Government Shutdown FY2014: Day 10 — Debt Limit Trumps Shutdown as Most Critical Issue

Government Shutdown FY2014: Day 10 — Debt Limit Trumps Shutdown as Most Critical Issue

On this tenth day of the partial government shutdown, the possibility that the government may be forced to default on its debt next week has taken center stage instead.   House Republicans are proposing a temporary agreement to raise the debt limit.  It would not end the government shutdown and would last for only 6 weeks.  Early indications are that as long as the bill avoids partisan policy issues, the President likely would sign it even though it would do nothing to reopen the government.

President Obama met with all House Democrats yesterday and is meeting with House Republicans today, though Speaker John Boehner (R-OH) declined the President’s request to meet with all House Republicans and instead only 18 will participate in this afternoon’s meeting.

This morning, the House Republican Conference agreed to a new proposal from House Budget Committee Chairman Paul Ryan (R-WI) to raise the debt limit until November 22.   A House vote could occur this afternoon, but not until after the meeting with the President.  Boehner said that the President’s reaction to this proposal will determine what happens next.  The President has been insisting that House Republicans raise the debt limit and reopen government before he will negotiate on issues such as entitlement reform, tax reform, future government spending, and changes to the Affordable Care Act (Obamacare).

“It is our hope that the president will look at this as an opportunity and a good-faith effort on our part to move halfway, halfway to what he’s demanded in order to have these conversations begin,” Boehner said after the House Republican Conference meeting this morning.

The Associated Press quotes White House spokesman Jay Carney as saying early this afternoon that the President “would likely sign” a bill that only increases the debt limit temporarily as long as it does not include “partisan strings,” and cautioning that the White House has not yet seen the House Republican proposal.  The White House apparently is sticking to its guns that it will not negotiate on other issues until the government is reopened, but will be somewhat more flexible in order to avoid a default.

Meanwhile, Senate Democrats are intent on passing a long-term extension to the debt limit.   They want to raise the debt limit by $1 trillion through December 2014, past the mid-term congressional elections that will take place next year.  A vote on that bill is scheduled for Saturday, but whether there are sufficient votes for it to pass is uncertain.  That bill also would not reopen the government.

The current debt limit is $16.7 trillion, which Treasury Department officials say will be reached next week — around October 17.  Treasury Secretary Jacob Lew testified to the Senate Finance Committee this morning listing the “potentially catastrophic impacts” of failing to increase the debt limit, which include “credit market disruptions, a significant loss in the value of the dollar, markedly elevated U.S. interest rates, negative spillover effects to the global economy, and real risk of a financial crisis and recession that could echo the events of 2008 or worse.”

The debt limit is the amount of money the government can borrow to pay bills it already owes.  It does not allow for additional spending.  Spending is permitted through appropriations bills and other laws that provide benefits (often called entitlements) such as Social Security and Medicare.  Republicans and Democrats have been at odds for years over how to reduce the deficit (the difference between how much money the government brings in versus how much it spends).  Republicans want to reduce it only by cutting spending, while Democrats wants a combination of spending cuts and revenue (tax) increases.  The deficit debate is about future spending, however.  The debt limit debate is about paying the bills for laws that Congresses passed and presidents signed in the past.



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