The Obama administration on Thursday told Congress the government is about to hit the $14.3 trillion debt ceiling and will need authority to borrow more, kicking off the first major test of spending restraint and the strength of Republicans’ new congressional power.
Republicans said they won’t agree to a higher debt limit unless Democrats agree to strict new spending controls. Democrats warned the GOP not “to play chicken” with the economy and said hitting the limit could be worse than the financial collapse of 2008.
“Never in our history has Congress failed to increase the debt limit when necessary,” Treasury Secretary Timothy F. Geithner said in a letter to Congress. “Failure to raise the limit would precipitate a default by the United States. Default would effectively impose a significant and long-lasting tax on all Americans and all American businesses and could lead to the loss of millions of American jobs.”
The GOP, though, which controls the House of Representatives and can block a debt-limit raise, said there must be give-and-take.
“The consensus is it’s got to be a tandem deal,” said Rep. Jeff Flake, Arizona Republican. “We’ve got to have some serious, serious, serious spending cuts and caps — enforceable, not just the gimmicks.”
The debt ceiling is akin to the country’s credit card limit. Once it hits that level, it cannot borrow any more money, and since the government is running a huge deficit, it would have to shut down operations if it can no longer borrow. By seeking a debt-limit increase, the White House is asking to be able to borrow more.
Debt subject to the limit stood at $13.973 trillion on Wednesday, almost $300 billion away from the ceiling, which is $14.294 trillion.
Increasing the debt limit, which must be done by law, is typically one of the toughest votes for members of Congress and lends itself to brinksmanship.
As a senator from Illinois, Barack Obama voted against a debt-limit increase in 2006. He argued that the country needed leadership, not more borrowing power.
“The fact that we’re here today to debate raising America’s debt is a sign of leadership failure. Leadership means the buck stops here,” Mr. Obama said at the time. “Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren.”
Asked this week about the perceived inconsistency, White House press secretary Robert Gibbs said there was a difference and that Mr. Obama was able to vote against an increase because the outcome of the 2006 vote “was not in question.”
“The full faith and credit of our government and our economy was not in doubt,” Mr. Gibbs said of the vote, which was nevertheless close at 52-48. “The president used it to make a point about needing to get serious about fiscal responsibility.”
That’s just what many conservatives opposed to approving the increase are saying now, though, citing the hefty tab of government spending that Congress ran up in Mr. Obama’s first two years. But Mr. Gibbs suggested that the need to increase the debt is more a result of costly Bush-era policies than Mr. Obama’s legislative initiatives.
“We … are dealing with the legacy of decisions that have been made over the past many years — not paying for a prescription drug benefit, not paying for wars, not paying for tax cuts — that changed our fiscal situation much more markedly than anything ever had,” he said.
In that 2006 debate, Mr. Obama and fellow Senate Democrats — including their leader, Sen. Harry Reid of Nevada — voted “no” only after their effort to attach spending controls to the measure failed. That’s exactly what Republicans are threatening now.
“Clearly, no one wants America to default on their debt. But if we’re asked to pay someone else’s bill, we need to cut up the credit cards,” said Rep. Jeb Hensarling of Texas, chairman of the House Republican Conference.
In the budget Mr. Obama submitted in February, he acknowledged that deficits and debt were out of control, but passed on proposing a long-term solution. Instead, he formed a commission and asked it to make recommendations.
The commission came up with a broad set of reforms, but members were unable to secure the supermajority needed to forward their report to Congress for action.
The Treasury Department said the debt ceiling could be hit by the end of March, though officials can take several bookkeeping steps to delay that by some weeks.
Still, Democrats said acting soon is the best way to signal to the markets that the country is serious about protecting its credit.
“Rather than waiting until the last minute, we need to work together with our colleagues on both sides of the aisle in a bipartisan, responsible manner — and begin that discussion now,” said Sen. Max Baucus, Montana Democrat.
Republicans said there are a range of possible controls, but that they have not reached a consensus on which of those must be added.
Both sides agree that $1 trillion deficits — the annual shortfall in government spending — are unsustainable, but they disagree over how to patch the hole.
Democrats have proposed raising taxes on upper-income taxpayers and to spend money to boost the economy. Republicans say spending cuts and tax cuts would do more for the economy than government spending.
In last month’s bipartisan deal, they agreed to more spending and more tax cuts, only deepening the projected deficit.
• Stephen Dinan can be reached at sdinan@washingtontimes.com.
• Kara Rowland can be reached at krowland@washingtontimes.com.
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