WASHINGTON–The decibel level in the debate over raising the nation’s debt limit got a lot higher this week, after Standard & Poor’s rating agency lowered America’s credit outlook and the markets rippled in reaction.
Connecticut lawmakers, with one exception, say that Congress should vote to hike the debt ceiling, with no strings attached. They’re not relishing the vote. One Connecticut Democrat even made it sound akin to ripping off a Band-Aid–something that should be done as quickly as possible.
“America pays its bills–move on,” Rep. Joe Courtney, D-2nd District, said when asked about the issue.
But many Republicans–as well as independent Connecticut Sen. Joseph Lieberman–have said they will only support an increase in the debt ceiling if Congress also agrees on long-term spending reductions.
The issue will be at the top of the political agenda when lawmakers return to Washington in May, after the current congressional two-week recess. And it’s already setting off political fireworks.
Rep. Jim Himes, D-4th District, said it’s the “very height of hypocrisy” to suggest that the debt ceiling vote should be linked to broader fiscal reforms.
“It’s just government by ultimatum, and we’re messing with live ammunition,” said Himes, a former Goldman Sachs investment banker and member of the House Financial Services Committee. “Let’s not play with these nuclear weapons.”
The nation’s debt limit is currently set at just above $14.2 trillion. The debt ceiling serves as a cap on the amount the federal government can borrow from foreign investors and other sources.
Treasury officials have said they expect the U.S. to cross the $14.2 trillion threshold in mid-May, although they could use some accounting maneuvers to buy an additional six weeks or so. But sometime between early May and early July, Congress will have to raise the debt ceiling; otherwise the government cannot keep borrowing money to pay interest on its current debt, raising the prospect of the government defaulting on its loans, among other things.
Treasury Secretary Timothy Geithner and others have said that would be catastrophic for the financial markets and the overall economy. Investors got a hint of the ramifications on Monday, when the Standard & Poor analysis sparked a market plunge.
The S&P did not downgrade America’s credit rating, but rather tweaked its outlook on U.S. debt to negative. S&P analysts said they did so because of doubts about the ability of politicians in Washington to agree on a long-term debt reduction plan.
House Republicans seized on the news, saying it gave new weight to their argument that there should not be an increase in the debt limit unless it’s accompanied by sweeping spending reductions.
House Majority Leader Eric Cantor said the S&P report should serve as a warning to those who want to “blindly increase the debt limit.” House Republicans, he said, will only support an increase “if it is accompanied by serious reforms that immediately reduce federal spending and end the culture of debt in Washington.”
Himes said that without a doubt, the S&P news is “an indication from a knowledgeable, apolitical group that we’re on thin ice” with regard to the mounting national debt. “We should therefore get serious quickly about fiscal sustainability.”
But just as importantly, Himes said he took the warning to say “that we also should not play roulette with the full faith and credit of the U.S. government.”
Himes and others say they want a “clean” bill to raise the debt ceiling, with no spending reductions or other elements attached.
“Any representative who has ever voted for an increase in spending or a decrease in taxes [and] who votes against raising the debt ceiling, shame on them,” Himes said. Those who would hold U.S. government credit “hostage” to score political points, he said, “don’t belong in this building.”
Other Connecticut Democrats, while less fervent about the issue, also said they wanted a straight up-or-down vote on the issue. Rep. Rosa DeLauro, D-3rd District, said Congress “has to take into consideration what would happen if we fail to act,” citing the possibility of higher interest rates, lower home values, and lost jobs.
Rep. John Larson, a 1st District Democrat, said that adding other issues, whether spending cuts or broader fiscal reform measures, is a recipe for political gridlock. He pointed to the recent showdown over the fiscal year 2011 spending bill, in which lawmakers came within about an hour of a federal government shutdown, with funding for Planned Parenthood and other health clinics a major final sticking point.
“America’s just witnessed this dance,” he said. “We don’t want to put the nation through this again–to decide whether we’re going to raise the debt ceiling based on whether or not Planned Parenthood is part of it or not… We want to have a clean vote on this that will take, at its core, what’s in the best interest of the nation, not the ideological pursuit of either party.”
But he conceded that politically, it’s a tough sell to support an increase in the nation’s ability to borrow money, when public opinion polls show deep concern about the country’s mounting red ink. That’s of particular concern to Democrats, as they seek to regain the House majority in the next elections.
A vote against hiking the debt ceiling can sound a lot better to voters. “Symbolically, to the public, it can come across as ‘Hey, were’ going to cut up the nation’s credit card’,” Larson said. He called on the Senate to act first because Democrats are in control of that chamber. And they’re aligned with the White House and House Democrats on pushing a “clean bill” and can help explain what’s at stake for the economy.
It is, of course, to Democrats’ advantage to vote on the debt ceiling as a stand-alone issue. They are generally opposed to sharp cuts in domestic spending that will inevitably target programs Democrats have championed, from early childhood education to scientific research.
For Republicans, the debt ceiling vote is a point of leverage-a way to extract concessions from the Obama White House and the Democratically-controlled Senate in the broader showdown over budget priorities and fiscal reform.
Lieberman, a Connecticut independent who caucuses with the Democrats, is the only one in the delegation to say he will not vote for a “clean” debt hike. He will only support an increase if it comes with a meaningful proposal to reduce spending.
Lieberman said last week that he could not vote “to increase our government’s ability to borrow hundreds of billions of more dollars to pay off our growing debt, unless something is done at the same time that is real tough and effective to guarantee that our debt will begin to be cut.”
Sen. Richard Blumenthal, D-Conn., said he would rather not see the two matters linked, but he’d be open to such a proposal.
“I would prefer a separate vote on debt reduction, which has to be done, and the debt ceiling increase, which also is imperative,” Blumenthal said. “But if they need to be done together, I would certainly consider that… I think there has to be both, and the question on whether they should be linked depends on what the exact proposal is.”
How or whether lawmakers could agree on a sweeping debt-reduction package before the U.S. Treasury hits the debt ceiling this spring or summer is far from clear.
Lieberman said he thought Congress could coalesce around a proposal like one he endorsed last week, which would set binding caps to bring down federal spending as a percentage of the nation’s gross domestic product.
Lieberman noted that Obama has outlined a similar, although less sweeping, proposal, calling for a “debt failsafe” that would trigger spending cuts starting in 2014 if Congress cannot agree on a way to bring down the debt.
“I want to be reasonable,” Lieberman said, adding that there was “risk” in his position. At the same time, he appeared ready to join the GOP battle. “If the House Republicans hold and they say they won’t vote for a debt increase without some real action on the debt, then there’s going to be real action,” he said.
But Himes and others said it’s absurd to think Congress could agree on major spending reforms in such a short time frame.
“We hit the debt ceiling in three weeks,” Himes noted. It is “just ludicrous” to think that Congress could agree on a meaningful fiscal-reform package-one that included defense cuts, tax increases, and entitlement program changes-in that window, he said.
Larson agreed. “These are huge issues,” he said, noting that House Republicans are calling for, among other things, the privatization of Medicare and the block-granting of Medicaid. To mix such contentious issues in with a debate on the debt ceiling, he said, is “playing chicken with the nation’s economy.”