US Fiscal: Debt Ceiling "Hopscotch"

Published on December 16, 2013

House Budget Committee Chairman Paul Ryan’s double negative in asserting “we don’t want nothing” on a vote to increase the federal debt ceiling issue was a grammatically awkward but emphatic way to put a GOP marker down that the odds for a “clean” debt ceiling vote were somewhere between nil to none.

Indeed, despite the misguided chatter last week the House passage of the budget deal marks the start to a fiscal truce of some sort, there are still going to be several crucial legislative hurdles to jump on fiscal policy early next year.

*** Tactically, Ryan’s remarks were meant to “hopscotch” the focus of the GOP conservative ranks and especially its Tea Party faction away from and over the budget appropriation bills needed before the January 15 deadline to avoid a government shutdown and to the trade-offs over the debt ceiling vote itself, whose drop dead date is probably in late spring or later. ***

*** More broadly, Ryan was signaling on behalf of the GOP leadership that the issue is not whether a debt ceiling vote will pass — it almost certainly will — but rather what the price will be, which is unlikely to be laid out until probably after January 15 deadline. Ryan’s remarks also reflect another pre-emptive effort by the GOP leadership to wrestle control of the party’s legislative agenda away from the more extreme-edged lobbying groups which played such an out-sized role in driving the GOP into its shutdown debacle. ***

*** We do think the risks of a debt ceiling vote that goes awry is low. Likewise, we do not think the fiscal risks over yet another debt ceiling showdown are high in the set of calculations before the Federal Open Market Committee this week. A significant lessening of this year’s fiscal drag is already pretty much baked into the Summary of Economic Projections for 2014. ***

Two More Budget Votes

The Senate will be voting on the “Bipartisan Budget Act of 2013” tomorrow, beginning with two cloture votes to end debate and possible filibusters, before then voting on the actual budget agreement. Despite some fretting from senior Senate Democrat Dick Durbin over needing GOP votes, we expect all three votes to pass, including the budget agreement.

But as we noted previously (SGH 12/4/13, “US Fiscal: Edging to a (Very) Small Budget Deal”), the budget agreement is only the first of three crucial fiscal votes, and in some ways, the easiest of the three: Congress will still need to vote on one or more authorization bills for the offsets to the higher spending levels and partial lifting of the sequester, and then for the FY 2014 appropriation bills.

Both these crucial votes will need to come in the week or so after Congress returns from its Christmas recess and before the January 15 deadline for the current Continuing Resolution agreed to last October.

There is, for instance, a good chance some of the offsets in the Budget bill will be jettisoned under intense lobbying pressure — the $11 billion raised through the increase in airline security fees comes to mind — which will have to be made up elsewhere, take your pick.

And the appropriation bills may prove even trickier to navigate to passage. For instance, the Democrats are going to seek a 60 or 90 day extension of the benefits for the long term unemployed that never made it into the bdget agreement. The UI is likely to be attached to an appropriations bill, and working through what the GOP will demand in return will take some days to debate and resolve at minimum.

But the GOP leadership is above all keen to blunt any Tea Party rebellion, perhaps stoked by heated rhetoric from the external hard right lobbying groups, that might turn into another pitched internal party battle over the “must pass” appropriation bills needed to avoid another costly shutdown after the current CR January 15 deadline expires.

The GOP will need something in return for the debt ceiling vote, even if a down payment of some sort, perhaps an agreement on process rather than specific near-term spending cuts.

Budget hawks off the Hill will likely posture and cry for some kind of a timeline on entitlement and tax reforms, but no one in a position of any stature on the Hill expects any such movement on either until 2015. The Democrats don’t want to alter the status quo that much and the Republicans are waiting anxiously for the elections of November 2014.

Once past that January 15 deadline, the fiscal calendar lengthens out, starting with the President’s State of the Union address on January 28, followed in theory, by the President’s FY2015 budget proposal. The debt ceiling vote would, in this scenario, be bringing up the rear to the fiscal legislative calendar.

The GOP is assuming the drop dead date for extending the debt ceiling is unlikely to come before May and probably later; the August recess is seen as the only real “tree break” to pass the debt ceiling.

But even if the drop dead date is as soon as late March, as the US Treasury is insisting, it is still well after January 15, and for now, that date rather than the need to pass a debt ceiling increase remains the legislative priority of the GOP. Until then, the market and the Fed will have to live with the political reality that a debt ceiling trade is here to stay on Capitol Hill.

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