm in opposition.
Less than 30 minutes after the House cleared fiscal cliff legislation (HR 8), President Barack Obama reiterated his vow not to bargain for an increase in the debt limit as he did in 2011. And he warned that a government default would dwarf the threat of the just-averted tax and spending cliff.
“While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed,” Obama said late Tuesday night. “If Congress refuses to give the United States government the ability to pay these bills on time, the consequences for the entire global economy would be catastrophic, far worse than the impact of a fiscal cliff.”
The federal government formally reached its debt limit on Dec. 31, but the Treasury Department is taking what it calls “extraordinary measures” to prevent a default. Treasury Secretary Timothy F. Geithner told lawmakers he can create approximately $200 billion of headroom under the government’s $16.4 trillion debt limit, which normally would last about two months.
The political pivoting toward a new confrontation started before the fiscal cliff vote this week, and it picked up immediately after the vote with calls across the GOP for a new focus on cutting spending.
Stung by the view across much of his party that Republicans lost to the president in the cliff negotiations, Speaker John A. Boehner of Ohio has said that everything, including raising the debt ceiling, comes with a price. “The speaker’s position is clear: Any increase in the debt limit must be matched by spending cuts or reforms that exceed the increase. The president knows that,” Boehner aide Michael Steel said Wednesday.
The office of Senate Minority Leader Mitch McConnell, R-Ky., issued a statement Wednesday saying that the debt ceiling is an “opportunity to curb out-of-control Washington spending.” McConnell also called on Senate Democrats to write bipartisan legislation by early next month that would “achieve meaningful spending and government reform,” saying the Senate should act in regular order rather than “hoping someone else will step in once again to craft a last-minute solution.”
The New Year’s cliff deal postponed the across-the-board spending cuts mandated by last year’s debt ceiling for two months, until March 1, right around when Treasury will brush up against the debt ceiling. The latest continuing resolution to fund the government also expires on March 27. Republicans hope to seize on all these deadlines to win spending reductions or changes to entitlement programs, but the debt ceiling is surely the most powerful of hammers.
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