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Disagreement Over Debts, Spending Plunge Washington Into Crisis Mode

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By Rob Garver

The Biden administration and congressional Democrats are facing what may be the most politically fraught moment since they took unified control of Washington in January.

Lawmakers are battling to avoid a potential government shutdown and a default on the national debt at the same time that Democratic infighting is endangering two pieces of legislation meant to further the party’s key priorities.

The stakes, for both the U.S. economy and President Joe Biden’s domestic agenda, could scarcely be higher.

A combination of a few missteps or delays in passing a budget resolution and raising the amount of money that the Treasury Department is allowed to borrow could have catastrophic economic impacts on the United States and the world economy. An estimate by Moody’s Analytics found that the worst-case scenario, in which the U.S. defaults on its debts, could result in a loss of 6 million jobs and destruction of as much as $15 trillion in household wealth.

If House Democrats are unable to muster the votes to pass a $1.5 trillion infrastructure bill that has been approved by the Senate and a $3.5 trillion bill that would lock in spending on social services, climate change mitigation and other party priorities, they will face voters in 2022 with little to show for two years of Democratic control of Washington.

Likely outcomes unclear

For sure, there are few experts in Washington who expect the battle over the budget and debt limit to actually end in a government default. Lawmakers have gone down this path many times, and have always pulled back at the last minute.

On the spending bills so important to the Biden administration, expectations are not so clear. Wednesday afternoon, Biden brought Democratic lawmakers to the White House to try to hammer out an agreement.

“This is where the rubber meets the road — when it comes to how he can get them together,” said Dan Mahaffee, senior vice president and director of policy at the Center for the Study of the Presidency and Congress. “Can he be the same dealmaker that united progressives and centrists throughout the [presidential] campaign? He has to do that same thing now in the White House.”

Budget problems

The most immediate problem facing lawmakers is that the federal government will lose the authority to spend money on many of its key functions unless a new budget resolution is passed before a September 30 deadline.

The federal government has shut down before, but never in the midst of a pandemic, and it is unclear just how damaging a significant halt in federal operations would be to the country’s public health response to the coronavirus.

Democrats in the House of Representatives on Tuesday night passed a “continuing resolution” that would allow the government to continue operating until December, giving lawmakers time to pass separate budget bills for different parts of the government.

However, Republicans in the Senate are expected to block that bill by denying Democrats the 60 votes they will need to end debate. The reason is that Democrats have attached it to legislative language that would waive enforcement of the debt ceiling until December 2022.

Debt ceiling

Senate Republicans, led by Minority Leader Mitch McConnell of Kentucky, have said that they will not supply any votes to raise the debt ceiling — even votes to cut off debate so that Democrats can pass the bill on their own.

McConnell has publicly said that the debt limit must be raised and that the government must not be allowed to default. However, he is demanding that the Democrats take full responsibility for making that happen — historically a politically onerous task — by using a budget reconciliation bill, which is immune to the filibuster’s 60-vote threshold.

Democrats are refusing to use budget reconciliation for the debt limit because they believe Republicans should share responsibility for raising the debt limit, which will help pay for measures adopted and signed when Republicans had united control of Washington just a few years ago.

Battle lines firm

On Wednesday, six former Treasury secretaries wrote a letter to congressional leaders warning them that legislative brinkmanship might push the country into default, even accidentally, with dire consequences.

“Even a short-lived default could threaten economic growth,” they wrote. “It creates the risk of roiling markets, and of sapping economic confidence, and it would prevent Americans from receiving vital services. It would be very damaging to undermine trust in the full faith and credit of the United States, and this damage would be hard to repair.”

On Tuesday night, McConnell said he had introduced a continuing resolution of his own that would fund the government through December, but that “removes the debt limit language [which waives enforcement until December 2022] that Democrats have known since July will not receive bipartisan support from Senate Republicans.”

On Wednesday morning, however, Senate Majority Leader Chuck Schumer of New York said it would be the House bill, not McConnell’s, that he brings to a vote in the Senate.

“That’s the bill that will be on the floor,” he said. “Those who will vote yes will vote to avoid default, to avoid a government shutdown. Those who vote no will be saying, ‘We’re OK with default and we’re OK with the government shutdown.’ To say, ‘Do it another way,’ that doesn’t cut it. This is what’s on the floor.”

Democratic squabbling

At the same time that lawmakers are trying to navigate around a government shutdown and potential default, Democratic leaders are working to avoid a derailment of the Biden administration’s domestic policy agenda.

Early in his term, Biden had insisted that Democrats in Congress find a way to compromise with Republicans on an infrastructure bill. As a result, the Senate passed a bipartisan $1.5 trillion bill funding infrastructure basics like roads, highways and bridges. That allowed Biden to claim that he had kept his campaign promise to work across the aisle.

However, the Senate bill left out an enormous number of provisions that Democrats wanted and on which Biden had campaigned, including increased social spending, funding to fight climate change and more.

As a result, progressive members of the House of Representatives announced that they would not support the $1.5 trillion Senate bill until the House and Senate both passed a separate $3.5 trillion package that contained all of the Democrats’ other priorities — something they expected to accomplish by using a budget reconciliation bill to bypass the filibuster.

Centrist Dems revolt

In both the Senate and the House, more centrist members objected to both the progressives’ tactics and their demands. House centrists demanded and received assurances from Democratic leaders that the $1.5 trillion bill would get a vote no later than September 27.

Months ago, it seemed at least possible that the larger $3.5 trillion bill could be passed by that date. However, in the Senate, Democratic lawmakers Joe Manchin of West Virginia and Kyrsten Sinema of Arizona said that they would not support the larger bill, blocking progress.

Now, without the $3.5 trillion bill in hand, Democratic progressives are threatening to withhold support for the $1.5 trillion bill, raising the possibility that the Biden administration could be left with neither.

Losing bills ‘deadly for Biden’

Some experts are still expecting that the Democrats will find some sort of agreement, if only because the alternative is so bad.

“My assumption all along has been that Democrats know losing these bills is deadly for Biden, and for them,” said Larry Sabato, director of the Center for Politics at the University of Virginia.

“My sense of it is that in the end, reluctantly, they’ll find something to agree on, because the alternative is so disagreeable,” he said. “The compromise may not be tasty, but the alternative is poisonous.”

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