WASHINGTON (CN) — With the nation just weeks away from a potential federal default by some estimates, Senate Democrats blasted Republicans on Thursday for what they have framed as economic brinkmanship: a plan to raise the debt ceiling while slashing government spending.
Congress has for months been at an impasse over raising the debt ceiling, the federal government’s self-imposed spending limit. The Biden administration has urged lawmakers to pass a “clean” debt limit increase, but Republicans want such action paired with a slate of budget cuts that they argue are necessary to get government debt in check.
Time is running out for a solution. Treasury Secretary Janet Yellen estimated Monday that her agency could run out of the money it needs to pay down the national debt as soon as June 1, triggering a default that could plunge the economy into crisis.
House Republicans last week narrowly passed a debt ceiling patch of their own design, a measure that would raise spending limits by roughly $1.5 trillion through next year but also cap debt growth for a decade and enact a litany of budget cuts.
Senate Democrats on the upper chamber’s budget committee, where the GOP measure heard its first debate Thursday, framed it as an effort to hold the U.S. economy hostage to extract concessions from the White House.
“MAGA Republicans’ dangerous bill proposes a terrible choice: default on our financial obligations, cause widespread pain and wreck our economy; or gut basic federal programs essential to our economic strength, cause widespread pain and wreck our economy,” said Rhode Island Senator Sheldon Whitehouse, who chairs the budget panel.
Whitehouse and other committee Democrats accused their GOP colleagues of staking out an extremist position on the debt ceiling and repeated the argument that Democrats had worked with the Trump administration to increase spending limits without conditions.
“Crashing the global economy if we don’t get what we want isn’t policymaking,” Whitehouse said. "It’s hostage taking. It’s extremism.”
Invited to testify at Thursday’s hearing, Moody’s Analytics chief economist Mark Zandi warned that the spending cuts built into Republicans’ debt ceiling patch could threaten an economic recession and add to the unemployment rate.
Zandi reasoned that time was running out for Congress to negotiate a debt ceiling compromise before a default, which he placed between June and August, and that swift action was necessary. “I think the first thing that needs to be done is that the debt limit needs to be suspended,” he said.
The Treasury Department has already suspended the debt ceiling once this year, in January. A suspension allows the agency to borrow money for a short period without passing spending limits and triggering a default.
Senate Majority Leader Chuck Schumer on Monday fast-tracked Democratic legislation that would suspend the debt limit without conditions through the end of 2024.
Zandi recommended implementing a suspension until the end of the 2023 fiscal year in September. To avoid economic anxiety, he suggested that Congress pass legislation in the meantime that raises the debt ceiling until after the 2024 presidential election.
“If you don’t, the uncertainty that will be prevalent between now and when we debate this again next year is going to be very significant and will contribute to a potential economic recession,” Zandi said.
Despite that, Zandi explained that addressing the current debt ceiling issue with a clean increase would not address what he said were long-term fiscal problems. “We are on an unsustainable fiscal path,” he warned. “We need both additional tax revenue and spending restraint.”
Senate Republicans during the hearing doubled down on their House colleagues’ argument that their debt ceiling patch provides a fiscally responsible path forward on federal spending.
“President Biden and Biden’s Senate Democrats have sat idly by watching the clock tick down to default,” said Iowa Senator Chuck Grassley, the budget panel’s ranking member. “By not thoughtfully engaging, they hope to avoid a substantive debate on a significant fiscal issue.”
Grassley also accused Democrats of flip-flopping on government spending, arguing that the party had previously supported debt-ceiling legislation that included budget cuts.
Brian Reidl, a senior fellow at the conservative Manhattan Institute, testified that Congress has historically used the debt ceiling as a vehicle for tackling spending. “For decades, the debt ceiling served as a legitimate tool for both Republicans and Democrats to address deficits,” he said. “Debt showdowns were relatively rare because both sides recognized the need to include fiscal reforms.”
Although both parties have moved away from such action in recent years, Reidl contended that the moment demands legislative action to cut spending and urged the Biden administration to negotiate with Republicans to that end.
But no matter what, Reidl also acknowledged, the debt ceiling needs to be raised. “Hitting the debt limit is not a solution to soaring debt,” he said. “It must be raised.”
President Biden is set to meet May 9 with congressional leadership including House Speaker Kevin McCarthy to discuss debt ceiling options. It’s the first time Biden and McCarthy will have sat down together since February.
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