“”A bloc of at least eight corn belt Republicans are a hard ‘no’ on” House Speaker Kevin McCarthy’s (R–Calif.) bill to raise the debt ceiling unless proposed cuts to ethanol tax credits are removed from the package, Axios reported Tuesday. That group reportedly includes all four members of Congress who represent Iowa and at least four other Republican lawmakers from other “corn belt” states.
Because Republicans have a slim 222–213 majority in the House, any group of five lawmakers can hold considerable leverage by threatening to vote against a bill.”
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“this is yet another warning about the dangers of creating government subsidies in the first place.
Even though they cost taxpayers billions of dollars every year, federal ethanol subsidies and tax credits are a tiny chunk of the overall federal budget. Yet they are incredibly valuable to the farming communities that reap those benefits—and that vote to elect lawmakers who promise to keep the federal cash flowing. For the members of Congress from Iowa and other Midwestern states, voting to cut those subsidies could be a career-ending move. On the other side, there’s no significant voting block demanding the removal of ethanol subsidies—even though biofuels are expensive, ineffective, and bad for the environment—so the lawmakers more intensely committed to their special interests usually get what they want.”
“The U.S. will default on its $31.4 trillion debt this year if Congress doesn’t raise the nation’s borrowing cap. But when, exactly? That’s harder to answer.
While Congress sets the nation’s annual budget, the Treasury Department actually manages trillions of dollars beyond that, with millions of payments flowing in and out of the government’s accounts each day. And just like an everyday checking account, cash flow varies: Sometimes the government gets a flood of dollars from tax receipts, and other times it needs to pay the bills. Those dips and surges add another wrinkle to a political drama that threatens to tank the global economy.
By this summer or early fall, unless Congress acts before then, the U.S. government will be so cash-strapped it won’t be able to pay interest and principal to the country’s lenders. But before the nation reaches that point of default, it could come alarmingly close several times over the next few months as spending and revenue rise and fall — a fluctuation that could spook Wall Street, escalate pressure on negotiations between congressional leaders and President Joe Biden, and potentially force a short-term fix.”
“Even if McCarthy is able to push his debt limit bill to House approval, the legislation is dead-on-arrival in the Democratic-controlled Senate. Instead, the GOP debt bill is effectively a messaging tool for Republicans in their push for talks with President Joe Biden, who has thus far insisted on a no-strings-attached increase of the debt limit.
The Treasury Department has already been using “extraordinary measures” for months to hold off a default while an unclear “X-date” looms. But there could be more clarity soon: The Congressional Budget office and the Bipartisan Policy Center are planning to release updated projections the second week of May.”
“The US is currently projected to hit its existing debt ceiling sometime in 2023, according to the Bipartisan Policy Center. While raising the ceiling should be relatively straightforward, it’s become a contentious process — and an opportunity for the minority party to extract policy concessions or score political points. Both parties have used debt ceiling increases to their advantage, but Republicans have done so much more frequently in recent years.
In 2011, for example, Republicans balked on suspending the debt limit and refused to move forward until President Barack Obama agreed to key spending cuts, concessions they ultimately secured. The US got so close to default that year, however, that Standard and Poor’s downgraded the country’s credit rating.
Political experts note that this disagreement marked one of the first times it seemed like lawmakers were actually willing to go over the edge, despite the economic chaos that could ensue. Were the US to actually default, that would likely downgrade the dollar and lead to a recession.
While a default has never happened, Republicans’ behavior in 2011 — and their current rhetoric — suggests that they’re more open to the possibility and taking such fights to that point.
Democrats, including in the White House, are reportedly considering preempting this worst-case scenario by tackling the debt ceiling this winter, according to Axios. The White House has denied that such conversations are happening.
There are also still questions about what a debt ceiling bill could look like. While some lawmakers including Sen. Jeanne Shaheen (D-NH), and a group of prominent House Democrats, have expressed support for doing away with the debt ceiling altogether, others, like Biden and Sen. Bernie Sanders (I-VT), have opposed taking this route. That’s likely because such talks still offer an opportunity to evaluate spending, and because it could be a useful tool for Democrats should the GOP hold the White House and Congress.
In lieu of getting rid of the debt limit altogether, there’s been growing pressure on Democrats to consider increasing it to such a high value that there isn’t likely to be a standoff over the issue in the short term.”
“The idea of a “limit” or “ceiling” on the public debt sounds like an important constraint on borrowing, the kind of thing the Constitution demands to keep a runaway White House in check. In reality, it’s a 20th century innovation, originally intended to give more, not less, authority to the president. A measure born of necessity during World War I and World War II to allow the Wilson and Roosevelt administrations greater leeway in financing government operations has evolved into a partisan noose.
Understanding the origins of the debt limit places into sharp focus how radical its current weaponization really is.
The U.S. government has always borrowed money to finance its operations. The total amount of outstanding debt hovered below $100 million in the years prior to 1860 but rose to over $2.7 billion during the Civil War. By the end of the 19th century, it stood at roughly $2 billion, a figure that more or less remained steady until World War I, when military mobilization necessitated a wave of borrowing, causing the national debt to balloon to $27 billion.
Less important than how much the government owed was the mechanism by which it raised debt. Prior to World War I, Congress authorized specific debt issuances. During the Civil War the legislative branch passed several bills permitting the Treasury Department to sell bonds at specific maturities and coupons. One popular issuance were 5-and-20s, which paid 6 percent annual interest over a 20-year maturity date, with an option allowing the government to redeem the face value after five years. Hundreds of thousands of Northern citizens purchased the government paper in a show of patriotic fervor. Generally speaking, new debt authorizations were earmarked for specific purposes — for instance, Panama Canal bonds, which could be used only to finance construction of the historic commercial passageway between the Atlantic and Pacific Oceans.
Until World War I, the Treasury Department enjoyed little leeway in rolling over or consolidating existing issuances, devising the terms of new debt offerings or moving funds between one committed stream and another. Congress largely dictated the terms; the Treasury Department’s principal role was to market and administer public debt instruments. This disparate system worked well enough when government borrowing remained at modest levels, but during World War I, the sharp spike in borrowing and spending made the old system impractical. The Wilson administration needed flexibility to raise and commit money for war production. In response to this reality, Congress for the first time set aggregate levels of debt financing and granted the Treasury Department more freedom to move money where it was needed. It was the origin of what we know today as the debt ceiling, though specific issuances — for instance, Liberty Loans — still retained their own statutory limits.
Beginning in 1941 the system evolved further, when Congress passed the first of a series of Public Debt Acts that both raised (on several occasions) the overall debt ceiling and consolidated all borrowing authority under the Treasury Department. Going forward, different departments and agencies borrowed what they needed from Treasury, which in turn issued, managed and marketed debt within the statutory limit. It’s effectively how things work today. “