Republicans begrudgingly agreed to higher tax rates for the wealthy in the fiscal cliff deal, so now they plan to fight harder to get their way with spending cuts by using a major economic concern as leverage: the U.S. debt ceiling.
The federal government officially surpassed the $16.4 trillion debt ceiling on Dec. 31 but accounting tricks will keep the government functioning for about two months, to the end of February. That's when Washington will have to raise the limit or it will see a repeat of the debt ceiling crisis the country endured in the summer of 2011.
This is where the GOP sees a major opportunity.
In order to force Democrats to approve more drastic spending cuts, Republicans will threaten to deny raising the U.S. debt ceiling, no matter how high the immediate cost to the U.S. economy.
"Our opportunity here is on the debt ceiling," Sen. Pat Toomey, R-PA, said on MSNBC after thefiscal cliff deal was reached. "We Republicans need to be willing to tolerate a temporary, partial government shutdown, which is what that could mean."
But that strategy might not work out as planned.
The President's Debt Ceiling Warning
U.S. President Barack Obama already has warned that using the U.S. debt ceiling is off limits as a negotiation tactic for spending cuts.
"While I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they've already racked up through the laws that they passed," the president said last week.
President Obama said Congress needs to raise the limit, period.
He even proposed after the election to change the debt limit so that it would increase automatically, but backed off that plan during the heated fiscal cliff talks.
Republicans assume President Obama will change his position on the U.S. debt ceiling because in the fiscal cliff negotiations he backed off the $250,000 income level floor that had become a campaign speech staple. Instead he agreed that only those who make $400,000 and up would be hit with higher tax rates.
Republicans are also confident they'll get spending cuts to match any increase in the U.S. debt ceiling.
But President Obama is likely to confound the GOP by requesting further tax increases, though in the guise of tax reform.
"Cutting spending has to go hand in hand with further reforms to our tax code, so that the wealthiest corporations and individuals can't take advantage of loopholes and deductions that aren't available to most Americans," President Obama said after he signed the fiscal cliff bill.
Such a proposal will put Republicans in a tough spot, as they had suggested similar ideas as an alternative to the tax hikes that ultimately made it into the fiscal cliff deal.
The Danger in the GOP Debt Ceiling Plan
Some Republicans feel so strongly about getting spending cuts and entitlement reform in the next round of negotiations, they're willing to live with the consequences of failing to raise the U.S. debt ceiling.
In an op-ed article for the Houston Chronicle, Sen. John Cornyn, R-TX, suggested the nation might be better served by a partial government shutdown "to secure the long-term fiscal well-being of our country,rather than plod along the path of Greece, Italy and Spain."
In addition to the risks that failing to raise the U.S. debt ceiling would incur – mainly, major damage to the country's creditworthiness – the GOP has to worry that President Obama would use the power of his office to pin all the blame on them for the fallout.
During one fiscal cliff meeting, President Obama explicitly threatened to use his bully pulpit to paint Republicans as the scapegoats if they failed to compromise.
The opposing expectations set up a battle for the end of February that could prove even uglier than the one we just witnessed, featuring the unresolved parts of the fiscal cliff fused with another crisis over raising the U.S. debt ceiling.
"Either Republicans are right that they won't budge on taxes again and the White House will fold on the debt ceiling in a few months or Democrats are right that Republicans will move on taxes after finding the White House resolute on the debt ceiling," writes Ezra Klein in his Washington Post Wonkblog. "The third possibility, of course, is that both sides are wrong, and we actually do break through the debt ceiling, unleashing economic chaos."
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.