During the 35-day government shutdown, the country looked on as American leaders repeatedly rolled the dice with both lives and property on the line. Each time, total disaster was narrowly avoided and Americans breathed a sigh of relief. That respite may be short-lived, however, with more fiscal challenges closing in.
Policymakers now have only days to avoid yet another partial shutdown. And even if Congress and the president hammer out a long-overdue budget deal in the next two weeks, another fiscal fight—with even higher stakes—is on the horizon.
In just under a month, on March 2, the debt limit will be reinstated from its temporary suspension, and if past is prologue, the Treasury secretary will implement so-called “extraordinary measures” to avoid defaulting on the federal government’s obligations. At the Bipartisan Policy Center, we project that those measures will last through at least midsummer. Once they run out, the table is set once again for the high-stakes game that characterized the shutdown, this time with global financial implications.
Last month, we saw the heavy toll a shutdown can take, and the fallout for the U.S. economy from not dealing with the debt ceiling would likely be much higher. Given those risks, you would expect that funding the government and extending the borrowing limit would not be controversial votes. Unfortunately, given recent history, policymakers have been all too willing to take the gamble.
This looks familiar …
In 2011, fresh off a wave election, a resurgent House of Representatives was eager to take on a president of the opposite party. Sound familiar? Intent on reducing federal spending, House Republicans refused to raise the debt limit without concessions from President Obama.
With both sides dug in, the federal government came within days of defaulting on its obligations. Fortunately, a deal was finally struck with the Budget Control Act of 2011, narrowly avoiding the potential for a financial crisis. But the budget battles were just beginning.
There were reprisals of these dangerous fiscal games with the so-called “fiscal cliff” at the end of 2012, debt limit standoffs in 2013 and 2015, and federal shutdowns in 2013 and 2018. More are on the way, and if the status quo holds, this year’s clashes won’t be the last.
Even as they avoided catastrophe, each of these events came with costs. The Congressional Budget Office projects that this year’s partial government shutdown cost the economy $3 billion it will never get back.
The Government Accountability Office and researchers at the Federal Reserve found that even getting close to a federal default on obligations rattles financial markets and costs taxpayers many millions of dollars in additional borrowing costs.
Deweaponizing the debt limit
The best fiscal game is the one not played. Negative impacts from the recent shutdown have rightly spurred discussions in Congress on how to avoid shutdowns in the future.
The Bipartisan Policy Center has a long track record of proposed solutions for our broken budget process. This is an opportune moment to revive the work of the Joint Select Committee on Budget and Appropriations Process Reform, which, despite a valiant effort, was unable to pass consensus recommendations. It is now painfully clear to the American public why such reforms are so necessary. Missing from this conversation, however, is how to avoid an even riskier debt limit standoff.
The House got a head start by implementing a modified version of the Gephardt Rule at the beginning of this Congress’ session, which would automatically suspend the debt limit when the House passes a budget resolution. But without the Senate and the president on board, the Gephardt Rule alone cannot succeed.
Bipartisan reform is possible. As we outlined last year and will continue to detail in the coming months, a successful agreement could deweaponize the debt limit while simultaneously giving space for the important conversations about the federal government’s unsustainable long-term budget path. For the sake of both sensibility and political viability, policymakers will have to deal with these issues together.
Neither the livelihood of federal workers, nor the fate of the global economy, should be bargaining chips in a political game. There are ways to take both shutdowns and debt limit catastrophes off the table, if our leaders are willing to make it happen. In the meantime, here’s hoping they don’t roll snake eyes.