Democrats’ Debt Dare Risks Shutdown Fight

Democrats are betting Republicans will blink and agree to raise the debt ceiling before it expires, a risky wager after a weeks-long standoff that threatens the health of the financial markets and continued U.S. government operations.

Should market turmoil and a federal shutdown ensue this fall, it could overshadow Democrats’ efforts to push through President Joe Biden’s $4.1 trillion economic agenda and serve a blow to the party heading into next year’s midterm elections.

Democrats last week passed up the chance to muscle a debt-ceiling hike through the Senate on a party-line vote, opting instead to go through the normal legislative process — perhaps attached to a stopgap government-funding bill — that will require the acquiescence of 10 Republican senators.

Democrats have said they shouldn’t have to bear all the burden for a growing debt that is at least in part a result of tax cuts they opposed when Republicans were in charge.

It’s a strategy that strikes some political watchers on the left as ill-advised or even insane. Senate Republican Leader Mitch McConnell and most of the GOP oppose the majority of Biden’s spending and tax plans and vow they won’t help raise the debt limit while he’s pursuing them.

Democrats could have, as McConnell suggested, simply included a provision in their budget resolution allowing a party-line debt-limit hike. Instead they are seeking to set a precedent that neither party should hold the debt limit hostage.

Dan Pfeiffer, a senior adviser to President Barack Obama during the last debt-limit crisis, suggested in a recent column Democrats should have used the budget process to bypass the GOP on debt and raised the limit high enough that Biden wouldn’t need to come back to Congress before the 2024 presidential election.

They haven’t taken that advice.

Treasury Secretary Janet Yellen has warned Congress needs to act after returning from the August recess — crunch time for Democrats writing the massive package that Republicans strongly oppose. At the same time, lawmakers must pass stopgap legislation to keep the government open past Sept. 30.

Whether Democrats will put the debt-limit suspension on the needed government-funding legislation or take a more complex route is something Zach Moller, a former Democratic Senate staffer who works for the centrist researcher Third Way, is watching closely.

“I am not totally sure where this is going to end up,” Moller said.

Risky Business

A decade ago, just getting close to a historic debt default rattled financial markets, resulting in the first-ever credit downgrade of federal debt and tanking stocks, consumer confidence and approval ratings for both then-President Obama and Congress.

Unlike the 2011 fight, which happened after Republicans took the House in a tea-party-inspired wave, Democrats are in charge of both chambers of Congress and the White House. And they are heading for a midterm election in which Republicans have already returned to warning about debt, deficits and inflation — concerns they shelved under former President Donald Trump.

Without those special budget protections from a filibuster, Democrats have no easy way to avoid a default on bills racked up by Congress without at least some GOP help.

Any efforts toward a possible compromise have so far sputtered. Top Senate Budget Committee Republican Lindsey Graham of South Carolina dropped plans to propose attaching GOP-backed budget process reforms to a debt hike. Instead, he signed on to a letter with other Republicans and McConnell saying they wouldn’t back increasing the debt limit.

There’s been no hint either of a budget deal that would tie Republican spending priorities — like higher defense spending — to a debt-limit increase.

Nuclear Option

There is at least one other option — the nuclear one.

Democrats have yet to float it, but there might not be a starker moment to end the Senate’s 60-vote rule than to prevent a catastrophic government default.

At least two Senate Democrats, Kyrsten Sinema or Arizona and Joe Manchin of West Virginia, have said repeatedly they would not end the filibuster. A default, however, would make that position tougher to hold.

Changing the Senate’s filibuster rule would require just a simple majority via a process known as “the nuclear option.” Former Senate Majority Leader Harry Reid, a Democrat, deployed it to nix the 60-vote rule for most nominations. McConnell extended it to include Supreme Court picks.

Forty-six GOP senators signed on to a letter saying they would not vote to increase the debt limit, but the letter — and Senate procedure — leave Republicans some slim wiggle room.

It’s rare — but not unheard of — for senators to vote to end a filibuster but against the final bill. That very maneuver happened in 2014 during a previous debt limit fight, averting a crisis.

But that came in Obama’s second term, when Republicans didn’t have the leverage of threatening to tank the economy prior to his re-election.

There are, meanwhile, still some Republicans talking about a compromise.

Senator John Kennedy of Louisiana said he never thought Schumer would pursue the debt limit as a Democrat-only package, and said he’s working on a proposal that would seek to pair an overhaul of the budget process with a debt-limit hike.

Democrats, however, aren’t inclined to sign on to such a deal. They didn’t demand concessions under Trump over the debt, and they insist Republicans return the favor.

In Case of Emergency

If Republicans don’t blink, and Washington instead plunges into a shutdown scenario in the middle of a pandemic and a historic debt default, there are various break-glass strategies that could be employed. Each has its drawbacks.

Democrats could try to amend the budget resolution after the fact — something that would be extremely messy procedurally, and, at minimum, require yet another all-night vote-a-rama with unlimited, politically-fraught amendment votes and precious wasted time.

Or the White House could again look at untested maneuvers to raise the debt limit, which Obama considered and rejected the last time around. One would have relied on the 14th Amendment provision saying the federal debt cannot be questioned.

Another would have exploited the ability of the Treasury to mint platinum coins of any denomination — say, $1 trillion each — and deposit them into the Federal Reserve. (The #MintTheCoin hashtag periodically gets some play on Twitter in reference to the scheme.)

Obama himself has called the debt-limit crisis the scariest night of his presidency.

It remains to be seen if this one will be Biden’s

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