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D.C. Download: What you should know about debt limit showdown, and where Nevadans stand

Gabby Birenbaum
Gabby Birenbaum
CongressGovernment
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With Congress off this week, I thought it might be a good time to preview a big topic lawmakers will be taking on this year – the debt limit.

The debt limit affects the entire economy and could jeopardize benefits and federal spending. Its outcome remains unknown.

Let’s get into it.

The debt ceiling fight everybody’s talking about

On Thursday, Treasury Secretary Janet Yellen made it official – the U.S. hit its debt limit.

The Treasury Department can handle it – for now. It’s implementing “extraordinary measures,” shifting money around among agencies and delaying investments to stave off the default date. 

The U.S. has never before defaulted on its debt, and Yellen predicted that the extraordinary measures could last until June. The authority to raise the debt limit – the amount of money the U.S. is permitted to borrow to make payments – lies with Congress, prompting Yellen to ask congressional leadership to either raise or suspend the debt limit.

Here’s what you should know:

Why do we have a debt limit?

The U.S. and Denmark are the only nations to have a debt limit – and ours began on the eve of World War II.

The first federal debt limit was set in 1939 to set a cap of the amount of money the Treasury Department could borrow. (Two decades earlier, Congress had authorized the Treasury to take on debt without congressional approval.) In the decades that followed, Congress raised and lowered the limit as it saw fit, occasionally to try and force a president to decrease spending. 

The first near-default occurred in 1979 when Congress raised the debt limit in the nick of time to prevent such an outcome. The incident spooked House members enough to pass the “Gephardt rule,” for then-House Majority Leader Dick Gephardt (D-MO), which automatically raised the debt limit in concert with new spending. Thus, Congress did not have to go through a separate process to raise the debt limit when new budgetary measures would require it. 

In 1985, when the Treasury first implemented “extraordinary measures” to stave off hitting the limit, Congress again raised the ceiling.

Two protracted fights over the debt ceiling in the ensuing period led to government shutdowns – in 1995-96 and in 2011. Both battles occurred in similar political situations to the one the government is in now: a Democratic president lost the House of Representatives after a midterm election, and House Republicans held a debt limit increase hostage as a means of extracting spending cuts. The 2011 fight included the revocation of the Gephardt rule.

This timeline from the Bipartisan Policy Center provides a helpful overview.

How did we avoid default in 1995 and 2011?

Both episodes involved newly minted Republican majorities using the debt limit as a bargaining chip to force Democratic presidents to cut spending, no matter the consequence.

In 1995, fresh off of the 1994 Republican House takeover that vaulted Newt Gingrich to the speakership, then-President Bill Clinton and Gingrich came to an impasse after Clinton refused to sign Republicans’ spending bill, which included large budget cuts and weakened regulatory authority.

Gingrich deployed a novel idea – refusing to raise the debt limit unless Clinton acquiesced. 

With no deal in place and no budget approved, the government shut down twice from November 1995 to early January 1996. When a budget finally was passed, the debt limit issue remained. But when the treasury secretary said a default was looming in early March and the Moody’s rating agency announced it was considering downgrading the U.S.’ credit rating, Republicans dropped most of their demands.

The deal that Clinton and Gingrich eventually agreed to traded a debt ceiling increase for some regulatory and tax code alterations, and it led to the Balanced Budget Act of 1997, which committed to balancing the federal budget by 2002. (The budget was indeed balanced until the George W. Bush administration, which did away with it after cutting taxes and raising military spending post-9/11. Republicans continually have called for a balanced budget, as recently as this year, and have promised to use the debt limit as leverage to achieve it.)

The second debt limit standoff, in 2011, also occurred after a political sea change in which Republicans took the House on the strength of the anti-government spending tea party movement. It was a bruising political fight, which ended just two days before the Treasury would have defaulted and permanently damaged the U.S.’ credit rating and operations of the federal government.

In April 2011, like now, the Treasury hit the debt ceiling and had to implement extraordinary measures. The default date was set for Aug. 2, 2011. Republicans, led by then-Speaker John Boehner (R-OH), demanded any increase in the debt limit be matched dollar-for-dollar in spending cuts and a constitutional amendment mandating a balanced budget. 

Democrats, meanwhile, sought a “clean” increase, passed with no subsequent cuts, and to protect Medicare and Social Security. As negotiations went on, Democrats proposed increasing taxes in addition to cutting spending, while Republicans dug in on spending cuts. 

The ultimate agreement that Boehner and Obama reached raised the debt limit by $900 million in exchange for $917 million worth of spending cuts over 10 years and established a congressional committee to reduce deficit spending. But an agreement was never reached and the cuts – which only ended two years ago – severely depleted several federal agencies.

The Treasury’s extraordinary measures ended up costing $1.3 billion, and the summer of 2011 proved nightmarish for the economy: a first-ever credit downgrade from S&P and a 2,000-point drop in the Dow Jones.

During the Trump era, the Trump tax cuts and other policies contributed significantly to the national debt. But Republicans and Democrats together passed three debt limit increases during his term.

What is each party’s position on the issue?

The full extent of House Republicans’ position may not be known until the deals Speaker Kevin McCarthy (R-CA) cut with members of the far-right House Freedom Caucus are revealed. But McCarthy has pledged to only raise the debt limit in exchange for spending cuts, a demand of Rep. Ralph Norman (R-S.C.). Some far-right Republicans don’t want any increase, which would necessitate an enormous gutting of federal programs.

Republicans have maintained that the national debt is at an unreasonable level and blame Biden for running up spending. But Democrats counter that Republicans had no issue with the size of the debt when Trump was president and that raising the debt limit does not enable new spending, but rather allows the Treasury to pay debt it has incurred financing existing spending under administrations of both parties. Instead, Biden and congressional Democratic leadership are calling for a clean increase.

“Increasing or suspending the debt limit does not authorize new spending commitments or cost taxpayers money,” Yellen said in her letter. “It simply allows the government to finance existing legal obligations that congresses and presidents of both parties have made in the past.”

One aspect of the deal McCarthy and hardliners made for the speakership is an emergency plan for the Treasury on what to prioritize if the debt limit is not raised. Under the plan, the Treasury should continue to pay its interest on the debt, as well as making payments to the military, to veterans, to Social Security, and to Medicare. But that leaves a whole lot of people who rely on the federal government in a lurch – from Medicaid recipients, to air traffic control, to school lunch, to home and food inspectors, to K-12 funding at low-income schools, to Department of Interior programs across Nevada.

And last week Amodei said Social Security and Medicare deserve scrutiny to curb spending, potentially meaning a change to eligibility requirements.

Democrats, meanwhile, say they have learned the lesson of 2011 and will not commit to spending cuts.

McCarthy and Senate Minority Leader Mitch McConnell (R-KY) say the U.S. will not default. But with both sides entrenched, it’s a distinct possibility.

What happens if we default?

Because it has never happened, no one knows for sure.

If the government cannot borrow, then it will not have all the money it needs to meet its payments. So, Social Security checks, Medicare, Medicaid, military spending, government salaries and a whole host of items that the federal government pays for could be delayed.

According to the Bipartisan Policy Center, credit agencies would likely further downgrade the U.S.’ credit rating, prompting many investors to divest securities that require AAA ratings. Interest rates would likely go up, affecting credit card bills and mortgages. A default could even trigger a recession if negotiations go on long enough. The stock market would likely fall, affecting retirement holdings.

And if the country’s credit rating is downgraded, debt holders could demand larger yields given the instability of U.S. bonds, meaning that the cost of borrowing would increase – further growing the national debt.

What has the Nevada delegation said so far?

None of Nevada’s Democratic representatives were in Congress in 2011. But it sounds like they want to avoid a repeat in which they would be asked to make major concessions. And they laid the blame squarely at the feet of the House majority party.

“Raising the debt ceiling is needed to pay for past obligations, not future spending,” Rep. Dina Titus said in a statement to The Nevada Independent, echoing party leaders. “Defaulting on our national debt would have catastrophic impacts on our economy and our workers. It's shameful that Republicans want to play politics with the full faith and credit of the U.S. in order to cut Social Security and Medicare programs that Southern Nevada seniors rely on.”

In a statement to The Nevada Independent, Sen. Catherine Cortez Masto agreed, noting that Republicans had no trouble raising the debt limit under Trump.

“Far-right Republicans playing politics around the debt limit are threatening to upend our economy so they can try to gut Social Security and Medicare,” Cortez Masto said. “I’m not going to let that happen. To protect workers, small businesses, and Nevada’s economy, we must come together and raise the debt limit, just like Democrats and Republicans did three times under President Trump.”

Barring unprecedented executive action, any deal will have to be bipartisan, given that whatever comes out of the House will need the approval of Senate Democrats and vice versa.

Rep. Susie Lee and Sen. Jacky Rosen, moderates who are mainstays on bipartisanship rankings, called on Republicans to negotiate in good faith.

“If Republican extremists drop the ball, it will be catastrophic for not only the U.S. economy, but global economic stability at large,” Lee said in a statement to The Nevada Independent. “I’m worried, but I’m also optimistic and open to the possibility of common-sense Democrats and Republicans working together on a number of legislative mechanisms to avoid an economic disaster.”

“​​We cannot default on our debt,” Rosen said in a statement to The Nevada Independent. “We have a bipartisan responsibility to work towards reducing our nation’s debt by reining in wasteful spending and asking the biggest corporations and ultra-wealthy to pay their fair share, but jeopardizing the full faith and credit of the United States is unacceptable.”

Amodei, meanwhile, told me in early January that he would look forward to a debt limit vote, and has continually stated he wants to cut “wasteful spending and establish a fiscally responsible budget,” as he said in a statement when he was named as an appropriations cardinal. 

Last week, he said Republicans must show political courage by reforming Social Security and Medicare to bring costs down. With Democratic control of the Senate and the White House, using the debt limit as a cudgel, is the party’s best opportunity to do that.

Rosen asks NPS for a new Lake Mead plan

As the National Park Service (NPS) devises a strategy to manage declining water levels at Lake Mead, Rosen is asking the agency to drop one idea from its proposal – permanently closing the lake’s boat launches.

NPS released the Lake Mead National Recreation Sustainable Low Water Access Plan in November, with a number of proposals for boating and commercial activity on the lake in light of the Bureau of Reclamation’s alarming finding that Lake Mead’s water level has dropped more than 100 feet since 2010. 

The declining water level has significantly affected boating on the lake. Only one of the lake’s seven launch ramps – Hemenway Harbor outside of Boulder City — was operable last summer. The bureau projects summer 2023 to be similar to summer 2022 and that the water level will continue to drop.

NPS’ plan focuses on five launch ramps. Between “rapidly declining” water levels and Lake Mead’s popularity – it’s the fifth-most visited national park – NPS says the visitor experience is diminishing in quality, which also affects concessionaires at the launches and strains small businesses and water infrastructure. 

The agency has proposed three management concepts – maintaining the status quo, a middle option that involves some ramp relocation and discontinuing some concessions, or a third option to close concessions at facilities at the launches and neither extend or relocate the boat launches, essentially allowing their closure as water levels remain low.

It’s the third option that Rosen says cannot go forward.

While she said she understands the need to accommodate for the unprecedented drought, shuttering the majority of the boat launches is too detrimental to the tourism economy of Lake Mead.

“Concept 3 is not a solution, but rather will greatly reduce recreation and visitation and shut the doors of small businesses in southern Nevada, depleting critical revenue streams for local economies,” Rosen wrote in a letter to NPS director Charles Sams III.

The NPS estimates 20 percent of the 7.6 million annual visitors to Lake Mead use the boat launches.

Rosen said she has heard from nearly 600 constituents concerned about the future of the boat launches. NPS, which held four public meetings on the proposal in December, has extended the comment period to Jan. 22.

Around the Capitol

  • Amodei was officially named the chair of the House Appropriations legislative branch subcommittee, making him an appropriations cardinal. Amodei is only the third Nevadan to achieve cardinal status and the first in this century.
  • Rosen wrote to the Small Business Administration Administrator Isabel Guzman requesting the SBA to open a Veteran Business Outreach Center in Nevada. There are 22 of these entrepreneurial resource centers across the country, but none in Nevada, where a quarter of a million veterans live.
  • Titus re-introduced the Closing the Bump Stock Loophole Act to federally ban bump stocks such as the one used in the 2017 Las Vegas mass shooting. She has introduced the bill every session since the shooting. It passed the House last year, but was left out of the Senate’s gun deal.
  • Cortez Masto announced that $57 million in wildfire management funds from the Bipartisan Infrastructure Law and the Inflation Reduction Act will go to Nevada, targeting the Sierra and Elko fronts.

Notable and Quotable

“This is not a political football.”

  • Rep. Susie Lee, on the debt ceiling

REP. DINA TITUS

Legislation sponsored:

H.R. 396 – To regulate bump stocks in the same manner as machine guns

Legislation co-sponsored:

H.Res.42 – Expressing the sense of the House of Representatives that the Citizens' Stamp Advisory Committee, as an entity of the United States Postal Service, should issue a commemorative stamp in honor of Congressman Elijah E. Cummings.

REP. STEVEN HORSFORD

Legislation co-sponsored:

H.Res.42 – Expressing the sense of the House of Representatives that the Citizens' Stamp Advisory Committee, as an entity of the United States Postal Service, should issue a commemorative stamp in honor of Congressman Elijah E. Cummings.

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