US Debt Ceiling Crisis: What Are the 3 Paths Congress Can Take?

Image Commercially Licensed from: Depositphotos
Image Commercially Licensed from: Depositphotos

Congress again faces the threat of a potential loan default if lawmakers disagree on raising or suspending the debt ceiling. Treasury Secretary Janet Yellen has warned that bankruptcy is looming and could happen as early as June 1, adding urgency to the situation.

The debate is not about whether to raise the debt ceiling but how to do it. Democrats, led by President Joe Biden, want a “clean” debt ceiling increase without any trade-offs. House Republicans want to pass spending cuts in exchange for approving the increase, with some refusing to compromise.

This dispute between the parties in the government raises concerns about the US coming dangerously close to defaulting, as it almost did in 2011. Congress regularly faces this issue because the debt ceiling is a must-pass legislation requiring both chambers’ backing.

Republicans are using the Limit, Save, Grow Act to push significant spending cuts, but Biden has been unwilling to consider such trade-offs. Talks are ongoing between the two sides.

The US has been caught in this cycle for years, with the minority party using the debt ceiling negotiations as leverage to extract policy concessions. Any miscalculation on the part of legislators could lead to default. This year has proven no different so far.

What happens next is uncertain as the deadline for the Treasury Department to act or risk an economic crisis is June 5, though the date may change. Congress has three paths to raise the debt limit, but each is dicey.

1. Biden-McCarthy Negotiations

Biden refuses to give in to policy concessions or pay a “ransom” to pay the bills already racked up. Even if Biden agrees to negotiate, it’s unclear how it will end. McCarthy’s bill passed the House by a slim margin, but it would require stripping out parts of Biden’s Inflation Reduction Act.

Cutting such a deal could upset conservative members. McConnell warned that any bill that passes the Senate won’t pass the House, and the only way to move from the dead-end is for Biden and McCarthy to cooperate.

2. Clean Debt Ceiling Increase

Biden, Schumer, and Jeffries demand a clean debt ceiling expansion without policy conditions. Some Democrats thought McCarthy would fail to pass any bill and have to accept a straightforward increase. 

But McCarthy wrote legislation and got the support of all but four Republicans to pass it in the House. Backing down now would risk angering the 20 GOP lawmakers who initially opposed him.

Any debt ceiling bill backed by Democrats would need at least nine Republican votes to pass the Senate. GOP senators are urging Biden to negotiate with McCarthy rather than accept a clean debt ceiling bill after the House passed conservative legislation. McCarthy insists that a clean debt ceiling bill won’t pass the House.

3. Tie to Government Funding

One solution to the debt limit crisis is to tie it to a bipartisan government funding bill due by September 30 to prevent a shutdown. However, there are a few problems with this approach. The deadline in the first half of June leaves little time for negotiating a funding bill, which can take months. The last few bipartisan funding deals have increased federal spending, which is a reversal for McCarthy, who wants spending cuts to extend the borrowing limit.

To make this work, Republicans need to see the budget negotiations as a victory while Biden maintains his stance on the debt limit. Passing a short-term debt limit increase to put more time on the clock could show good faith and give more time to sync the deadlines up. If not, it will take coming up to the edge to determine who blinks.

More about the Debt Ceiling

The US debt ceiling is a legal limit on how much money the government can borrow to fund its operations. It’s like a credit limit on a credit card. If the government wants to borrow more money beyond this limit, Congress must pass a law to raise or suspend the debt ceiling.

After a two-year suspension, the current debt ceiling was reinstated on August 1, 2021. If the debt ceiling isn’t jacked up or suspended when the government reaches it, the federal government will be unable to pay its liabilities, and it risks defaulting on its loans, which could cause a massive economic crisis.

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