The Real Budget Battle

If you think the undercard bouts have been a tad boring, fear not. The main event is just around the corner, and it promises to be worth the price of admission.

Two months into the 113th Congress, Capitol Hill has featured a discernible lack of drama. The sequester cuts went into effect with barely a whimper. The House is pushing a new continuing resolution that is poised to pass the Senate and become law, thus avoiding a government shutdown in late March. And both parties will soon unveil budget proposals that, predictably, stand no chance of passing both the House and the Senate. This series of small policy battles has lulled Washington to sleep and effectively masked the long, slow windup to the war that started all wars: raising the debt ceiling.

Back in January, House Speaker John Boehner convinced his conference that another knock-down, drag-out fight over the debt limit would be a counterproductive way to start the new Congress, and he asked members to push back the statutory limit on the nation’s borrowing authority until mid-May. In exchange, Boehner agreed to a list of conservative demands, including upholding the sequester, passing a continuing resolution with post-sequester spending levels, and approving a 10-year balanced budget. This agreement put the House GOP leadership on the same page with the conservative rank and file; more important, it allowed leaders to reorder the upcoming spending fights in a way that would strengthen their hand in achieving deficit-reduction goals while avoiding a politically toxic default on the nation’s debt.

The plan has worked to perfection thus far. Republican lawmakers have successfully navigated the early obstacles of the new session by putting one foot in front of the other and focusing on the task at hand. Still, the debt-ceiling battle looms large over Washington. Members raised strategic questions this week at the House Republican Conference meeting, and Boehner assured them that debt-ceiling calculations would begin as soon as work on the continuing resolution is finished, according to one person present.

If Republican leaders are slowly ramping up for the fight, conservative members are champing at the bit. “It’s the single biggest lever of change to fix our entitlement problem,” said Rep. Tim Huelskamp, R-Kan., who voted against the January debt-ceiling agreement. “When we get to the debt deal ... that’s the only time we’re going to potentially do something about mandatory spending.”

Indeed, Republicans hope these negotiations will give them maximum leverage to pressure President Obama—who will likely seek a longer extension of the nation’s borrowing limit—to address the sustainability of programs such as Medicare and Medicaid. If Obama pushes for any substantial debt-ceiling extension, GOP aides say, he can expect Republicans to propose an equally substantial plan to overhaul entitlement programs.

Republicans will also use the debate to highlight the differences between the forthcoming House GOP budget proposal, which emphasizes tax and entitlement reforms, and the Senate Democratic alternative, which will likely rely more on revenue increases. In other words, Republicans will look to contrast the short- and long-term fiscal visions of the two parties. Rep. Jim Jordan, R-Ohio, referred to the debt-limit debate as “the final step” in the GOP’s game plan that was drafted in January. These negotiations, he said, will give Republicans “the chance to implement those policies that ... achieve the savings and make the changes to mandatory law that actually put us on a path to balance in 10 years.”

At the other end of Pennsylvania Avenue, the mission is less obvious, and the questions are more pressing: How big a debt-ceiling deal is Obama aiming for? And what will it cost him?

The president was emphatic earlier this year in refusing to engage on the issue because of the drawn-out negotiations in 2011, which resulted in a historic downgrade of the nation’s debt rating and threw the stock market into a panic. But that position was never truly put to the test, because Republicans decided to save the fight for later.

During his Senate confirmation process to head the Treasury Department, Jacob Lew said he supported Obama’s desire for statutory power to raise the debt ceiling as needed to pay existing obligations, but he also backed giving Congress the power to block such actions. One thing is clear: Lew does not think the administration has tricks up its sleeve to circumvent Congress, so it will have to go to Capitol Hill for an extension of borrowing authority.

“I do not believe the 14th Amendment gives the president the unilateral power to ignore the debt ceiling…. I do not believe the law can or should be used to produce platinum coins for the purpose of ignoring the debt limit,” Lew told Sen. John Cornyn, R-Texas, in a written response during his confirmation last month.

Treasury officials won’t say how large a borrowing increase the White House will request, but observers expect the administration to seek the longest extension it can get. The country will hit the current debt ceiling May 18. Treasury can continue to use about $200 billion worth of extraordinary measures to pay its obligations, which will allow the government to pay its bills until late summer. Lawmakers are privately preparing for the battle to be waged in July and August.

It’s still early, but the battle lines are already being drawn. Conservatives have made it clear they will use the debt-limit debate to pursue their ultimate ideological goal of a 10-year balanced budget. For that to happen, expect Republicans to propose major reforms not only to entitlement programs but also to the tax code. Obama has previously expressed support for both endeavors, albeit smaller in scope. If the president and GOP leaders can agree to reform entitlements and simplify the tax code in exchange for a lengthy extension of the debt ceiling, Washington could finally discover the elusive “grand bargain” it has been searching for.

If not, expect similar speculation this time next year.