(Cleveland.com) - In a little less than a month, the U.S. Government will run out of cash unless Congress acts to raise or suspend the nation’s $31.4 trillion debt limit, the total amount of money the government is allowed to borrow to pay its bills.
Treasury Secretary Janet Yellen on Monday notified squabbling congressional leaders that after June 1, there’s a real risk her department will run out of both money and the accounting gimmicks that have so far let her pay the nation’s bondholders and other creditors.
Congress has known for months that the government’s borrowing power would near an end in early June unless it acts. There’s been a stalemate because Democrats who control the White House and U.S. Senate want Congress to raise the debt limit without conditions, while Republicans who control the U.S. House of Representatives are seeking spending cuts in exchange for agreeing to raise the ceiling.
Yellen warns that time to forge consensus is running short. Her Monday letter said failure to reach a deal that increases the debt limit “would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests.
“Waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” she added.
Each side blames the other for failing to address the impending crisis. House Republicans last week passed a bill along party lines that House Speaker Kevin McCarthy of California said “raises the debt ceiling, avoids default, and tackles reckless spending.”
“After three months of the Biden administration’s inaction, the House acted, and there is a bill sitting in the Senate as we speak that would put the risk of default to rest,” said McCarthy. “The Senate and the President need to get to work — and soon.
What is the debt limit?
The debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. It often needs to borrow money to make up the difference between what it takes in through tax revenues and what it spends.
“Increasing or suspending the debt limit does not authorize new spending commitments or cost taxpayers money,” Yellen said in January. “It simply allows the government to finance existing legal obligations that Congresses and Presidents of both parties have made in the past.”
What would happen if the federal government defaults?
The White House Council of Economic Advisors says the U.S. has never deliberately defaulted on its obligations because of the debt limit.
If there was a default, payments from the Federal government that families rely on to make ends meet would be endangered, it says. The basic functions of the Federal government—including maintaining national defense, national parks, and countless others—would be at risk. The public health system, which has enabled this country to react to a global pandemic, would be unable to adequately function.
In addition, the economic council predicts default could trigger a recession and credit market freeze that could hurt the ability of U.S. companies to operate. Financial markets would lose faith in the U.S. government, the dollar would be weakened, and interest rates would rise for consumer loans.
What would the House Republican bill do and what do Ohioans say about it?
The GOP bill would set federal discretionary spending at $1.47 trillion during the next fiscal year and allow it to increase only 1% each year after that, which is far below the usual inflation rate. Other measures in the bill would repeal tax breaks aimed at boosting clean energy, repeal student loan debt relief actions taken by President Joe Biden and cut $71 billion allotted hiring Internal Revenue Service personnel and its technology. The bill would suspend the debt limit through March 31, or by $1.5 trillion, whichever comes first.
“President Biden must engage in this discussion to prevent a catastrophic default that would cripple our already-weak economy,” said a statement from Rocky River Republican Rep. Max Miller about the Republican Limit, Save, Grow Act. “Republicans have acted; the ball is in his court.”
U.S. Rep. Emilia Sykes, an Akron Democrat, called the GOP bill a “harmful wish list of unpopular, extreme priorities that would cut jobs in the economy, strip away health care and food assistance from hardworking Americans, undermine our global competitiveness, hurt our nation’s veterans, and send the stock market into a rapid decline.” She accused McCarthy of “holding our economy hostage,” and said “it is truly up to him whether or not he wants to be the adult in the room and to stop his reckless behavior.
“Congress needs to find real bipartisan solutions, not partisan politics,” Sykes continued. “It’s time to raise the debt ceiling to protect Americans’ livelihoods.”
Biden says he will veto the GOP bill if it comes to his desk. Biden’s Office of Management and Budget issued a statement that called the bill “a reckless attempt to extract extreme concessions as a condition for the United States simply paying the bills it has already incurred.
“The President has been clear that he will not accept such attempts at hostage-taking,” it said. “House Republicans must take default off the table and address the debt limit without demands and conditions, just as the Congress did three times during the prior Administration.”
What does President Biden want?
Biden has scheduled a May 9 meeting with congressional leaders in an effort to resolve the impasse, White House Press Secretary Karine Jean-Pierre told reporters.
“He’s going to continue to make very clear that this is up to Congress to act when it comes to the debt ceiling,” said Jean-Pierre. “This is a question for them: What are you going to do and how are you going to let the American people know that you’re not going to hold the American economy hostage?”
House Judiciary Committee Chairman Jim Jordan, a Champaign County Republican, compares Biden’s approach to “the kid on the playground who says I’m gonna take my football and go home.” In a recent FoxNews interview, he denounced Biden for spending recklessly and then expecting Republicans to “just give me more money so I can keep on spending.”
“That’s not how it works, and the American people understand that,” said Jordan, declaring the House GOP package would provide immediate savings and slow future spending growth.
The White House released an Ohio fact sheet on the House GOP legislation that predicted its enactment would cut rail safety inspections in the state, result in closure of at least 5 air traffic control towers in Ohio, cut the state’s transit and highway funding by nearly $43 million, eliminate 15,300 preschool and child care slots in Ohio, eliminate rental assistance for 23,300 Ohioans, and threaten medical care for 249,600 Ohio veterans.
What is the U.S. Senate doing and what do Ohio’s Senators say?
Senate Democratic Leader Chuck Schumer of New York calls the GOP bill the “Default on America Act,” and declared it “has no future in the Senate.” He said the Senate Budget Committee will conduct a Thursday hearing on how it will “weaken our economy and slash hundreds of thousands of jobs.
“McCarthy is giving us two terrible options, either default on the debt or default on our country, with steep, severe devastating cuts to things like law enforcement, veterans, families, teachers, kids, even cancer research,” Schumer continued. “The only real option that does not hurt the American people is a clean, bipartisan bill to avert default.
That’s what U.S. Sen. Sherrod Brown, a Cleveland Democrat, would like to see. He accused Republicans in the House of Representatives of “acting like children.
“You don’t negotiate over paying your bills, you pay your bills,” Brown continued. “The serious, serious thing here is if we default, as a nation, it means people’s 401(k)s shrink or descend into chaos. It means that things like Meals on Wheels partially disappear. It means that services people are used to in their retirement and other government services lose out and ultimately it means a loss of jobs. People will lose their jobs because of the childish antics that the extremists of the House of Representatives are playing.”
Brown says he hopes “cooler heads will prevail” and that won’t happen.
U.S. Sen. JD Vance, a Cincinnati Republican, wants Biden to make a deal with Republicans to pay the country’s debts. He said the federal government takes in $100 for every $129 that it spends, math that wouldn’t make sense for households in Ohio and doesn’t make sense for the federal government.
He applauded the plan passed by House Republicans, and accused Biden and Democrats of not negotiating in good faith.
“He’s basically playing Russian roulette with the country’s finances and telling Republicans they need to do exactly what he wants them to do,” Vance said of Biden at a Wednesday press conference. “Well, he’s going to drive the American economy off the cliff. What Kevin McCarthy and House Republicans did is save the president of the United States from his own failure of leadership.”
What’s next?
U.S. Rep. Shontel Brown, a Warrensville Heights Democrat, says she’s “cautiously optimistic” both sides will come together to increase the debt limit because neither side wants to “put the future of our economy in jeopardy.”
“The full faith and credit of the United States should never be used as a bargaining chip,” Shontel Brown told reporters on Tuesday. “Pitting the preservation of our nation’s credit against slashing ... programs for working families isn’t just an impossible choice, but an immoral move by House Republicans. If House Republicans let us default on our nation’s bills, it would release an economic catastrophe on everyday Americans, especially hurting vulnerable communities in Ohio”
If Congress doesn’t act soon to raise the debt limit, Toledo Democratic Rep. Marcy Kaptur predicted that the financial markets will get increasingly skittish. If efforts to reach compromise with Republicans fail, she said House Democrats will attempt to bring a bill to the floor to get a clean debt limit. Noting that several Republicans voted against McCarthy’s bill, she expressed hope Democrats could peel off enough GOP votes to pass it.
“McCarthy’s a new speaker,” she observed. “He has an extremely complex caucus that has difficulty in reaching a majority for almost anything, including voting for him. What did it take 14 or 15 votes? So, he has a major problem of keeping order on his side of the aisle.”
Kaptur, who has served in Congress since 1983, said this year’s negotiations are among the most difficult she’s seen because of “the extremism that is infecting the Republican party.” She said she hopes that by making the consequences of default clear, “some of their constituents will get to them and get them to a reasonable position.
“We need help in moving people to the middle, get them off the extremes” she continued. “If there’s any way that local interests can do that, this is the moment to do it. Let Ohio carry this country over the speed bumps so we can get on with the business of the nation.”
By Sabrina Eaton
May 3, 2023
