House Republicans have long touted their “three bites at the apple” approach to reining in Washington’s spending binge. The first bite — the continuing resolution (CR) for the remainder of fiscal year 2011 — didn’t turn out so well. But it was also the smallest bite by far — in fact, barely a nibble compared to bites two (the upcoming vote to raise the federal debt ceiling) and three (the 2012 budget).
After the embarrassing fallout over the CR, Republicans are on notice to produce meaningful results this time around. So they’ll have their work cut out for them as they consider a viable strategy. Here’s a look at some of their options, along with the potential pitfalls of each.
Option 1 — Don’t Raise It (Or At Least Be Prepared Not To):
The conventional wisdom in Washington — on the left and among many on the right — is that the debt ceiling must be raised in order to avoid defaulting on the national debt, a potentially catastrophic scenario, the thought of which has business and financial leaders lobbying hard to raise the ceiling. Plenty of conservatives don’t buy the doomsday rhetoric and point to polls
that show nearly two-thirds of Americans (and almost half of Democrats!) don’t want Congress to raise the debt limit.
Proponents of the “just say no” approach argue that refusing to raise the debt ceiling won’t automatically lead to a default. In the past, they point out, Congress has waited several months after the debt limit was reached before authorizing an increase, and the economy did not collapse. Sen. Pat Toomey (R., Pa.) has proposed legislation in the Senate designed specifically to prevent a default by directing the Treasury Department to prioritize interest payments on the national debt over all other forms of spending in the event that the debt ceiling is reached.
As Veronique de Rugy and Jason Fichtner write in The Washington Times, the United States is estimated to owe about $205 billion in interest this year, to be paid out of revenues totaling about $2.17 trillion. Under Toomey’s plan, after the interest was paid off Congress would be left with $1.97 trillion to spend on actual programs. That’s about $1.5 trillion less that what President Obama requested in his (first) 2012 budget, but enough to cover Social Security ($741 billion), Medicare ($488 billion), and Medicaid ($276 billion), with about $400 billion left for other programs, including national defense.
In addition to dramatically elevating the debate in the public’s eye — a large-scale version of the government shutdown “fight” that some were hoping for over the continuing resolution — this tactic would essentially force Obama (who said as a senator in 2006 that voting to raise the debt limit was “a sign of leadership failure”) to prioritize spending. Proponents of the strategy argue that this dramatic action would go a long way to convincing world financial markets that the U.S. is committed to living within its means, while at the same time making it easier for Republicans to blame Obama for a default, should one ultimately occur.
That said, the White House has made clear that it wants nothing to do with Toomey’s bill, known as the Full Faith and Credit Act, which has already been rejected once in a party-line Senate vote. Similar legislation in the House, championed by Rep. Tom McClintock (R., Calif.), has drawn little interest from party leadership, though many conservative groups would like to see it passed, if only as a public repudiation of the conventional wisdom that not raising the debt ceiling would invite fiscal Armageddon. And even if a compromise eventually results — i.e., raising the debt limit in exchange for X (see below) — the GOP will have gained greater leverage by showing its willingness to “do the unthinkable” in a way it failed to do during the CR fight.
Such a strategy carries a number of self-evident risks, namely that the doomsayers are right and uncertainty over the debt limit would spark a run on Treasury bonds, sending interest rates soaring and plunging the United States (and the world) economy into a second Great Depression, at which point a political squabble over which side was to blame would be the last thing the American public wanted to hear. On the other hand, if Republicans take their primary point of leverage off the table before negotiations have even begun — the way they did during the CR debate — they could be setting themselves up for another disappointing outcome. In fact, a number of outside observers fear that the embarrassment suffered by GOP leadership over the CR has consequently increased the likelihood that the debt ceiling will not be raised.