Debt Ceiling Window Is Narrowing, Bipartisan Policy Center Warns

A Washington think tank warned Friday that the United States could default between Dec. 21-January 28 if Congress doesn’t act to increase or suspend its debt ceiling.

The projection of the think tank, Bipartisan policy Center, was a smaller window than last month. The nonpartisan group suggested, however, that the actual deadline, or X, could be towards the earlier end.

Both Democrats and Republicans seem to have softened their rhetoric about raising the debt limit. While the path to lifting the borrowing limit has not been determined by lawmakers, they are still exploring options.

Republicans insist that Democrats must address the issue alone, while Democrats counter that raising borrowing caps is a shared responsibility because both political parties have taken on large debts in recent years.

“Those who believe the debt limit can safely be pushed to the back of the December legislative pileup are misinformed,”Shai Akabas is the director of economics at the Bipartisan Political Center. “Congress would be flirting with financial disaster if it leaves for the holiday recess without addressing the debt limit.”

Janet L. Yellen, Treasury Secretary, warned lawmakers in November that the United States might not be able to pay its bills soon. During testimony before this week’s Senate Banking Committee, she stressed the urgency of the matter.

“I cannot overstate how critical it is that Congress address this issue,” Ms. Yellen said. “America must pay its bills on time and in full. If we do not, we will eviscerate our current recovery.”

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Ms. Yellen argued that the debt limit should be eliminated in September. She argued that it was a harmful policy that posed too many risks to the economy. In October, Congress raised the statutory limit on debt by $480 billion. This amount, according to the Treasury Department, would allow the government borrow through December.

After Republicans warned that they wouldn’t help Democrats clear the 60 vote threshold required to break a Republican filibuster to stop legislation to increase the borrowing cap, Congressional leaders have been quietly discussing ways of addressing the debt ceiling.

In recent weeks, Senators Chuck Schumer of New York and Mitch McConnell from Kentucky, the minority leader, spoke repeatedly about the issue. However, they have kept a tight lipped public about a possible resolution.

Trump’s continued influence over the Republican Party has complicated the matter. He has repeatedly lashed out at Mr. McConnell as well as the other Republican senators that backed an October procedural vote which allowed Democrats to raise their debt limit.

McConnell, however, pushed for Democrats to increase the borrowing cap without assistance from his conference. However, he pledged this week that a default will be avoided.

“Let me assure everyone the government will not default, as it never has,”Tuesday’s statement was made by McConnell. He added, “We’re having useful discussions about the way forward.”

Republicans refused to assist Democrats in paying down debt incurred by both sides, cutting out both the $1.9 trillion coronavirus relief plan passed in March and the $2.2 Trillion climate, tax, and spending plan that Democrats are trying push through the Senate. They have taken this position despite leaders from both parties having signed off on the spending that helped to balloon the debt.

Democrats have resisted a Republican demand that they use a fast-track process called budget reconciliation to increase the debt limit without Republican votes. Democrats used the process for passing the coronavirus relief plan and they are using it again to address the climate, tax, and spending plan. But, they have argued that Republicans should keep the government in default.

Understanding the U.S. Debt Limit

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What is the debt ceiling The debt ceiling, also called the debt limit, is a cap on the total amount of money that the federal government is authorized to borrow via U.S. Treasury bills and savings bonds to fulfill its financial obligations. Due to its budget deficits, the U.S. must borrow large amounts of money to pay its bills.

Why does the U.S. limit its borrowings? The Constitution requires that Congress authorize borrowing. The debt limit was set up in the early 20th-century so that the Treasury did not have to request permission every time it wanted to issue bonds to pay bills.

What would happen if the debt limit were reached? Treasury Secretary Janet Yellen told Congress that inaction on raising the debt limit could lead to a self-inflicted economic recession and a financial crisis. She also stated that failure to raise the debt limit could impact programs that help millions of Americans, such as delays in Social Security payments.

Is it possible for other countries to do it in this manner? Denmark has a debt limit. However it is so high that raising the limit is almost impossible. Many other countries have no such limit. The public debt limit in Poland is 60 percent of the gross domestic product.

What are the alternatives for the debt ceiling? One of the main reasons why the debt ceiling has remained in place is the absence of a replacement. Ms. Yellen indicated that she would support legislation abolishing the debt ceiling, which she described a “death limit”. “destructive.”It would require a Congress act to eliminate the debt limit.

While both sides cautioned that no solution has been reached, the aides to both parties noted that party leaders have so far resisted publicly blaming each other.

Some officials have suggested that the administration could be given the authority to increase the debt limit, while Congress could disapprove it with a simple majority. This would help to navigate around the impasse.

Some legislators may not want to give this power to the White House. They also might lose the cudgel that the minority party uses to exert pressure. This is especially important when 60 votes are required for the Senate to end a filibuster.

Other officials have suggested attaching legislation increasing the debt limit in the sprawling annual defence policy bill. This bill is the last major piece that lawmakers must pass and will be approved in December.

It is not clear if such a plan would succeed. Attaching a debt limit increase to the bill could jeopardize Republican votes that are needed to counter the bloc liberal Democrats who often oppose the defense bill because they object to military spending. The Republican of California, Kevin McCarthy, was the minority leader and warned Friday that such an action could prevent passage.

According to the Bipartisan Policy Center, there is additional uncertainty about the debt limit for this year due to the pandemic and other economic relief programs that are ongoing.

Dec. 15th is an important date as the Treasury Department must make a $118 million payment to the Highway Trust Fund. Treasury could experience a cash crunch if the corporate tax receipts due that day are not received in time and the United States could not meet its obligations to pay Social Security and military paychecks.

The Congressional Budget Office This weekIf Congress fails to act, Treasury could run out cash by December 31, according to the budget office. However, the budget office suggested that Treasury might still be able to defer Highway Trust Fund payments mandated by the infrastructure law. This would prevent defaults until January.

The Bipartisan Policy Centre presented a new proposal to deal with the debt limit along with an updated projection. However, it is unlikely that it will help lawmakers.

The proposal is being presented by Representatives Jodey Arrington, Republican from Texas, and Scott Peters (Democrat of California). It would establish a process that gives the president the authority to suspend the debt limit for the next fiscal year, provided Congress does not pass a resolution stopping the move within 30 day. The president would then have the responsibility of presenting a separate proposal for debt reduction to Congress.

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