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Though many pundits may not be able to see past Tuesday’s midterm elections, as soon as the voters decide which party will hold the reins of Congress, the country will witness its first reminder that elections have consequences.
The 2022 contests will have a near-instant effect on US fiscal policy. At some point between mid-December and January, the United States will hit its credit limit and need to either increase it or risk defaulting on its financial obligations.
Since the Barack Obama years, Republicans in Congress have turned what used to be a pro-forma vote on the debt ceiling into a political cudgel. Successive fights between then-speaker of the House John Boehner and the Obama administration exhausted Americans’ appetite for political brinksmanship and negatively affected the nation’s credit rating, all while failing to make any meaningful cuts to the federal budget.
Assuming the Red Tsunami comes ashore, prepare for a return to the debt ceiling fights of the early 2010s. If Democrats lose even one chamber of Congress, President Biden will be forced to broker some sort of agreement with Republicans over how to meet the nation’s financial obligations.
House Minority Leader Kevin McCarthy has signaled that should he become the next speaker of the House, Republicans will be scrutinizing spending more closely, particularly on Ukraine. The question is if Republicans are truly prepared for the fallout of negotiating on the debt limit.
For one thing, the debt ceiling does not affect government spending — it simply determines whether the government will continue to pay its bills. Fiscal hawks know that the real way to cut spending is through the appropriations process. Failing to raise the limit won’t trim waste, but it will affect the nation’s ability to pay for what Congress has already appropriated. There are other consequences too. A protracted debate could damage the nation’s credit rating. It could also spook the markets as it threatens the confidence that investors have in US treasury securities.
Polling done after the 2011 and 2013 debt ceiling fights showed that even though Republicans gained very few concessions, they lost favor with voters and shouldered the blame for the financial chaos that ensued.
Of course, the best way to avoid these fights is to lessen the need to raise the ceiling altogether. For the fiscally responsible, that would mean reducing spending and prioritizing payments over principle. But for Congress, it usually just means asking for yet another outsized increase on the national spending limit.
The Biden administration and Senate Budget Committee chairman Bernie Sanders are already telegraphing that should they lose control of Congress, they intend to use their last few weeks in power to raise the debt ceiling, heading off another confrontation until the 2024 election. As vice president during the Obama-era debt ceiling fights, Biden saw how the chaotic negotiations shook the markets. While he won’t admit that America is already in an economic recession, he certainly doesn’t want such debates to rock an already delicate economy.
In many ways, this option reinforces the status quo: unchecked government spending will continue to be funded by debt, which takes the form of the Treasury Department issuing more bonds. Pulling this off during a lame duck congressional session will be a win for the Democrats. Yet while Dems are focused on scoring a win before the end of the year, Republicans should play it to their advantage.
If Republicans succeed in flipping both chambers, they will control the appropriations process. The path will be clear for them to pass a balanced budget. Even if Biden vetoes that budget, it will force him to do so on the record and demonstrate to Americans that only one party is serious about tackling runaway government spending.
Since Biden took office, Republicans have used their limited influence to keep government spending level and only raise the ceiling minimally, sensing that play-acting budget hawks is a way to score political points. But if they win the midterms, they’ll need to do more than just role-play. If Democrats take the credit limit question off the table, Republicans should focus on real cuts, winning the debt ceiling debate by ending it once and for all.
