Republicans Split on Debt-Ceiling Approach

January 16, 2013

The Wall Street Journal

Patrick O'Connor and Janet Hook

WASHINGTON—House Republican leaders are still unsure whether they should use a debt-ceiling deadline to force a decisive showdown with President Barack Obama over government spending.

Party leaders, who didn't coalesce around a specific strategy when they met this week in Warrenton, Va., will offer rank-and-file members a menu of options for achieving spending cuts at a three-day retreat in Williamsburg, Va., beginning Wednesday.

Many of the leaders are anxious about a growing clamor among conservatives to use the need to raise the government's $16.4 trillion debt limit as the vehicle to force spending cuts, according to leadership aides.

Some GOP lawmakers, who worry about the economic impact of the government's possibly missing some payments, would prefer to use other coming fiscal deadlines to wage the battle.

The Treasury Department estimates the government will hit the limit sometime between mid-February and early March, leaving it without enough cash to pay all its bills. The White House has warned repeatedly that missing any payments—such as those owed to Social Security recipients, vendors or veterans—could trigger another financial crisis and recession.

House Speaker John Boehner and his lieutenants have said they want to exact $1 in spending cuts for every $1 in increased borrowing authority they agree to. Mr. Obama has said he won't negotiate over the debt ceiling, saying it is up to Congress to make sure the government can pay its bills.

The debt ceiling is the first in a series of deadlines that will test GOP leaders' ability to bridge party divisions. Automatic spending cuts are set to begin on March 1. And a failure to renew appropriations that run out on March 27 could trigger a partial government shutdown.

Some conservatives are eager to use the debt ceiling as leverage. They reject the idea that hitting the borrowing limit would disrupt financial markets because the Treasury would have enough revenue to make interest payments on its debt. "We do not default by bumping up against the debt ceiling," said Rep. Mick Mulvaney (R., S.C.), a vocal member of the class of 2010, expressing a view shared by many of his colleagues.

A major credit-rating firm offered a skeptical appraisal of this approach on Tuesday. Fitch Ratings warned it would likely downgrade U.S. government debt if the Treasury misses payments on any of its obligations—including Social Security checks, veterans' benefits or contractors' bills—even if it continued to make timely payments on the debt.

Fitch also said it likely would downgrade U.S. debt later this year if Congress and the White House don't agree to a medium-term deficit-reduction plan.

Some Republicans are queasy about such a hard-line approach. Rep. Charlie Dent of Pennsylvania said he would rather use the March 1 spending cuts to pressure Mr. Obama to offer concessions in exchange for softening the impact of those across-the-board cuts. "It's a better bargaining chip than the debt ceiling," said Mr. Dent, who believes not raising the debt ceiling or causing a shutdown would become "enormously disruptive to the government."

One strategy being considered by House GOP leaders would raise the debt ceiling for a short period, possibly one to three months. Under this scenario, Republicans could force a temporary shutdown of the federal government by failing to meet the March 27 deadline to pass another stopgap spending measure to fund federal agencies. They would agree to pass the measure only in return for new spending cuts.

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