Politics & Policy

Debt-Ceiling Strategies

Republicans debate whether and how to raise the roof.

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):

#ad#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.

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Option 2 — Raise it in exchange for “meaningful” concessions:

This can fairly be called the consensus approach favored by most Republicans and many prominent conservative figures (to the dismay of those preferring the former strategy). It is a much more open-ended approach that offers plenty of room for disagreement over what constitutes a meaningful concession, but its underlying premise is that raising the debt limit is both necessary and a useful point of leverage in the fight for serious reforms. “Being a good steward of the U.S. credit rating means that [Congress] has to pay Obama’s credit-card bill,” Douglas Holtz-Eakin, president of American Action Forum, writes on NRO. “Being a good steward of the U.S. economy means that business as usual — a clean increase in the debt limit — cannot be an option.”

#ad#This approach entails a number of questions that Republicans must ask themselves (and agree on answers to) before the rubber hits the road. For example:

When to raise it?

The GOP must decide how long it is willing to hold out for a deal. Secretary of the Treasury Timothy Geithner has urged action on the debt limit before May 16; however, his department has the capacity to keep things running smoothly through early July if need be. House Majority Leader Eric Cantor (R., Va.) has already indicated that House Republicans intend to postpone a vote on the debt ceiling as long as possible. The risks of waiting too long to act, especially in the absence of a backstop like the Full Faith and Credit Act, are almost identical to those of not raising it at all, as credit markets could spiral into a panic even over speculation that a deal will not be reached.

How many times to raise it? By how much?

If Congress decides to raise the debt ceiling, it can also decide by how much to raise it. Republicans need to consider how many debt-limit votes they would like to have in the run-up to the 2012 election and whether they believe a piecemeal approach — continuing to raise the debt limit for short periods of time in exchange for concessions — is worth pursuing. Grover Norquist, the influential president of Americans for Tax Reform, favors such a strategy. GOP leaders took a similar course during the CR fight but were thwarted by conservatives eager to force the issue and move on to the debate over the debt ceiling.

Norquist argues that because a debt-limit increase is “one of the few pieces of legislation that Obama must sign,” Republicans can maximize their negotiating position by gradually piling on demands that individually appear small and sensible to the public. (This would also forestall a mad rush from members hoping to have their individual amendments included in the final package if they thought they would only get one chance to do so.) In all likelihood, Obama would eventually be forced to consider a risky veto threat, which could be messy if Republicans decide to call his bluff. Norquist tells NRO that there is “some interest” among Republicans in this approach, but a lot of members would need convincing, as many are concerned about the political consequences — for instance, campaign ads declaring that “Rep. X voted to raise the debt ceiling ten times!”

What to ask for in return?

Even those on the right who would generally support the Norquist approach say that the number of votes to raise the ceiling is less important than what Republicans ultimately get in return. There appears to be general agreement among Republicans that they ought to demand a combination of immediate cuts in both mandatory and discretionary spending, as well as far more significant structural reforms such as legally binding spending caps or a balanced-budget amendment.

For immediate cuts, conservatives are considering a push for Medicaid reform as well as forced reductions in the federal work force and restrictions on future hiring. For structural reforms, some possibilities include a bill from Rep. Devin Nunes (R., Calif.) that would force state and local governments to be more transparent about their pension obligations, and bipartisan legislation from Sens. Bob Corker (R., Tenn.) and Claire McCaskill (D., Mo.) that would cap federal spending relative to a gradually reduced share of GDP. There is also the balanced-budget amendment introduced by Sens. Orrin Hatch and Mike Lee of Utah.

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Framing the debate

Sources following the negotiations say Republicans will need to be careful not to hand President Obama a political victory by only agreeing to something like the Corker-McCaskill bill, or even a balanced-budget amendment, which would have a relatively low political price tag and no significant impact in the near term but would allow Obama to claim the mantle of bipartisanship and seriousness about the deficit. “If we’re actually getting real changes moving America to a conservative future, fine, let Obama throw his name on it. But he’s not going to,” a Republican source tells NRO. “He’s looking for something like Corker-McCaskill to put his name on it and convince people he’s trying to solve our problems.”

#ad#Above all, the most important thing Republicans can do will be to win the messaging war and frame the debate not as a question of whether to raise the debt ceiling and risk default, but rather as one that pits Republicans who favor fiscal restraint against Democrats defending the status quo. House Republicans could start off on the right foot by immediately passing the spending caps outlined in Ryan’s budget, thus forcing the Senate and the White House to react, and go from there.

Option 3 — Raise it without concessions:

And start looking for a new job in 2012.

— Andrew Stiles is a 2011 Franklin Fellow with National Review Online.

Andrew StilesAndrew Stiles is a political reporter for National Review Online. He previously worked at the Washington Free Beacon, and was an intern at The Hill newspaper. Stiles is a 2009 ...

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