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Government Shutdown or Debt Ceiling Increase?

by Countable | 4.24.17

The federal government reached its debt limit as of March 16. The Treasury Department is currently using ‘extraordinary measures’ to manipulate existing federal debt obligations to cover approved appropriations. They could continue to do this until the fall without the government going into default. Congress has until April 28, however, to approve a bill to fund government operations or risk a partial shutdown of the federal government.

(See Also: What the Heck is the Debt Ceiling?)

If Congress cannot agree on a funding bill by April 28 they could pass a very short-term extension of a week or two to hammer out a final deal, or they could simply agree to fund government at current levels until a full appropriations bill is passed for the upcoming fiscal year.

The Debt Ceiling Debate Now

Though administration officials are all stating publicly that they expect the debt ceiling to be raised, the details and tactics vary from official to official.

Treasury Secretary Steve Mnuchin has been the clearest about his expectations that a bi-partisan debt ceiling deal will be reached. His clarity may be aided by his stated belief that the debt ceiling should not be a factor in partisan disputes. In March he wrote a letter to House Speaker Paul Ryan (R-WI) urging Congress that " honoring the full faith and credit of our outstanding debt is a critical commitment. I encourage Congress to raise the debt limit at the first opportunity so that we can proceed with our joint priorities."

At the Institute of International Finance this week, Mnuchin stated:

"I’m confident we’re going to get the debt ceiling raised...I think we’re going to have bi-partisan support on raising the debt ceiling. We’ve committed the money, the U.S. government credit is the most important credit. I believe it is a AAA credit and we’re going to keep it that way."

Budget Director Mick Mulvaney is looking at using a budget reconciliation process. This was the process used in the attempt to push forward health care last month, which would protect any proposed spending cuts from a Democratic filibuster. When raising the debt ceiling came before Congress in 2011 and 2013 Mulvaney was at the head of a Tea Party effort to force the Obama administration to agree to deep spending cuts in exchange for an increase in the debt limit.

That brinksmanship led to the first ever reduction in the U.S. government’s credit rating, which had enormous fiscal consequences for consumers:

"According to the Government Accountability Office, the mere threat that the debt ceiling might not go up cost taxpayers $1.3 billion in higher borrowing costs in the 2011 fiscal year, and tens of millions of dollars in 2013 too. U.S. credit was downgraded for the first time ever."

His current plan to use the reconciliation process, with Republican control of both houses of Congress and the White House may not be less contentious, but may be more successful in advancing his agenda of vastly reducing government spending.

For his part, President Donald Trump does not seem to be primarily concerned with reducing spending overall, but rather with shifting spending priorities. During the presidential campaign then-candidate Trump floated the idea of allowing for government bankruptcy. He stated in an interview with CNBC:

"I am the king of debt. I love debt. I love playing with it. I would borrow, knowing that if the economy crashed, you could make a deal. And if the economy was good, it was good. So therefore, you can't lose."

Now, he is on board with Mulvaney to use the budget reconciliation process, though not to pursue overall spending cuts. The administration hopes to push forward with appropriations for a border wall with Mexico, increased military spending and increases in funds for immigration and law enforcement in exchange for signing off on continuing health insurance premium subsidies, a key point for Democrats.

Meanwhile, Democrats are poised to reject any spending bill that involves President Trump’s priorities. They insist that if the government shuts down it will be Republican’s fault. Democratic Senate Leader Chuck Schumer (NY) vowed:

"If Republicans insist on inserting poison pill riders such as defunding Planned Parenthood, building a border wall, or starting a deportation force, they will be shutting down the government and delivering a severe blow to our economy."

In the next week we’ll see if there will be a replay of the game of fiscal chicken that wreaked such enormous havoc for the economy in 2011 or if cooler heads will prevail.

Should Congress focus on funding existing appropriations to keep the federal government in business or should they add in new spending to address the President’s national security priorities? Use the Take Action button to let your reps know what you think!

— Asha Sanaker

(Photo Credit: *U.S. Customs and Border Patrol via Flickr / Creative Commons)*

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