WASHINGTON—A partisan fight over raising the government’s borrowing limit is expected to ratchet up this week, with Democrats moving ahead with a vote in the face of strident GOP opposition, raising doubts about whether Congress will take action before the federal government runs out of cash.
The standoff has alarmed Wall Street analysts and business leaders, who in recent weeks have issued warnings about a rising risk of a technical default, in which the government might be unable to make all of its regular payments in full and on time. The threat of such a default could derail markets and hit U.S. economic growth.
Democrats are tackling the debt ceiling at the same time they are working to resolve a thicket of issues regarding their $3.5 trillion social-welfare and climate plan, including splits over the overall price tag, prescription-drug costs, tax changes and climate proposals.
House Majority Leader
(D., Md.) said Friday that the chamber would vote this week on a measure to suspend the debt limit and a short-term measure extending the government’s funding beyond its expiration at month’s end. Democratic leaders haven’t yet said whether the debt-limit suspension would be attached to the spending patch, although aides have indicated that is likely.
The House will “ensure that America pays its bills on time,” Mr. Hoyer said in a letter to House Democrats Friday.
Raising the debt limit doesn’t authorize new spending, but rather allows the Treasury Department to issue new debt to cover spending that Congress has already authorized, including payments to bondholders, Social Security recipients and veterans.
Republicans have said they won’t help Democrats raise the borrowing limit, as a protest over the trillions of dollars in new spending the party is moving through Congress. A combined spending and debt-ceiling package could pass the Democratic-led House over GOP opposition, but such a measure would have a tough time in the Senate, where at least 10 Republicans would need to join Democrats in advancing the bill through the evenly divided chamber.
Instead, Republicans are urging Democrats to attach the debt-ceiling measure to their $3.5 trillion social-welfare package, which is moving via a special process called reconciliation that requires just a simple majority in the Senate. Democrats have said they don’t want to do that.
“Let me be crystal clear about this: Republicans are united in opposition to raising the debt ceiling,” Senate Minority Leader Mitch McConnell (R., Ky.) told reporters last week. “If they want to do all of this on a partisan basis, they have the ability and the responsibility to ensure that the federal government not default, and they will have to take care of that,” Mr. McConnell said.
Mr. McConnell acknowledged that lawmakers last raised the debt limit under former President
administration on a bipartisan basis, but he said this time is different because Democrats unilaterally approved a $1.9 trillion Covid-19-relief package earlier this year and are currently working on the $3.5 trillion social-welfare package.
Democrats have pointed out that they voted with Republicans to suspend the debt limit three separate times during the Trump administration, including in the fall of 2017, when the GOP sought to advance tax cuts using budget reconciliation.
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“We didn’t play games. We didn’t risk the credit of the country. We did it,” Senate Majority Leader
(D., N.Y.) told reporters last week.
In a Sept. 13 letter, the heads of several financial-services industry trade groups urged congressional leaders to raise or suspend the ceiling and emphasized the vital importance of the U.S. Treasury market for investors around the world.
A coalition of real-estate and mortgage-industry groups sent a similar letter Sept. 16 warning about potential instability in the housing market stemming from a debt-limit impasse, and permanently higher borrowing costs.
has said her agency could run out of cash to keep paying the government’s bills some time in October. Analysts at Goldman Sachs said the Treasury would likely be able to keep making payments on its obligations until late October and possibly early November, in line with other independent estimates. After that, unless Congress raises the ceiling, the agency might need to halt more than 40% of its payments, including some to U.S. households, they estimated.
Even if a technical default doesn’t happen, a drawn-out impasse over the debt limit could lead to another downgrade of the U.S.’s sovereign credit rating, as happened in 2011, and weaken demand for Treasurys from foreign investors, pushing up yields and in turn the government’s debt costs, analysts at JPMorgan warned last week.
“With no clear path toward debt-limit resolution over the near term, we are at the point where this could begin to impact financial conditions,” they said in a note to clients.
The White House on Friday issued a more blunt warning: Failing to suspend the debt limit could lead to a recession, at a time when the Delta variant has already clouded the economic outlook.
“We would be doing permanent harm to the American economy,”
deputy director of the National Economic Council, said in an interview. “It would immediately raise costs for every household and every business in the country.”
Raising the debt limit wouldn’t facilitate future spending, and Congress would still need to raise the debt limit this fall even if no new major spending programs are enacted.
That is because Congress has already approved spending and tax policies that result in large budget shortfalls, which the Congressional Budget Office projects will total $12 trillion over the next decade. In recent years, those budget gaps were driven by large bipartisan budget deals, a GOP tax cut and more than $5 trillion in pandemic relief.
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