How Republicans Can Win the Debt Limit Fight
Democrats will have the upper hand if the GOP waits too long to move a budget through the House.
The debate over this year’s budget is over. Next up: an even more contentious battle over raising the debt ceiling.
For this fight, President Barack Obama’s strategy is three-fold. First, warn of catastrophic consequences if the debt ceiling isn’t raised by early July when the Treasury Department runs out of fiscal tricks to keep from breaching the limit. Second, demand a “clean” debt ceiling increase, unencumbered by the tough spending and deficit caps that some congressional Republicans want to strap on the measure. Finally, blame the GOP for holding our economy hostage as often as possible.
In the background is the S&P downgrade of its outlook for U.S. debt, and the Federal Reserve’s winding down of its second round of quantitative easing (QE2). Both raise the possibility of instability in bond markets and higher interest rates. And just as QE2 goosed stock prices, the end of the program could have the opposite effect.
Democrats are already preparing to use this backdrop to pressure the GOP into letting Mr. Obama continue his wild spending. Rep. Sander Levin (D., Mich.), like Mr. Obama, voted against raising the debt ceiling in 2006. But the ranking Democrat on the House Ways and Means Committee said Monday that the S&P announcement sends a “very clear” signal to Republicans not to “play games with the debt ceiling.” Calling for a clean debt ceiling, Vermont’s Democratic Rep. Peter Welch lambasted House Majority Leader Eric Cantor on Monday, saying if he “persists in playing politics with the debt limit” then “he will be held accountable for unleashing the financial hounds of hell.” And Treasury Secretary Timothy Geithner warned that those who think they “can take this to the brink” are “going to own the responsibility for the risk that creates for the American economy.”
The GOP needs to push back now—thoughtfully and aggressively. Yet in conversations with Senate and House Republicans, I was amazed to find they weren’t talking to each other. Though the Senate and House GOP leadership may be, congressional Republicans need to settle on a common negotiating posture sooner rather than later.
If congressional Republicans wait until June to offer their proposal, they’ll have fallen into the Democratic trap. Mr. Obama will beat them like a drum, blaming them for any hiccups in the markets and every bit of bad economic news, all while demanding a clean debt ceiling.