The Republican Party is poised to win back the House in November with the polling aggregator FiveThirtyEight giving the GOP a greater than 70 percent chance of flipping Congress’s lower chamber. One source of the party’s strength is unambiguous: Surveys consistently find that rising prices are far and away the public’s top concern and that Republicans are widely seen as more credible inflation fighters than Democrats. Asked which party they trust more to handle inflation, voters in a recent ABC News–Washington Post poll favored the GOP by 19 points.
On one level, this makes sense. The Democrats are the party in power, and prices have risen sharply on their watch. For voters consternated by this state of affairs, supporting the GOP is a natural way to register opposition. But on another level, the Republicans’ success at capitalizing on cost-of-living concerns is a bit perverse since the party’s only discernible plan for reducing inflation is roughly as popular as $100-a-gallon gasoline. The GOP’s platform is, essentially, to cut Social Security or trigger a financial crisis trying.
Republicans aren’t printing that on bumper stickers, but GOP leaders have made their intentions plain. Earlier this month, the four Republicans vying to chair the House Budget Committee said that once in power, they will threaten to force the government to default on its debt unless Democrats consent to “Social Security and Medicare eligibility changes, spending caps, and safety-net work requirements,” according to Bloomberg.
Such spending cuts might marginally reduce inflationary pressure. But they would do so on the backs of America’s most vulnerable (the poor) and most politically engaged (the old). The Biden White House would never agree to this, so Republicans can only hope to enact such a plan through hostage taking.
Unfortunately, the debt ceiling provides the GOP with a hostage. This means the second half of Biden’s first term may look a lot like a throwback to the Obama era, when a Republican-controlled Congress would repeatedly torment the Democratic administration with threats to blow up the global economy in exchange for austerity. Alarmingly, Biden appears to have learned little from those manufactured crises. On October 21, the president ruled out the one tool that Democrats could use to preempt Republican brinksmanship.
In most developed countries, the budgetary process goes roughly like this: The legislature passes laws that authorize spending and taxation and then the government borrows money to cover the gap between the two. The U.S. follows a similar procedure except it includes an additional step. After Congress has approved deficit-increasing budgets, it must vote on whether it will allow the Treasury to borrow the necessary funds. This is because there is a statutory limit on how much debt the government is allowed to hold. Congress must raise this “debt ceiling” whenever the budgets it has already authorized generate debt in excess of the limit.
Raising the debt ceiling does not increase the amount of money the government owes its bondholders. It just prevents the government from having to default on either its debt or its obligations to U.S. service members, Social Security recipients, Medicaid enrollees, and the myriad other beneficiaries of federal spending.
In other words, the debt ceiling is an insane institution. Failing to raise it to a level consistent with Congress’s fiscal demands presents the executive branch with an impossible order: It is simultaneously instructed by Congress to borrow more and forbidden from doing so.
The debt ceiling’s primary function in recent years has been to provide the GOP with a mechanism for sowing chaos under Democratic presidents. In 2011, the GOP’s House majority threatened to force the country into default if President Barack Obama didn’t consent to steep spending cuts. The administration negotiated a payable ransom but not before Standard & Poor’s downgraded the U.S. credit rating. Two years later, Republicans exploited the debt ceiling yet again, this time demanding Obama repeal his signature health-care law. The administration didn’t blink, and the GOP eventually folded.
In October, House Minority Leader Kevin McCarthy confirmed that he intends to uphold this tradition. In an interview with Punchbowl News, McCarthy said, “We’re not just going to keep lifting your credit-card limit, right?” He added that Congress had to figure out “where can we eliminate some waste.”
The long-term drivers of U.S. debt are entitlements, the Pentagon, and historically low tax rates, and we know the GOP isn’t interested in messing with the last two. Meanwhile, top congressional Republicans tell us all the time that they want to slash the former. And experience indicates they would prefer to do this under a Democratic president so they don’t have to take sole ownership of their unpopular fiscal priorities.
Missouri Republican Jason Smith, a top contender to head the House Budget Committee next year, laid out the logic of the strategy in a recent interview with Axios. Speaking of what President Biden would do if House Republicans sent him a budget that tied the debt-ceiling increase to entitlement cuts, Smith said, “If Republicans are trying to cut spending, surely he wouldn’t try to default.”
Smith’s confidence betrays an awareness of his own irresponsibility. The reason Biden “surely” would not default is that the U.S. failing to make payments on its debt would destabilize the global financial system. The vast and tangled infrastructure of global finance rests to a great degree on a foundation of American Treasury bonds. Since the U.S. is the world’s preeminent economic power, its debt is considered the safest asset one can hold. Everyone’s investment strategy is premised on Uncle Sam’s reliability as a debtor. If the GOP turns Uncle Sam into a deadbeat, things fall apart.
The Biden administration is unlikely to cave to Smith’s demands; it has seen this show before. But House Republicans can’t necessarily be trusted to fold. In the Trump era, the party’s rank and file have been growing steadily more detached from reality; Republicans beholden to the Chamber of Commerce have been replaced with ones beholden to QAnon fanatics. It’s far from clear that a Speaker McCarthy would be able to marshal the votes necessary to avoid engineering an economic cataclysm.
In light of all this, Democrats should do two things.
First, the party should inform voters that the GOP’s plan for lowering inflation is to cut America’s most popular government programs or else engineer a global depression. Attacking the GOP’s plan to reduce inflation at the expense of America’s seniors allows Democrats to increase the relevance of an issue on which it enjoys an advantage (protecting Medicare and Social Security) while addressing voters’ top concern.
Second, and most important, Democrats must effectively abolish the debt ceiling. Assuming Republicans win the House in November, the new majority won’t take the reins until January 2023. Between Election Day and then, Democrats will have the opportunity to use the reconciliation process to pass a budget bill without needing to overcome a Senate filibuster (and thus without needing Republican votes). Due to Senate rules, such a bill couldn’t technically abolish the debt limit, but it could effectively do so by raising the debt ceiling to, say, a googolplex of dollars. Better to kill the debt ceiling before Republicans can use it to take the world hostage.
But no such bill can pass without Biden’s support, and he told reporters that abolishing the debt limit would be “irresponsible.” In so doing, he affirmed the GOP’s fiction about what raising the debt ceiling actually means, while leaving the economy at its mercy. If the Republican Party’s commitment to brinksmanship threatens to upend the global financial system, the president’s nostalgic attachment to congressional conventions threatens to do the same.
