Democratic Leaders open to using Reconciliation for Debt Ceiling, affecting tax bill’s fate

October 13, 2021

House Democratic leaders have signaled a shift in their thinking about using reconciliation to lift the debt ceiling, which could affect the tax and spending bill currently stalled in Congress.

Prior to this week, they opposed employing the budget tactic to modify the federal government’s borrowing authority.  Now, they appear open to the idea.

House Speaker Nancy Pelosi (D-Calif.) and Majority Leader Steny Hoyer (D-Md.) on October 12th both appeared open to using the tactic.  

“I am [open to using reconciliation] because I do not believe that … allowing default is an alternative,” Hoyer told Punchbowl News($).

Pelosi’s comment was more circumspect.

When asked if reconciliation should be used to lift the debt ceiling, the Speaker replied, “we’re just hoping that we can do this in a bipartisan way,” according to CNN.  Her comment was more about what she didn’t say than what she said, which is she didn’t say 'we will not use reconciliation to increase the debt ceiling.'

Using Reconciliation to Increase Debt Ceiling:

Congress has approved an increase in the debt ceiling that will allow the federal government to issue bonds until at least early December. President Joe Biden is expected to sign the legislation into law.  This means the federal government’s borrowing authority is safe for the time being.

Fast forward to December when another debt ceiling increase might be merited. Senate Republicans have refused to support this increase, and under regular order for passing legislation, at least ten of them would have to support the increase for the federal government’s borrowing authority to be extended.

However, Republican support would not be needed in December if a debt ceiling increase were a part of a reconciliation bill.

The budget reconciliation process is what was used to create the sure-to-shrink $3.5 trillion tax and spending bill (more on this later). This budget procedure is fraught with procedural hurdles that can be very time consuming. Its most rewarding attribute is that reconciliation bills only require a simple majority to pass the Senate, which Democrats can do on their own.

If, If, If…

If Democrats decide to use reconciliation to increase the debt ceiling in December, the current thinking (subject to change) is that it would be attached to the tax and spending budget reconciliation bill, and not be a stand-alone bill. Here’s why: An increase in the debt ceiling must become law or the federal government will eventually default on its debts. This puts extraordinary pressure on lawmakers to approve a debt ceiling increase that is signed into law, therefore any provisions included with it would also become law.

Adding the debt ceiling to the tax and spending reconciliation bill would force Democratic lawmakers to focus on completing and passing the bill before the federal government’s borrowing authority is compromised. Currently, the party is divided over several issues concerning the legislation, which has stalled its progress on Capitol Hill. Those issues include:

  • Arguments over the bill’s total price: Democratic leaders have said the bill’s $3.5 trillion price tag must be reduced, but rank-in-file members disagree. This argument has lasted for weeks, so tying it to the debt ceiling should force them to reach an agreement.
  • Arguments over what gets cut from the legislation: Democrats are haggling over whether some provisions should be cut from the bill or whether all measures remain in the bill with shorter lifespans, i.e., provisions lasting five years instead of ten years. This argument is relatively new (compared to the price tag argument) but tying it to the debt ceiling means that Democrats would have to reach a conclusion on what stays and what goes before the federal government defaults on its debts. 

Speaker Pelosi has repeatedly said that these issues will be fixed before October 31st and that the bill will pass the House before November. Few people monitoring the developments associated with this bill believe that Democrats will meet this deadline. There are simply too many unresolved issues with this bill, making it hard, if not impossible, to fix in the next 18 days.  

Despite all the persistent unknowns with the tax and spending bill, it is becoming clearer that the legislation’s price tag will be lower than $3.5 trillion. The current thinking (again, subject to change) is the bill will cost $2 trillion over ten years – and a lower cost will require fewer tax increases, according to White House Press Secretary Jen Psaki.

“Because the package will not be $3.5 trillion, it will be smaller as everyone has acknowledged, you won’t need the same number of payfors [tax increases],” she said, adding that it is not clear which tax increases could be left on the cutting-room floor due to a lower-priced bill.

“In terms of what those [tax increases] look like, there are a range of proposals that the president has conveyed he supports,” Psaki said.

However, Democratic lawmakers will be the ultimate decision-makers on this subject.  And some progressive Democrats contend that tax increases should exceed the total bill’s cost, meaning that the legislation would raise revenue.

Timing for Debt Ceiling Increase:

Congress has passed legislation that extends federal government spending and the debt ceiling until December 3rd.  

This means that by December 3rd, Congress will once again extend federal government spending to a future date. It does not mean that the debt ceiling must be lifted.

The timing for when the debt ceiling must be addressed is a fluid calculation. For example, unexpected revenue could flow into the federal government after the October 15th tax filing deadline, which could extend the timeline for addressing the debt ceiling.

The current thinking is that the debt limit may need to be addressed later in December, or possibly early January.

Whatever the date is that the debt ceiling must be raised will also be when the tax and spending provisions included in the bill become law – if Democratic lawmakers combine the fate of the debt ceiling with the tax and spending budget reconciliation bill.

Other Options to Increase the Debt Ceiling:

Speaker Pelosi deemed the idea of the Biden administration lifting the debt ceiling unilaterally as having “merit.” If this path were taken, it would not require lawmakers to vote on increasing the debt ceiling in December.

However, congressional action would be needed to stop the administration from raising the ceiling. That disapproval would require 60 votes to pass the Senate. Assuming all 50 Republicans support the disapproval, it is unlikely that ten Senate Democrats would join them. This means that it is highly unlikely that Congress would stop the Biden administration from lifting the debt ceiling on its own.

If the tax and spending budget reconciliation bill is not attached to the debt ceiling, it would still be considered a must-pass piece of legislation, but for different reasons. The success of the Democratic legislative agenda is directly tied to the fate of the tax and spending budget reconciliation bill. Passage (and ultimately enactment) would be a political win for the party. Still, passage would likely to occur after the debt ceiling issue is addressed.

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