After failing to carry out President-elect Donald Trump’s demand to raise the federal borrowing threshold in the most recent government funding measure, GOP leaders are faced with two awful options for resolving the debt-limit issue.
One approach requires Republican senators’ complete support to solve the issue through budget reconciliation, which is a major struggle given the party’s ardent fiscal hawks. The other entails winning over Democrats, who overwhelmingly rejected Trump’s initial debt-limit proposal last week.
“Whoever advised the president that it was even possible needs to better understand how this place works,” Sen. Thom Tillis (R-N.C.) said of Trump’s latest attempt to increase the debt ceiling.
It will be a pressing issue for Trump once he gets office. The federal government will resume the borrowing limit on January 1, as the United States faces a national debt of more than $36 trillion, though the Treasury Department can buy time for a few months with so-called extraordinary measures. The budgetary time bomb exemplifies the difficulty that Trump and Republican leaders will confront in 2025, as they decide whether to attract Democrats who will want concessions or their own conservatives, who are notorious for adhering to their demands to cut money.
“I’ve told my caucus, if they try to do it under reconciliation, they’ll lose my vote,” Sen. Rand Paul (R-Ky.) stated on Friday. “I told them: You want to kill reconciliation, put something on that we don’t like.”
Republicans will have a tremendous hurdle in raising the debt ceiling on their own. In exchange for increasing it by $1.5 trillion, House GOP leaders have promised conservatives that an upcoming reconciliation bill will include $2.5 trillion in cuts to mandatory spending, which includes programs such as SNAP nutrition assistance, Social Security, Medicaid, and Medicare. That measure is also expected to address major party issues such as border security, energy, and taxes, which Republicans promise to fund. And, as Paul points out, fiscal conservatives are already opposed to addressing the debt ceiling through that party-line approach.
Paul believes other Senate conservatives have informed GOP leaders that they will not support for a reconciliation proposal that lifts the debt ceiling. With a 53-seat majority in the Senate next year, opposition from a few Republicans will derail those plans.
Getting Republicans to agree to $2.5 trillion in required program cuts over ten years would likewise be difficult for GOP leaders. Trump has ruled out cuts to Social Security and Medicare, the most expensive of the programs. Social Security benefits alone account for over $1.5 trillion of the approximately $4 trillion spent by the United States government on obligatory programs each year.
Democrats argue that the proposal is a public relations disaster for the GOP.
“Listen, this is the gift that keeps on giving,” Senator Chris Murphy (D-Conn.) stated. “This is the absolute worst case for the country — a massive tax cut for the richest of the rich, paid for by slashing, to the bone, health care for seniors and poor kids.”
Raising the debt limit by $1.5 trillion, even with matching funding cuts, would not prevent the US from reaching its borrowing limit for long. The United States’ budget deficit, or the difference between how much income comes in from taxes and how much is spent, was $1.8 trillion in the fiscal year that ended in September. The nonpartisan budget scorekeeper for Congress estimates that interest payments on the national debt will total about $900 billion next year.
And the timing of when Congress will actually need to confront the debt limit is uncertain, adding to the dilemma for Republican leaders.
After the debt ceiling is reinstated on January 1, the Treasury Department will immediately implement the standard “extraordinary measures,” or cash-shifting accounting procedures, to ensure the country can continue to pay its payments for at least a few months. When tax filing season begins at the end of January, a spike in money will begin to flow into federal coffers, preventing the United States from exceeding its borrowing limit for a few more months.
The Treasury secretary will continue to refine a “X-date” projection for when the United States will default on its loans if Congress does not act. Last year, tax revenue came in significantly lower than expected, bringing the estimated default date forward to early June, after lawmakers had assumed they had until August or September to implement a resolution.
“Extraordinary steps will extend the actual, true, de facto deadline. But as we saw last year, it may fluctuate dramatically,” said Pennsylvania Rep. Brendan Boyle, the top Democrat on the House Budget Committee.
Boyle has long advocated for the adoption of legislation that would allow the Treasury Department to continue paying the nation’s obligations despite the debt limitation, similar to a concept presented by outgoing Senate Republican leader Mitch McConnell during prior standoffs over raising the US borrowing limit. However, many fiscal conservatives are opposed.
“I want to preserve my debt limit. “I like it,” Senator Ron Johnson stated last week.
The Wisconsin Republican also stated that he is opposed to raising the debt limit through reconciliation and intends to release a “debt ceiling budget” in early 2025 that shows how the national debt has “grown grotesquely” above inflation and population growth in recent years.
Raising the prospect of a debt-limit crisis is less helpful for Republicans as they take control of the White House and both chambers of Congress, especially since Trump is so adamant on quick action and has even called on lawmakers to “terminate” the nation’s borrowing cap entirely. However, Democrats worry that tiny GOP majorities and fiscal conservative demands raise the possibility of economic catastrophe.
“When they have the trifecta, there’s really no point — other than old bad habits — to threatening the economy with the debt limit,” said Sen. Sheldon Whitehouse (D-RI), departing chair of the Senate Budget Committee.
“It’s the bear trap in the bedroom Republicans love to leave around for negotiating purposes,” Mr. Whitehouse said. “Now that they’ve got the trifecta, it loses some of its negotiating appeal and remains extremely, extremely dangerous.”
