Congress has eight working days with both chambers in session before Memorial Day, and negotiations appear non-existent. Photo by Getty Images.

Ashley Murray
Indiana Capital Chronicle

WASHINGTON — Unless Congress can strike a deal, the U.S. Treasury will likely default on the nation’s bills starting June 8, triggering major consequences for the economy, according to Mark Zandi of Moody’s Analytics.

The risk assessment organization’s chief economist testified before the U.S. Senate Committee on the Budget Thursday and urged lawmakers to suspend the debt ceiling as soon as possible, and to ensure it is addressed long enough to make it to the other side of the 2024 presidential election.

Congress has eight working days with both chambers in session before Memorial Day, and negotiations appear non-existent. On Monday, President Joe Biden called Senate and House leaders and scheduled a White House meeting for May 9. Biden and House Speaker Kevin McCarthy last met about the debt ceiling in early February.

Zandi, and other witnesses, did not dispute that the U.S. is on an “unsustainable” spending path, but they pressed lawmakers to disentangle long-term work on reducing the nation’s deficit from the immediate need to raise the debt limit.

The nonpartisan Congressional Budget Office, which is tasked with calculating costs and savings of federal legislation, projects a deficit of $1.4 trillion in 2023 and $2 trillion each year thereafter until 2033.

“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. So this is not the time to do it,” Zandi said. “We need to end this drama as quickly as possible. If we don’t, we’re going to go into recession and our fiscal challenges will be made even worse.”

House Vote

McCarthy, a California Republican, has vowed that his party will not raise the nation’s borrowing cap without simultaneous budget reductions.

Republicans pushed through a debt ceiling bill April 26 by a slim margin, 217-215, to temporarily raise the limit by $1.5 trillion or until March 31, 2024, whichever comes first.

They tied the measure to massive discretionary spending cuts and changes in federal programs, including dismantling new climate provisions passed in last year’s Inflation Reduction Act and increasing work requirements for recipients of government food and medical benefits.

The bill largely received support from the bipartisan fiscal watchdog the Committee for a Responsible Federal Budget — except for a provision to slash new Internal Revenue Service funding meant to increase tax revenue collection.

The CBO projected that the GOP’s bill — titled the Limit, Save, Grow Act — would reduce the federal deficit by a projected $4.8 trillion over the next decade.

Stalemate

Biden and Democrats have panned the bill, nicknaming it the Default on America Act, or DOA Act. They have pledged to refuse to negotiate on the legislation and liken it to taking the U.S. economy “hostage,” as Senate Majority Leader Chuck Schumer repeated on the Senate floor Thursday.

“(The Limit, Save, Grow Act) entails significant cuts to government spending beginning in fiscal year 2024, which begins at the end of this year, right at the point in time when the economy is going to be most vulnerable to going into recession. By my calculation, the act will shave spending equal to about a half a percent of GDP in 2024. And that’s a half a percent that the economy does not have,” Zandi told the panel.

Minority Leader Mitch McConnell has so far stayed on the sidelines of the debate, reiterating this week that there is “no solution in the Senate.”

“The only solution is for presidential leadership. President Biden has been sleepwalking towards this crisis,” the Kentucky Republican said on the floor Wednesday.

The White House meanwhile has been hammering the talking points this week that McCarthy’s deal will threaten health care for 21 million Americans, potentially cut veterans’ benefits and pull 2,000 Customs and Border Patrol agents off the job.

“This President has not backed away. The problem is who you value in this country. Is it a special interest, or do you want to save (money) on the backs of people who can least afford it?” said Shalanda Young, director of the Office of Management and Budget, at the White House press briefing Thursday.

Finding A New Path

Witnesses testifying before Thursday’s Senate panel also called for Congress to find an altogether new path for fiscal negotiations rather than repeating down-to-the-wire politically fraught fights each time the U.S. edges toward a fiscal cliff.

“It is critically important for the U.S. to avoid future debt ceiling brinkmanship,” said Jason Fichtner, the Bipartisan Policy Center’s vice president and chief economist.

The organization suggests a framework going forward to align the debt limit with the annual budget process along with an off-ramp to trigger a debt ceiling suspension if the U.S. comes within 60 days of reaching its statutory borrowing limit.

Congress has approved 102 separate adjustments to the debt ceiling since the end of World War II.

The body raised the debt ceiling three times under the Trump administration. Under Biden in December 2021, Congress increased the debt limit by $2.5 trillion to $31.38 trillion.

The U.S. hit its borrowing limit on Jan. 19, triggering the Treasury Department to invoke “extraordinary measures,” or special accounting maneuvers, to continue paying the nation’s bills.

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