Senate Democrats held a hearing on Thursday to lambaste House Republicans’ proposal to raise the US government’s borrowing limit in exchange for spending cuts, as economists testified that a federal default would bring disastrous and decades-long consequences.
The hearing came a week after House Republicans narrowly passed the Limit, Save, Grow Act to raise the debt ceiling until May 2024. The legislation, championed by the House speaker, Kevin McCarthy, would also roll back federal discretionary spending to 2022 levels and cap annual increases at 1%.
Mocking the bill as the “Default on America Act”, Democrats warned that the legislation would result in devastating cuts to veterans’ benefits, childcare access and infrastructure funding.
“Republicans’ dangerous bill proposes a terrible choice: default on our financial obligations, causing widespread pain and wrecking our economy, or gut basic federal programs essential to our economic strength, causing widespread pain and wrecking our economy,” said Senator Sheldon Whitehouse, the Democratic chair of the Senate budget committee. “It is a false and unnecessary choice.”
Republicans on the committee countered that the House bill should be interpreted as an “opening bid” to kickstart negotiations with Joe Biden, who has repeatedly called on Congress to pass a “clean” bill raising the debt ceiling without any strings attached. Biden has invited the top four congressional leaders to a meeting at the White House next week to discuss the debt ceiling.
“I hope when the president sits down with the speaker, he will bring an open mind and a serious counteroffer,” said Senator Chuck Grassley, the Republican ranking member of the budget committee. “The longer the president spends dragging his feet and putting off negotiations, the closer President Biden brings us to the first ever federal default in US history.”
Three economists testified to the committee that a default would prove calamitous for the country and global markets, causing America’s unemployment rate to rise and its gross domestic product (GDP) to tumble.
Dr Mark Zandi, chief economist of Moody’s Analytics, predicted a “severe recession” in the US if lawmakers do not address the debt ceiling. The treasury secretary, Janet Yellen, sent a letter to congressional leaders on Monday informing them that the US government would be unable to cover its financial obligations as early as 1 June.
Zandi added that this moment is “an especially inopportune time to have a political debate over the debt limit” because the current risk of an American recession is “uncomfortably high”. That risk heightens the danger of enacting House Republicans’ bill, Zandi argued.
“It entails significant cuts to government spending … right at the point in time when the economy is going to be most vulnerable to going into recession,” Zandi said.
But all three economists also agreed that the “unsustainable” trajectory of America’s debt must be met with urgency by policymakers.
“We are sitting on a ticking timebomb,” said Brian Riedl, a senior fellow at the conservative thinktank Manhattan Institute. “Congress should be working diligently to avert an otherwise inevitable debt crisis, and raising the debt limit has historically been one opportunity to address the underlying debt problem.”
Democrats expressed openness to amending the federal budget for the next fiscal year, which begins in October, but they emphasized that such a discussion must be separated from the immediate need to address the debt ceiling.
“If we want to have a real discussion about revenues and spending, that’s great,” said Senator Debbie Stabenow, a Democratic member of the committee. “Don’t default. But let’s have that debate about what’s fair for the majority of American people.”
Biden has similarly invited a bipartisan conversation on budgetary reform, but he has steadfastly rejected Republican efforts to tie the debt ceiling to government spending negotiations.
“America is not a deadbeat nation,” Biden said on Monday. “We pay our bills, and we should do so without reckless hostage-taking from some of the [‘Make America Great Again’] Republicans in Congress.”
Whitehouse noted Senate Democrats have introduced a two-page bill raising the debt ceiling until December 2024, ensuring the issue would not be revisited until after the next presidential election, but such a bill seems unlikely to pass the Republican-controlled House. Democrats in the House have simultaneously launched a long-shot bid to pass a clean debt ceiling bill through the lower chamber, but the odds of five of their Republican colleagues joining that effort seem slim to none.
As the clock ticks down, lawmakers are running out of time to avoid catastrophe, Zandi testified.
“We are on a certain unsustainable fiscal path. We need both additional tax revenue and we need spending restraint. Both of those things need to happen. But we can’t do that in the current environment,” Zandi told senators. “This is not the time to do it. We need to end this drama as quickly as possible.”
