With Congress barreling toward the end-of-year deadline for the so-called “fiscal cliff,” the package of automatic spending cuts and tax increases that will hit at the start of 2013, another potentially damaging deadline is fast approaching. The government will reach its borrowing limit sometime early in 2013, meaning Obama will have to again ask Congress to raise the debt ceiling.
The fiscal cliff is itself a creation of the gridlock caused by last August’s debt ceiling impasse, when Republicans demanded massive spending cuts in exchange for a debt limit increase but would not accede to Democratic demands for new revenues in any grand debt deal. And while Obama is seeking a clean debt limit increase, like those that were standard procedure before 2011, Republicans are already talking about the leverage they will have to create another spending fight:
STEVE DOOCY (host): The good news for the Republicans is that the looming raising the debt ceiling talks, that’s just around the corner. You guys obviously have the upper hand on that.
THUNE: I think we have — we do have some leverage with the debt ceiling increase. More than we do right now because right now, he’s got the cards. If nothing happens, if congress doesn’t act, taxes go up automatically. The debt ceiling at least requires congress to take action. What we’re told is the president is even thinking about what he might be able to do to raise the debt ceiling without going through congress, which would be a huge mistake.
Thune is right: the debt limit gives congressional Republicans more leverage because it requires action, something the GOP has largely been unwilling to take. And House Speaker John Boehner (R-OH) has already indicated that the GOP plans to use that leverage by demanding more spending cuts. But by using that leverage, Republicans risk a repeat of 2011, when a possible default caused significant economic pain. Scott Lilly from the Center for American Progress estimated that the debt limit fight cost the economy a million jobs, and monthly job growth was cut in half during the three-month struggle. Earlier this year, economists Justin Wolfers and Betsey Stevenson wrote that “employment is likely still below where it would otherwise have been” had we had a clean debt limit increase.
The real economic damage, though, could come from the GOP’s insistence on spending cuts. A new report from the International Monetary Fund found that spending cuts during downturns and slow recoveries will hurt economic growth, costing the U.S. $1.80 in activity for every dollar in spending cuts.