The threat of defaulting on the national debt is soon to become real. The American government is on borrowed time and the music is about to stop.  TCS Vice President Autumn Hanna and TCS Senior Policy Analyst Josh Sewell join host Steve Ellis to help make sense of what’s at stake.

Episode 46: Transcript

Announcer:

Welcome to Budget Watchdog All Federal, the podcast dedicated to making sense of the budget, spending and tax issues facing the nation. Cut through the partisan rhetoric and talking points with the facts about what’s being talked about, bandied about, and pushed in Washington. Brought to you by Taxpayers For Common Sense. And, now the host of Budget Watchdog AF, TCS President Steve Ellis.

Steve Ellis:

Welcome to all American taxpayers seeking common sense. You’ve made it to the right place. For over 25 years, TCS, that’s Taxpayers For Common Sense, has served as an independent non-partisan budget watchdog group based in Washington, D.C. We believe in fiscal policy for America that is based on facts. We believe in transparency and accountability because no matter where you are on the political spectrum, no one wants to see their tax dollars wasted.

It’s Tuesday, May 23rd, 2023 and podcast listeners, America continues to inch closer to default on our national debt. Just yesterday, with President Biden fresh off Air Force One after returning from the G Seven summit in Japan, Treasury Secretary Janet Yellen sent another letter to Speaker Of The House Kevin McCarthy that got straight to the point. “We estimate that it is highly likely that Treasury will no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June and potentially as early as June first.”

Joining me now to help make sense of what’s at stake here, TCS Vice-President Autumn Hanna and TCS Senior Policy Analyst Josh Sewell. Welcome back to the show, Josh and Autumn.

Autumn Hanna:

Hi, Steve.

Josh Sewell:

Hey. Happy to be here.

Steve Ellis:

Well, I’m not so happy about the situation we’re in, but I’m glad that you’re here with me to talk it through with our podcast listeners. Josh, let’s start with you. Are we to understand that the U.S. Treasury has nearly exhausted its extraordinary measures?

Josh Sewell:

Yes. As you said, Treasury Secretary still sees June first as the X date. To be fair, I saw another analysis today that said we may have until June eighth or ninth. So, maybe one more week than we think. But, regardless, it’s… It’s really close.

Steve Ellis:

And, nobody knows the exact date. Right? I mean, it’s all up to a bunch of variables. Somebody pays estimated taxes or we have other unforeseen costs. I mean, it sounds like right now Secretary Yellen’s been asking federal agencies to search the couch cushions for additional pennies or to put off creditors.

Josh Sewell:

Yeah. She sent a memo out to every agency basically saying if you can wait to pay your bills until later in the month, please do so, and you have to get permission if you want to spend more than 50 or $500 million, make some sort of payment in that. So, it’s… It’s getting tight.

Steve Ellis:

Let’s get into the process here, Josh. You know, so assuming that House Republicans and President Biden do reach a deal before the week is out, there’s still a piece of legislation that has to pass in both chambers and get to the president’s desk. I mean, is there time left for all of that?

Josh Sewell:

That depends on Congress. The closer we get to this unknown X date, the harder it will be to move fast without near complete buy in from both parties and both chambers.

Steve Ellis:

So, what do you mean by that? Is there some sort of procedural complexity that could pop up?

Josh Sewell:

Absolutely. I think we all know that the Senate moves at a glacial pace. We’ll be generous about it. Now, it can move pretty quickly if there is unanimous consent. So, basically if every Senator agrees to not use all the privileges they have under the Senate rules to use all debate time. The thing is, even if you get a UC to move, votes typically requires 60 yeses to be successful, so there are really high bars and a lot of potential for delay in the Senate. So, that gives a lot of power to one Senator or a group of Senators.

Steve Ellis:

For each of those votes, there’s another sort of whole process time and everything, and we’ve seen that leverage when 42 or 43 Senators sent a letter saying they would accept no tax increases in a debt ceiling deal. But, the House is a different beast. Right? There, a legislative package could be considered once the Committee on Rules adopts, well, a rule for debate. That committee is dominated by the majority and known as the speaker’s committee. So, can they just ram a deal through?

Josh Sewell:

Yeah, in theory. But, again, this is a tightrope. So, Republicans are in the majority, 222 to 213, as of today. And so, if everyone’s present and voting on party lines, [inaudible 00:04:24] Republicans, they can lose four votes and still prevail. So, procedurally, the House has the potential to move fast but with that tight a margin, it takes buy in from the majority. Basically, the whole majority.

Steve Ellis:

And, you know, with a four vote margin as you point out, I mean, that’s a very tight margin and so it gives a lot of power to a small bloc of members and it looks like we have a larger, younger and more raucous Senate.

Josh Sewell:

Basically. I mean, in some ways the House feels like a little more like the Senate where there’s a small number of folks can really block some things and the blocs are using their leverage to block things so far this Congress. But, I think in the end what’s important is just it’s up to the Speaker to get a deal that 218 members will support or at least stomach and if he can do that with only GOP votes, he’ll do it. But, the real open question is how many Dems are coming along, if any. There are just, frankly, so many open questions. It’s nerve-wracking and it’s causing a lot of… A lot of heartburn here in D.C. and other places and the one thing I can tell you is any deal is not going to follow the Speaker’s promise of holding more open floor processes and 72 hours for every member to read it and it will fall short of the bill they passed in the House already. So, there’s going to be a lot of broken promises.

Steve Ellis:

Yeah, and there’ll certainly be some members that’ll oppose it just because of that 72 hour violation and… But, I think that really if… Anything that they’re going to bring to the floor now, it’s going to have the support of President Biden, which is going to at least bring some Democrats along with it, you would think. And, you know, it may go back to sort of a previous Republican speakership rule when they had the House back from 95 until I guess it was 2006 that was they were governed by a majority of the majority, that the majority of Republicans in the conference would vote for something. Well, then they could move it and it would get some Dem passage.

So, let’s get into the meat of some of the things that are in this negotiation, Josh. So, what’s the TCS take on proposed changes to work requirements, for instance, for those receiving federal assistance?

Josh Sewell:

It’s pretty simple. Congress should have this kind of debate in the Farm Bill and wherever else those programs are authorized. It’s a simple answer.

Steve Ellis:

And, you’re not really known for short answers, but I think that the point that we’ve made consistently and yes, we’re going to kind of talk about some of the negotiations here, but there shouldn’t be negotiations over the debt limit. This should be done because it’s paying for spending that Congress and the presidents and even previous presidents and previous Congresses have already authorized. So, let’s get into again a little bit about the process.

Josh Sewell:

Sure. And, I think this debate about work requirements on food assistance or any other social program, this is a case where process really does matter and this is something we’ve hammered home on the debt ceiling, on appropriations, on all things in Congress, because the truth is right now Congress isn’t debating a deal. Not really. The Speaker and the President are in the driver’s seat and everyone else is selectively let in and I don’t think you can get a good product that way if you’re talking about a debt ceiling deal or any other legislation. And so, there are committees with jurisdiction where members and staff know how to make programs better and worse and they need to weigh in. That’s just simple. You can’t make a good policy like this.

Steve Ellis:

You mean, the Speaker and the rules committee aren’t policy experts on ag subsidies or on entitlement programs?

Josh Sewell:

Exactly. And, frankly, the rest of Congress needs to weigh in too because I think you need to rely on the expertise of people who’ve worked on programs for a long time, but it’s also 535 elected members of Congress when you count the Senate and the House that have a full vote. They each need to be able to weigh in on these important issues whether it’s issues in the Farm Bill, transportation or defense spending. Wherever it is. And, you’re not going to have that kind of a debate with a process of looking at the programs, having people come in and explain what’s worked and what hasn’t worked, and then getting a chance to vote on it and debate it. This is not going to actually be debated, whatever comes out in the next few days.

Steve Ellis:

Clearly, the biggest thing is the debt limit and [inaudible 00:08:38] actually a temporary… At least it’ll be a temporary fix. Now, it may be five months. It may be a year. It may be something along those lines. But, it’s not going to be permanent and yet you’re trying to make some permanent changes dragging along on this. So, speaking of things that aren’t necessarily permanent, how about the idea of new budget caps?

Josh Sewell:

I mean, bless their hearts. Right? They tried this in the Budget Control Act of 2011 and it didn’t hold. Hey, but hope springs eternal. You got to find some way to rein in spending and I would agree with that. I would also suggest we look at the revenue side of the ledger. But, budget caps, it may be a good compromise because you can slow the growth in spending but that’s really going to put a lot of pressure and a lot of onus on future Congresses to hold the spending line for years and decades to come.

Steve Ellis:

It’s kind of ironic in one way that you’ve got the debt limit issue which is basically spending by previous presidents and previous Congresses and then this Congress is trying to then tie the hands of future Congresses, which we, as you mentioned, saw didn’t happen. The BCA was amended every single year after the first year to increase the caps, and so it didn’t work.

You’re listening to Budget Watchdog All Federal, the podcast dedicated to making sense of the budget, spending and tax issues facing the nation. I’m your host, TCS President Steve Ellis, and we continue now with TCS Vice President Autumn Hanna. So, Autumn, we’re seeing a lot of political drama right now as Josh and I were discussing and we kind of hit on this and I just want to get back to this. But, using legislation to raise the debt ceiling is one area that Congress should never try to hang anything else on. Why are they trying to do that? I mean, why are they trying to grab onto this and push their various parochial policies through?

Autumn Hanna:

I mean, lawmakers can’t stay away. They know this needs to get done. It needs to pass. So, they want to catch a ride and that’s what we see frequently from lawmakers. But, while it seems like a must-pass bill like lifting the debt ceiling could be a way to get some of your wish list done, the stakes are just too high to play around right now. The horse trading that we’re seeing has to stop. It’s just delaying the game and regardless of how much we might want or like what’s being put on the table, we can’t be delaying what needs to get done and everyone acknowledges, like we’ve discussed, that a default would be devastating. Devastating for Wall Street, devastating for the economy, devastating for average Americans. The dollar would be weakened. The U.S. faces a credit downgrade. We could head into a global financial crisis. So, this needs to be a clean and quick vote.

Steve Ellis:

Yeah. Certainly, it’s something where we have… We’ve talked about this before and can’t stop talking about it. Obviously, we got to comment on what’s in front of us, but it should be a clean debt ceiling increase and it should be something that we just end. We decided as Taxpayers for Common Sense earlier this year, just decided this is not a useful tool anymore. We used to see it that way but it’s not anymore and to your point, Autumn, about the stakes, in that letter that I mentioned earlier, the one from Secretary Yellen to Speaker McCarthy, she wrote, “We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short term borrowing costs for taxpayers, and negatively impact the credit rating of the United States.”

And, from our perspective, what we’re hearing… I mean, the thing is, it’s already started to bite. She mentions the borrowing costs for securities maturing in early June have gone up. People are demanding to be paid for the risk of a default if they are going to loan money to the U.S. government.

Autumn Hanna:

Right. And, Secretary Yellen mentions past debt limit impasses, but in reality there have been more drama-free debt limit increases that drama-filled. The debt ceiling has been raised nearly 80 times. That’s because successive Congresses and presidents keep running deficits and this isn’t ancient history. The debt ceiling was raised three times under President Trump without the budget mess that we’re seeing now and once it was raised under President Biden. The debt has grown under the watch of every president since Andrew Jackson. Bottom line, the U.S. has always had debt. Growing the debt is a bipartisan affliction that requires bipartisan attention.

Steve Ellis:

Here, here, Autumn. But, then we are here having the threat of default and it being used as a negotiating tactic over next year and future years budgets. So, we’ve discussed work requirements and budget caps. Autumn, what’s the TCS take on some of the other reform or policy demands that are being pushed by House Republicans?

Autumn Hanna:

So, House Republicans have put a repeal of large swaths of last summer’s Inflation Reduction Act on the table. That was in their House-passed bill to lift the debt ceiling. And, it’s really no surprise. We know there’s a Republican appetite to repeal the Inflation Reduction Act. It was a partisan bill. But, for TCS, there were some good things in the bill, good things for taxpayers. In particular, clawing back the $80 billion IRS boost makes no sense. The Congressional Budget Office estimates that that funding would reduce the deficit by hundreds of billions of dollars, making a provision that would increase the deficit a condition of voting to increase the debt limit. It’s completely backwards and reveals a lot about this is political theater and not good public policy.

I also do have to just mention another thing that was in the IRA that could be clawed back with the oil and gas leasing policies. I always talk about those on the podcast. So, these are something that have had bipartisan support and they were in the IRA but again, bipartisan support for these issues, and we don’t want to see things like that on the chopping block.

Steve Ellis:

Yeah, exactly. And, let’s face it. Just looking at the pure politics, I mean, President Biden regards the IRA as a landmark achievement of his administration. The idea that he would jettison it or large parts of it less than a year after its passage to get a temporary debt limit increase is really ridiculous and an obvious non-starter.

Okay. So, setting aside the IRA, Autumn, what else are folks trying to tack on to this package?

Autumn Hanna:

So, another piece that’s been talked about a lot in these negotiations is permitting reform for energy projects. There’s a lot of bipartisan support for permitting reform. But, the details have been really hard for Congress. Congress wasn’t able to negotiate a deal last year, so trying to hammer it out now in this short timeframe and tie it to the debt is a big risk. Permitting reform is needed but like everything else we’ve said, we don’t support muddying the waters now in the debt deal. Congress needs to do its job on the debt and then follow up by doing its job on permitting.

Steve Ellis:

Okay. So, Autumn, Josh, there have been a few other ideas thrown out there to basically get around raising the debt limit and default. So, let me throw them out there and get your quick reactions. Short term extension to buy more time.

Josh Sewell:

Possible. Maybe probable.

Autumn Hanna:

Deadlines are what make Congress work, but we’ve seen these before to avoid government shutdowns. But, this is the debt limit. Maybe one if a solution is to be had.

Steve Ellis:

So, if they’re close, then maybe we’ll get a little extension. All right. Got it. How about some bipartisan gang swoops in with a solution?

Autumn Hanna:

Maybe a Senate gang but it seems like they’re really holding back and Senate Democrats are following Biden and Senate Republicans are following McCarthy.

Josh Sewell:

I agree.

Steve Ellis:

Okay. Moving along, how about a bipartisan discharge petition in the House to basically force a debt limit bill to the floor?

Autumn Hanna:

You got to get to 218. Some Republicans would have to cross McCarthy.

Josh Sewell:

Yeah, and you’d have to have a plan to actually vote on, so seems unlikely.

Steve Ellis:

All right. We’re getting down to the bottom of the barrel here. So, how about the 14th Amendment? The validity of the public debt authorized by law shall not be questioned.

Autumn Hanna:

Podcast listeners, you didn’t hear Steve put in an ellipse after law. What he passed over is something to the effect including debts incurred for payment of pensions and bounties for services and suppressing insurrection or rebellion. That tells us this is a post-Civil War amendment ensuring that Union forces get paid post-war even with a change in Congressional or presidential leadership. The amendment goes on to deny any payment of debt or compensation to those who rebelled. Since the debt limit came into place during World War One, no president has tried this approach. So, hard to see this being the path President Biden takes.

Josh Sewell:

Yeah, and this also wouldn’t be much more than the administration just saying we’re going to ignore the debt limit, and I think that like there’s another thing. People are talking about a platinum trillion dollar coin, minting that and putting it in the Treasury. I think the 14th Amendment, it seems like a bit of gimmick and dodge and frankly it would still have a destabilizing effect similar to reaching the debt limit.

Steve Ellis:

To be clear, we’re not calling the 14th Amendment a gimmick or a dodge. We’re just saying using it for this purpose would seem like a gimmick or a dodge. And, that is why we’ve called for an end to the debt limit, like I mentioned, and already some House Republicans are saying that Secretary Yellen’s June first X day is made up. What we’re afraid of is some day policy makers are going to miscalculate when that X date is or what are the stakes at hand and the nation is going to go into default. And, you can’t fix this.

Sorry for such a dire episode, Budget Watchdog AF faithful, but that’s the reality we’re facing today. Our nation’s fiscal future is working on borrowed time and the music is just about to stop. This is the frequency. Mark it on your dial. Subscribe and share and know this. Taxpayers has your back, America. We read the bills, monitor the earmarks, and highlight those wasteful programs that poorly spend our money and shift long-term risk to taxpayers.

We’ll be back with a new episode soon, hopefully with a debt limit that takes these United States of America into 2025 and after the next election. I hope you’ll meet us right here to learn more.