Dec. 3, 2021. Remember that date.
That’s the new deadline Congress has given itself to pass the federal budget and avoid a government shutdown and to raise or suspend the debt ceiling and avoid the country’s defaulting on its borrowing obligations. It’s a big one.
The House and Senate narrowly avoided a default and shutdown this month before ultimately agreeing to kick the can down the road for another six weeks with temporary agreements meant to buy leadership more time to negotiate. The debt ceiling fix, which increases the statutory limit by $480 billion, passed the Senate Thursday evening and will now go to the House, where it is also expected to pass. But disagreements between progressive and centrist Democrats over the budget still loom large, and Republicans, led by Senate Minority Leader Mitch McConnell, still refuse to agree to a more permanent debt ceiling solution, leaving Democrats to try to pass an extension through the arduous reconciliation process, which requires all 50 of the party’s votes in the Senate.
Democrats, meanwhile, still insist that they will not use reconciliation to pass the extension. “If you project doing that every year, or whenever it comes due, it is madness,” Senate Majority Whip Dick Durbin, (D-Ill.) told reporters Thursday. “It is a long-term procedural mess. And it was never designed for the debt ceiling. And I hope that Senator McConnell will come to his senses.”
Lawmakers will have to complete both of these tasks and also negotiate the dual $1.2 trillion and $3.5 trillion infrastructure budget proposals that make up President Joe Biden’s Build Back Better agenda. Democrats have given themselves an Oct. 31 deadline to pass the plans. But Democratic holdouts, Senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona, still believe the price tag for the second bill is too high, and progressives refuse to pass the bipartisan infrastructure deal without the larger reconciliation deal.
The Senate has just 25 days left in session until Dec. 3—and the House and Senate break for the year on Dec. 10—giving them very little leeway to pass the bills. These complicated maneuvers will all take place as the 2022 midterm elections draw near, giving Republicans an increased incentive to block any significant Democratic legislation.
This year-end pileup threatens to ruin the holidays for legislators—and if they can’t get it taken care of, for millions of Americans as well.
If the U.S. were to default on its debts, nearly 6 million jobs would be lost, the unemployment rate would spike to nearly 9%, and stock prices would fall by one-third, quickly erasing $15 trillion in household wealth, according to Moody’s Analytics. A Christmas present worse than socks.
Stocks and short-term government debt rallied this week on the news of a deal, but investors are signaling that they’re not so sure anything will get done by the new deadline, and are selling Treasury bills maturing in December. Bills due on Dec. 15 saw yields jump to 0.08%, up from 0.05% the day before. By Friday, growth had evened once again, at 0.04% (Yields grow as bond prices fall.)
“The entrenched positions of both sides suggest the deal to suspend the debt ceiling until December may only delay rather than avert a crisis,” Andrew Hunter, senior U.S. economist at Capital Economics told the Financial Times. “With Republicans unlikely to offer any help beyond that, and the Democrats still insisting that they won’t use reconciliation to enact a longer-lasting debt limit increase themselves, there is a good chance we will end up in the same situation in six weeks’ time.”
Democratic senators began posturing this week for a potential fiscal cliff crisis in December, pushing blame on Republicans.
“We are willing to take this offer in order to stave off fiscal ruin,” Sen. Christopher Murphy (D-Conn.) said. “But we are all beside ourselves that the only thing Republicans are willing to do is prevent disaster for three months and put us right back in this position.”
Still, some senators remain confident that they can get the job done. “Around here, two months is a lifetime,” said Sen. Bernie Sanders, Independent of Vermont and the chairman of the Budget Committee. “We’re going to pay our debts. We have two months to figure it out.”
McConnell, meanwhile, has suggested that if Democrats end their focus on President Joe Biden’s Build Back Better economic plan, he’ll be more willing to participate in raising the debt ceiling and passing a budget to avoid a shutdown.
“If Democrats abandon their efforts to ram through another historically reckless taxing and spending spree that will hurt families and help China,” McConnell wrote, “a more traditional bipartisan governing conversation could be possible.”
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