What Are the Options on the Debt Limit?

David Super

     The media is starting to pay more attention to looming fiscal deadlines.  Much of the coverage, however, takes what the congressional leaders say at face value.  That is rarely a good plan.  This post seeks to untangle the options available to each side under congressional procedure. 

     To begin with, we should be clear what major fiscal items are on Congress’s agenda.  At the moment, these number four.  First, with no appropriations bills enacted for the fiscal year beginning October 1, a continuing resolution (CR) will be needed to prevent a partial government shutdown.  Second, the Treasury has reported that it will exhaust available accounting tricks to stay within the statutory debt limit by late October; the debt limit therefore must be raised or suspended to prevent the United States Government from defaulting on its legal obligations.  Third, the bipartisan infrastructure bill passed by the Senate awaits action in the House.  Finally, Democrats have begun committee work in the House to advance a budget reconciliation bill to “Build Back Better” by making investments in human infrastructure and reducing carbon emissions.  Neither of these final two items have legal deadlines, although political windows of opportunity can close quickly in this town. 

     The Democratic leadership combined the first two items, putting a debt limit measure in the continuing resolution to keep the government funded following October 1.  Attaching debt limit increases to must-pass legislation such as a CR has been a relatively common approach by both parties in the past.  Although increasing the debt limit does not drive increases in the deficit – that is done by substantive tax and spending bills – it commonly gets misunderstood by the public and demagogued by some in the media.  In a new twist, some Republicans a few years ago started suggesting they would be happy to have the country breach the debt limit, presumably to grab headlines and demonstrate their independence from the financial elites that warn of the consequences of default.  Since the debt limit has become so intensely politicized, even Members that understand its importance have preferred not to vote for freestanding debt limit legislation. 

     House Republicans voted en masse against the CR/debt limit bill, leaving Democrats to pass it on their own.  They did. 

     More significantly, Senate Republican Leader Mitch McConnell (R-KY) has insisted that Democrats must pass any debt limit increase without any Republican votes.  Senator McConnell agrees that the debt limit should pass, but he insists no Republican votes will be available to do so.  He claims that this is the Democrats’ responsibility as the de facto majority party. 

     Senator McConnell’s insistence that majority party must provide all the votes to pass debt limit increases has no plausible basis in history.  Democrats have routinely cooperated in raising the debt limit when Republicans were in power.  This has been true even after deeply partisan upper-income or corporate tax cuts passed over their objections and swelled the deficit to make increases in the debt limit urgent.  Indeed, had Democrats adopted Senator McConnell’s policy, the nation might well have defaulted as some congressional Republicans (e.g., much of the Freedom Caucus) consistently refuse to vote for debt limit increases.  And with their commitment to preventing a default so clear, Democrats recognized that debt limit legislation gave them no bargaining leverage and have not sought to extract significant concessions in exchange for their votes on the debt limit.  By contrast, in 2011 Republican threats not to raise the debt limit – when they held the majority in the House – bludgeoned President Obama into agreeing to the deep budget cuts that culminated in sequestration. 

     Nor is the need for this increase in the debt limit solely attributable to Democrats.  Over the past four years, the deficit and the national debt have been increased substantially by Republican legislation (the 2017 tax cuts), by Democratic legislation (the American Rescue Plan Act), and by bipartisan legislation (last year’s several major coronavirus relief bills).

     Although Senator McConnell’s position has no serious historical support, senators are not bound by history.  And with the Democrats consistently opposed to threatening default, he has no reason to worry about similar tactics being used on him should he return to the majority after the mid-term elections.  So Democrats must decide what to do about Senator McConnell’s position. 

     Democrats have a few choices.  The simplest is to bring the legislation that passed the House to the floor of the Senate.  If Republicans do not filibuster, Democrats can pass it without a single Republican vote.  That would meet Senator McConnell’s stated requirement. 

     Senator Ted Cruz (R-TX), however, seems likely to filibuster such legislation.  Overcoming that filibuster and bringing the CR/debt limit bill to a vote would then require sixty votes.  Senator McConnell could allow ten of his senators to vote to invoke cloture (cutting off the filibuster) and then have all Republicans vote against final passage of the CR/debt limit bill.  This, too, would seem to meet Senator McConnell’s requirement that the legislation be passed entirely with Democratic votes.  The ten Republicans voting for cloture would not be voting to raise the debt limit; they would be voting to prevent a senator of their own party from preventing the Democrats from doing what Senator McConnell has said he wants them to do:  pass the CR/debt limit bill with their own votes. 

     If Republicans actively obstruct passage of the CR/debt limit legislation, Democrats will have to decide between moving a freestanding CR (which Senator McConnell has indicated Republicans would not obstruct) and allowing a partial government shutdown.  Because padlocked national parks are far more salient to the average voter than is anxiety in the financial markets, Democrats may feel that this is a more suitable place to draw a line in the sand to get Republicans to abandon their filibuster. 

     If Republicans succeed in blocking a debt limit increase or suspension as part of the CR – either by forcing a partial government shutdown or by coercing Democrats into moving a CR that does not address the debt limit – Democrats could, in theory, move a debt limit increase through “budget reconciliation” procedures, which bar filibusters.  This appears to be what Senator McConnell is trying to force them to do.  It is not nearly as simple as it sounds.

     The content of a reconciliation bill is dictated by the terms of the concurrent resolution on the budget for the fiscal year in question.  The Democrats passed – on a party lines vote – a budget resolution to allow the Build Back Better legislation to move through reconciliation procedures.  Because they were planning to move the debt limit increase on the CR, however, they put nothing in the budget resolution authorizing a reconciliation bill to raise the debt limit. 

     In order to move a debt limit increase through expedited reconciliation procedures, Democrats therefore would likely have to pass an amended version of the budget resolution that included instructions to raise the debt limit.  This they can do, but it would involve several steps, each of which offers Republicans considerable opportunities for obstruction and delay.  Senator McConnell, if he so chose, could expedite the process by declining to object to the Democrats’ moving a debt limit reconciliation bill without a reconciliation instruction authorizing them to do so.  He could still have all Republicans vote against that bill – fulfilling his stated requirement – but reduce uncertainty in the financial markets by allowing the debt limit to be raised more expeditiously. 

     If their current divisions are any indication, the Democrats might not have their Build Back Better reconciliation bill ready to pass before the need to raise the debt limit becomes critical.  This will not be fatal.  Section 310 of the Congressional Budget Act permits separate reconciliation bills to change spending, to change revenues, and to increase the debt limit.  The first two typically are combined – and will be in the Build Back Better reconciliation bill – but the Democrats could move a separate reconciliation bill containing only the debt limit increase.  Of course, doing so would require Democrats to vote on a stand-alone debt limit bill, something Members of both parties have long been loathe to do (and generally shielded from doing by the leaders of both parties). 

     If a miscalculation in this game of Fiscal Chicken exhausts the Treasury’s ability to operate within the existing debt limit, President Biden would have several options.  One would be to determine that section 4 of the Fourteenth Amendment makes the debt limit unenforceable when it states that “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”  President Obama considered and rejected this approach in 2011, but President Biden has already broken with his former boss in several important respects.  If President Biden did so, it is unclear who, if anyone, would have standing to challenge his actions.  The Supreme Court seems unlikely to intervene to cause an immediate default; after all, the Court has lately expressed reluctance to take cases “present[ing] complex and novel antecedent procedural questions”.

     A final note:  although the debt limit increase could move on its own, as part of the CR, or as part of reconciliation, the CR and reconciliation cannot be combined.  The Byrd Rule limits spending provisions in reconciliation bills to those that would change mandatory (commonly termed “entitlement”) spending.  The appropriations needed to keep the government operating that will be in the CR are overwhelmingly discretionary (non-entitlement) spending and hence impermissible on a reconciliation bill.  Congress cannot pass one big “budget bill” combining all these measures.

     @DavidASuper1