Three Possible Outcomes of Debt Ceiling Debate
Policy + Politics

Three Possible Outcomes of Debt Ceiling Debate

The Fiscal Times

As Congress and the administration head into the final weekend of talks before the looming Tuesday deadline to raise the debt ceiling or risk defaulting on our loans, lawmakers and political observers say these are the four most possible scenarios:

  • Once the Senate receives the House-passed Boehner bill late this evening, Democrats and Republicans will unanimously agree to table the measure, strip out the House language and substitute an approach more to the Democrats’ liking, and then start a 30-hour clock before a cloture vote to cut off debate and approve the measure as early as 1 a.m. Sunday. During that time, Democrats and Republicans from both chambers would confer with the administration on a compromise approach. 

    The Senate would have to muster at least 60 Democratic and Republican votes to approve the measure and send it back to the House for action by Monday. The House could then take it or leave it – with no certainty they would go along.  House passage likely would turn on an agreement that attracts virtually all Democrats and some Republicans.

  • Talks over the weekend to find ways to raise the debt ceiling and slash spending collapse, and House and Senate Republicans and Democrats dust off a plan first offered by Senate Minority Leader Mitch McConnell, R-Ky., that would shift the authority -- and political blame -- to the president to raise the debt ceiling while imposing spending cuts backed by some sort of budget enforcement mechanism.
  • Congress and the White House fail to reach agreement on any approach, forcing the Treasury to announce next Tuesday that it has exhausted its borrowing authority and will have to prioritize its spending of available tax revenue to cover interest and principal on its borrowing, payments to government contractors, issuance of Social Security and veteran benefit checks, and scores of other obligations. The first ever default on U.S. debt  would almost certainly trigger upheaval in the global markets and force the major credit rating agencies to downgrade the government’s Triple-A credit rating, raising interest rates.

A fourth scenario that some experts have urged Obama to consider is invoking the 14th Amendment to the Constitution. In its most definitive statement yet on the subject, the White House again ruled out that possibility which could allow Obama to disregard the debt-limit law and unilaterally order government borrowing to proceed if no deal was reached by Tuesday’s deadline  Several House Democratic leaders, former President Bill Clinton and some constitutional lawyers in recent days have said Mr. Obama should, if necessary, invoke the amendment, which holds that “the validity of the public debt … shall not be questioned.”

Obama and fellow Democrats remain unalterably opposed to the Boehner plan’s provision for a two-stage increase in the federal debt ceiling tied to large spending cuts of as much as $2.5 trillion over the coming decade. The White House wants a single increase in the $14.3 trillion debt limit that would last into 2013, arguing that a series of short-term raises would fail to calm the markets, possibly trigger a credit-rating downgrade and become embroiled in next year’s presidential and congressional election campaigns. Republicans respond that Obama is more worried about next year’s politics than passing a deficit reduction measure with real teeth.

During an appearance at the White House, Obama said that the Boehner approach “would force us to relive this crisis in a few short months, holding our economy captive to Washington politics once again.”

“What’s clear now is that any solution to avoid default must be partisan,” Obama said. “It must have the support of both parties that were sent here to represent the American people, not just one faction.”

The president is backing Reid’s alternative approach that would extend the Treasury’s borrowing authority through the 2012 election season in exchange for a total of $2.7 trillion deficit reduction.  But that plan is a non-starter in the House, in part because of criticism that $1 trillion of projected savings would come from the winding down of the war in Afghanistan and Iraq, which the GOP claims is a budget gimmick.

Reid, D-Nev., and his deputies said the House Republicans’ demand for passage of a balanced budget amendment by a two-thirds vote as a precondition for raising the debt ceiling was preposterous, and was a troubling sign that Boehner had lost control of his caucus to the most extreme elements of his party. “How bizarre can anyone be?” Reid said of the Boehner plan.  “I’m flabbergasted.”

There have been dozens of unsuccessful campaigns over the decades to pass a balanced budget amendment to restrain spending and taxes.  Balanced budget amendments have made it to a floor vote in the Senate five times, and in the House four times, according to Congressional Research Service. The Senate passed a version in 1982, but it failed to gain the necessary two-thirds majority in the House. The House passed a version in 1995, but it failed in the Senate. Earlier this month, the Democratic controlled Senate defeated the House-passed “Cut, Cap and Balance” bill that included a balanced budget amendment.

The plan approved by the House this afternoon would extend the Treasury’s borrowing authority through the end of the year in exchange for $917 billion of spending cuts, and a further extension next year provided Congress signs off on an additional $1.6 trillion of long term savings recommended by a bipartisan congressional committee. But on top of that, both chambers would have to sign off on a balanced budget amendment and then send it along to the states for ratification.

The Republican leadership abruptly postponed a vote on their budget plan Thursday night and spent five hours of arm-twisting and pizza to try and convince conservatives to vote “yes” on Boehner’s proposal.  Adding the Balanced Budget Amendment requirement converted Rep. Jeff Flake, R-Ariz., into a “yes” on the bill, even though he was still weary that it didn’t cut enough from the federal budget.

“I still think it’s pretty meager,” he said. “I think people are still pretty tired of 10 year budgets that don’t start cutting until the third or fourth year, that’s one thing that really bothered me, and still does about the Boehner bill.”