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Four years ago, a Democratic senator declared on the Senate floor that he was against raising the nation's debt ceiling.
"The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. government can’t pay its own bills," the senator said.
That was Sen. Barack Obama in 2006, shortly before he voted against it. Now that he is president, Obama finds himself in the awkward position of telling his former colleagues in Congress that it's critical to raise the limit. Failure to do so could have catastrophic consequences for the economy, his administration has warned.
Obama's change in position -- rated a Full Flop by PolitiFact -- is a reminder that the debt ceiling vote, an uncomfortable necessity for a Congress that routinely spends more than it can afford, has been a convenient playground for partisan politics. Historically, the vote has been shouldered by the party in power. That freed the minority party to harrumph about lack of leadership, fiscal irresponsibility and running up the nation's credit cards.
This time, though, the dynamics are different.
Against the backdrop of a fragile economic recovery, a power split in Congress, and a new urgency to address the nation's rising debt, the vote in the next few weeks will not be automatic. Many Republicans -- and more than a few Democrats -- are insisting on budget cuts or other belt-tightening measures before they will support the request.
"I think that not raising the debt limit would have serious, very serious, implications for the worldwide economy and jobs here in America. But having said that, we're just not going to do the typical Washington thing, roll over, increase the debt limit, without addressing the underlying problems," House Speaker John Boehner said.
Boehner has even mused that he wouldn't schedule a vote unless Obama gets "serious about the need to address our fiscal nightmare."
The possibility that Congress won't raise the debt ceiling is making some people nervous, particularly those who watch international financial markets. Jaime Dimon, the head of JPMorgan Chase, said last month that a default would be "catastrophic" for the U.S. economy, adding, "this chatter about not meeting our obligations, I just don't understand it. It's a moral obligation to ourselves and anyone who owns U.S. debt. They should know the United States is good for its money, period."
$14.3 trillion isn't enough
The debt ceiling is like a spending limit on a gargantuan credit card. It is the total amount of debt the United States is allowed to hold, usually from issuing U.S. treasury securities in exchange for cash from investors. If the government needs to go over that limit, it has to ask Congress for permission first.
The limit now stands at a mind-boggling $14.3 trillion. But that's not high enough.
U.S. Treasury Secretary Timothy Geithner said it must be raised by May 16 to allow the government to keep up with its obligations. The Treasury can juggle accounts until July, but after that, options would run out.
The debt limit is in some ways a moot point, because the spending that pushes the debt limit higher has already been authorized by other legislation. Though the debt ceiling is a high-profile vote, it's not a cause of spending, but a result.
Still, it's important. Failure to raise the debt limit and cover the nation's debts would be unprecedented in American history, Geithner has said, and could shake up international markets. "Even a very short-term or limited default would have catastrophic economic consequences that would last for decades," Geithner said in a letter to Congress earlier this year.
That word -- "default" -- means the U.S. government would fail to pay its obligations, particularly to investors who hold U.S. debt in the form of savings bonds and other securities. The theory goes that if investors thought the U.S. government was near a default, they'd sell off U.S. debt in droves, driving up interest rates for the government, business and consumers, sparking another recession.
It's difficult to know how real that scenario is -- or when it would happen. Some say it won't happen; others say it's a real danger.
Many conservatives say the government will meet its legal obligations. Talk of default is overstated, they say.
"It would be a disaster if we defaulted on our debt. It would be a disaster if we were hit by an asteroid. I think being hit by an asteroid is a more likely scenario," said J.D. Foster, an expert on fiscal policy with the conservative Heritage Foundation. He suggests that Congress look for dramatic spending cuts or offer guidance through legislation on which debts should be paid first.
On the other side of the aisle, Jim Horney, an analyst with the left-leaning Center on Budget and Policy Priorities, said that failure to raise the ceiling could have significant repercussions, even if the government prioritized bondholders.
"Right now, one of the advantages the U.S. has is that people have confidence it will pay its debts," he said. A protracted political battle could change that, he said.
In the past, the debate about raising the debt ceiling has been great for partisan posturing.
In 2006, when Republicans were in control of Congress and the White House, Obama and the Democrats could do the complaining, taking aim at the GOP's favorite policies.
"I have no problem holding the line on spending, but believe that it must be done in the context of a more responsible approach to tax policy. We must consider rolling back the tax cut for the wealthiest Americans, to bring the income tax rate from its current 35 percent back to 38.6 percent," said Sen. Dianne Feinstein, D-Calif.
Republicans, meanwhile, said what some Democrats are saying now -- that the vote should not be tied to budget reforms.
"Refusing to raise the debt limit is like refusing to pay your credit card bill — after you’ve used your credit card," said Sen. Charles Grassley, R-Iowa. "The time to control the deficits and debt is when we are voting on the spending bills and the tax bills that create it. Raising the debt limit is about meeting the obligations we have already incurred."
The votes -- and the rhetoric -- have been predictable.
"Most often, votes on the debt limit are political theater. Everyone knows in advance that it has to pass," said Norman Ornstein, a congressional scholar at the conservative American Enterprise Institute. "If you look at how Democrats and Republicans vote, you find that the most powerful variable on debt limit votes is who is the president."
Indeed, an analysis of the past 10 years of votes on the debt limit from the nonpartisan Tax Policy Center shows the vote typically splits along partisan lines, with the president's party voting in support.
Recipe for action?
For years, Congress has seemed tangled in partisan knots on nearly everything. But the current power split -- Democrats control the Senate, Republicans control the House -- means the parties must work together to pass legislation that both sides consider vital.
History suggests that could lead to more cooperation. The Tax Policy Center's analysis of debt limit votes shows that when government was divided during the Bush administration -- Republicans controlling the presidency, Democrats controlling at least one chamber of Congress -- the debt limit increase passed on a bipartisan basis.
So instead of partisan posturing, Congress may have the ingredients for a unique deal that would not only raise the debt ceiling, but make long-term commitments toward balancing the federal budget.
A growing number of Democrats are saying they'll raise the limit, but only if the vote includes commitments for long-term deficit reduction.
Sen. Kent Conrad, D-N.D., said he has voted for short-term extensions in the past but won't support a long-term extension "unless we have a plan to deal with this debt because, at the end of the day, this represents a fundamental threat to the economic security of the United States."
Republicans are attaching even more conditions to their votes. Rep. Michele Bachmann, R-Minn., has said she would not vote it unless it it came with a measure to completely defund the president's signature health care law.
And Sen. Marco Rubio, R-Fla., has said he won't vote to raise the debt unless it's accompanied by five separate major reforms: "a plan for fundamental tax reform, an overhaul of our regulatory structure, a cut to discretionary spending, a balanced-budget amendment and reforms to save Social Security, Medicare and Medicaid."
Such major reforms don't come easily or quickly. Comprehensive tax reform, for example, could take months for legislators to work through, said Marc Goldwein, policy director for the bipartisan Committee for a Responsible Federal Budget. And tax reform could be a critical component of a longterm budget deal
U.S. Department of Treasury, Secretary Geithner Sends Debt Limit Letter to Congress, Jan. 6, 2011
U.S. Department of Treasury, Secretary Geithner Sends Debt Limit Letter to Congress, April 4, 2011
CNBC, Jaime Dimon interview, March 30, 2011
Interview with J.D. Foster of the Heritage Foundation
Congressional Research Service, The Debt Limit: History and Recent Increases, Sept. 8, 2010
Fox News Sunday, Sen. McConnell Talks State of the Union, Jan. 23, 2011
The Wall Street Journal, Geithner Says GOP to Act on Debt Cap, April 18, 2011
The Economist, Dancing on the ceiling: Talk of America defaulting on its debt is just that, Jan. 13, 2011
NBC News, Meet the Press, interview with Sen. Kent Conrad, April 24, 2011