Legislative Update

On Thursday (October 7), the Senate passed a temporary debt ceiling increase of $480 billion.  The temporary increase has moved the deadline for a larger increase to December 3 from October 18.  December 3 is also the date on which the recently passed continuing resolution to fund the federal government expires. Failure to increase the debt ceiling before the federal government runs out of cash in order to pay its obligations would trigger a default on federal government sovereign debt obligations – something which has never occurred in the history of the republic and which would have catastrophic economic consequences at home and abroad. 

The debt ceiling is distinct from the budget. The debt ceiling is a statutory limit on the amount of money that the federal government can borrow in order to pay existing obligations, it does not authorize new spending.  A continuing resolution is a budgetary mechanism that allows Congress to continue to fund the federal government at prior-year levels for a set period of time. The current continuing resolution was passed on September 30 in order to avoid a government shutdown and provide more time to pass the 12 bills that comprise the federal budget. 

In late August, in response to the Democrat’s pursuit of a $3.5 trillion spending package via the reconciliation process (which allows passage by a simple majority, circumventing the filibuster), 46 Senate Republicans signed a letter indicating that they would not vote to support a debt ceiling increase. Republican leadership argued that since Democrats intended to pass such a large spending package over Republican objections, they should use the reconciliation process and raise the debt ceiling without Republican votes as well.  Democrats argued that raising the debt ceiling was a bipartisan responsibility and pledged that they would not employ reconciliation to do so.  

Since early August, when the debt ceiling was reinstated after a two-year suspension which received bipartisan support at the time, the U.S. Treasury has been employing “extraordinary measures” to meet the obligations of the federal government. According to the Treasury Department such measures include the following: (1) suspending sales of State and Local Government Series Treasury securities; (2) redeeming existing, and suspending new, investments of the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund; (3) suspending reinvestment of the Government Securities Investment Fund; and (4) suspending reinvestment of the Exchange Stabilization Fund. 

As the October 18 deadline approached, neither Republicans nor Democrats appeared to be budging.  Earlier this week, Senate Minority Leader Mitch McConnell (R-Kentucky) agreed to a temporary increase in the debt ceiling. Senator McConnell insists that he agreed to this temporary stopgap only to allow the Democrats the time to pass a larger, longer-term increase in the debt ceiling via the reconciliation process, without Republican votes. A number of Republicans balked at the compromise. Ultimately, McConnell was able to whip Republican 11 votes to allow for cloture on the measure (the 60 votes needed to overcome a filibuster).  The underlying measure then passed by a party-line vote of 50 – 48, with two Republicans abstaining.