House debt vote previews coming food fight on U.S. borrowing limit
(CNN) — Previewing the partisan food fight coming this fall over raising the debt ceiling, the House passed legislation on Thursday allowing the Treasury to pay U.S. bond holders if the nation hits its borrowing limit.
But the vote doesn't move Congress any closer to a deal to address the nation's fiscal situation -- it just exposes the bitter divide between the political parties.
The House approved the GOP bill, 221-207, along party lines, with no Democrats voting for it and eight Republicans opposed.
Technically, the limit on federal borrowing will be reached later this month. But because the Treasury can take measures to continue getting loans, most congressional leaders don't expect the debt ceiling to be reached until sometime between September and October.
Economists say continued fiscal uncertainty in Washington over spending, deficits, overall debt, and the now more frequent haggles over raising the debt ceiling, now over $16 trillion, could sap confidence in U.S. economic recovery and slow growth.
Potential negative effects of continued federal borrowing are magnified in the absence of meaningful deficit reduction, experts say, although they acknowledge that defaulting on debt payments is not an option.
One Wall Street ratings house, Standard & Poor's, cut the gold-plated U.S. credit rating on long term debt when negotiations on raising the debt ceiling went down to the wire in 2011 and rattled markets. Another agency, Fitch, warned in January a that a similar downgrade was possible unless Washington got its fiscal house in order.
Lower credit ratings on debt could potentially impact financial markets and threaten to increase borrowing costs for consumers although interest rates currently are at or near historic lows.
California Republican Tom McClintock, the sponsor of the so-called "debt prioritization" bill, said Wednesday his proposal "makes perfect sense -- as a practical matter, a family that's depending on its credit cards to pay its bills had better make sure to pay the credit card bills first. "
But House Democrats slammed the measure and dubbed it the "Pay China first," bill, saying it puts Chinese banks ahead of the U.S. military and others which wouldn't paid if the nation couldn't borrow any more money.
House Speaker John Boehner essentially verified the Democrats' analysis in an interview with Bloomberg TV earlier this week.
"Those who have loaned us money, like in any other proceeding, if you will, court proceeding, the bond holders usually get paid first. Same thing here," Boehner said.
House GOP aides conceded the measure had virtually no chance of moving forward in the Democratic-led Senate, and the White House already promised to veto it if it came to President Barack Obama's desk.
Gene Sperling, a top economic adviser to Obama, said this week that the president was stepping up efforts to reach out to congressional Republicans to create conditions for a serious bipartisan agreement addressing the nation's fiscal situation, but warned the GOP needed to be willing to compromise.
"But, you know, again it takes two to tango," he said at an appearance at the Pete Peterson Fiscal Summit.
Republican leaders promised they would hold the vote after a push from a bloc of conservatives who wanted to go on record now.
These aides said this vote demonstrated that the GOP was addressing the issue, and could point to it if negotiations and talk about default go all the way up until the deadline.
Democrats maintained Republicans were just playing politics with the nation's credit rating.
"This issue, this legislation is being driven by very narrow bunch on the other side with radical governing philosophy which basically says I hate my government so much that I'm willing to jeopardize the full faith and credit of the United States and bring this economy down until we get our way," Wisconsin Democrat Ron Kind said
Arkansas Republican Tim Griffin argued on the House floor that GOP was the only party concerned about burgeoning federal deficits.
"We are the ones that are trying to get Washington spending under control so it can live within its means." He called the bill "a backstop that takes default off the table," Griffin said.
This week's House debate served as the opening round of several months of wrangling, both inside the House Republican conference, and with congressional Democrats and the White House over what legislation can pass the divided Congress that will raise the nation's debt limit.
The last debt ceiling debate in the summer of 2011 was an exceedingly messy process, and starkly illustrated the partisan divide infecting Washington.
Boehner met directly with Obama over months, but failed to reach a deal on comprehensive deficit reduction. Both parties were left scrambling to get votes on a last-minute compromise that left both sides unhappy and kicked the can down the road.
Many House conservatives opposed that deal and criticized Boehner for "backroom negotiations" that left them out of the process.
To prove they are listening to their members House GOP leaders have scheduled a special meeting for next Wednesday just to talk about the way forward on the debt limit.
The two-hour open-mike-style meeting in the Capitol basement will be a chance, according to one House Republican aide, "touch gloves" and demonstrate that all ideas will be explored.
Given the political needle Boehner and other top leaders need to thread on the issue, it's likely this session will be the first of many over the next several months.
Conservatives insist they want additional spending cuts to federal programs without any increases in taxes if they agree to increase the country's borrowing authority.
With $85 billion in sweeping forced spending cuts from the 2011 debt deal now in effect, congressional negotiators know there is very little room left to cut discretionary programs.
Both sides know the only way to get bipartisan deal involves the GOP giving ceding on some revenue return for Democrats agreeing to significant changes to entitlement programs like Social Security and Medicare.
But for now, House Republicans are simply focused on an internal strategy. One idea is to link the debt ceiling vote with an overhaul of the tax code, a big priority for the GOP.
"We're open to any avenue that leads to tax reform," Sage Eastman, a top aide to Rep Dave Camp, R-Michigan, who chairs the House tax writing panel.
It's unclear how workable linking fights over popular tax deductions to an already politically complicated issue could happen in a short time frame.
While not quite endorsing that idea, Boehner alluded to that concept of dealing with both issues it at his weekly press conference when asked about how the GOP will approach the debt ceiling fight.
"We also know we can't cut our way to prosperity. We need real economic growth. And that's why you continue to hear a lot of discussion about tax reform, regulatory reform, that would help us produce more economic growth here in our country. We do both, we can begin to solve this problem," Boehner said.
Several House GOP aides say there are other ideas to round up Republican votes, such as attaching the debt ceiling vote to another "must pass" bill like the next continuing resolution to fund the government.
Another option is to combine it with legislation to allow the construction of the Keystone pipeline, an initiative pushed by Republicans that has become an environmental and political flashpoint with the Obama administration.
As is custom on Capitol Hill, it's unlikely the outlines of any potential compromise will emerge until right before the deadline this fall.
But House Republicans are considering a vote on their own plan as early as July because they know Obama and congressional Democrats will want to use the August summer recess to shape the public debate and pressure them to agree to some new tax increases.