Debt Limit Deep Dive

Even with President Biden in Europe offering support to Ukraine and Congress in recess, the debt limit still managed to make news last week with the Bipartisan Policy Center’s release of its guestimate that the default date could happen as soon as June.

Debt limit fights have occasionally been ugly affairs, especially with a Democratic White House and Republicans in control of one or both chambers of Congress. However, no matter how ugly these battles have gotten and how many times we have walked right up to the edge of default, both parties ultimately decided it didn’t make sense to jump and a deal was struck. 

And while the debt limit crisis looming this summer may well play out this way as well, there are a number of features about the current situation that could make it harder to reach an agreement this time around:

  • No clear Republican consensus yet on their “ask”– and their many often conflicting points of view make it harder to get one.  
  • The Republican party has shifted right, and extremely narrow Republican margins in the House leave the speaker little ability to make concessions that anger his base.
  • The Democratic party has shifted left, and their thin margin in the Senate leaves Biden less room to tilt toward the middle.
  • More Republicans believe Treasury can technically “manage” default through prioritization and this process is a legitimate tool to cut wasteful spending.  
  • Partisanship is worse now than previous debt limit fights, and compromising is more difficult since the primary rather than the general election represents the greatest threat.
  • Lessons from previous debt limit battles are not helpful to resolution this time:  Democrats’ takeaway with Obama was no negotiations on debt limit and Republicans takeaway is voters’ focus shifts away to other issues over time.

All of these reasons add up to perhaps the most difficult negotiating environment we have seen for the debt limit in modern times—and are a major reason why it is harder to rule out the possibility a deal will not get done before Treasury runs out of money.

At a minimum we will see more than the usual chaos and confusion and perhaps multiple deadlines.