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Boyle (Bill Clark\/CQ Roll Call file photo)<\/p>\n\u200bA grim new milestone for U.S. debt and surging interest rates haven\u2019t sparked much urgency for a new round of deficit cutting on Capitol Hill. Yet.<\/p>\n
But with federal debt topping $40 trillion for the first time last month, lawmakers will likely have to lift the $41.1 trillion statutory debt ceiling within the next year or so. That task usually involves a debate over\u00a0curbing deficits, even if the default in recent years has been to do little to nothing.<\/p>\n
Some Republicans have floated raising the debt limit as soon as the post-election lame-duck session through budget reconciliation, a hard-enough lift even at a simple-majority vote threshold. A flip in party control of either chamber in November effectively removes reconciliation as a tool lawmakers can use next year for a debt-limit bill that wouldn\u2019t require 60 Senate votes.<\/p>\n
That would leave a bipartisan agreement as the only path forward short of eliminating the legislative filibuster, which so far neither party has shown an appetite for. But with few exceptions, both parties have generally retreated to familiar talking points only palatable to their own sides when it comes to cutting deficits.<\/p>\n
For Republicans, it\u2019s spending cuts without touching Medicare and Social Security benefits; for Democrats, it\u2019s raising taxes and increasing spending\u00a0\u2014 except for defense, which many in that party believe should be cut.<\/p>\n
Both sides have become \u201cpopulist parties,\u201d former Speaker Paul D. Ryan, R-Wis., said Thursday on CNBC. \u201cAnd populists believe things like debt reduction, entitlement reform is unpopular. Therefore we don\u2019t have anything close to the politics we need to get this stuff done.\u201d<\/p>\n
Debt limit \u2018weapon\u2019<\/p>\n
The most bipartisan idea when it comes to the debt limit may be to remove it completely as a leverage point, given the economic fallout that could ensue if Congress doesn\u2019t act in time to raise or waive the ceiling.<\/p>\n
Breaching the limit would mean massive, immediate spending cuts and unpaid interest on the debt\u00a0\u2014 which would be perceived by much of the world as an unprecedented \u201cdefault\u201d on U.S. obligations, making it harder to borrow in the future. Stock markets could crash.<\/p>\n
President Donald Trump as well as top Democrats have mused about eliminating the debt limit altogether or at least giving it a radical makeover.\u00a0<\/p>\n
The top Democrats on the House and Senate Budget panels introduced bills last year that would allow the Treasury secretary to suspend the debt limit for up to two years at a time unless Congress clears\u00a0\u2014 and the president signs\u00a0\u2014 a filibuster-proof joint resolution of disapproval.<\/p>\n
In an interview, House Budget ranking member Brendan F. Boyle, D-Pa., who\u2019s in line to chair that committee if Democrats take control in the midterms, said he\u2019d insist on his proposal or similar as part of any debt-limit increase.<\/p>\n
Boyle (Bill Clark\/CQ Roll Call file photo)<\/p>\n
\u201cAt the very least we need to make sure that we take this powerful weapon permanently off the table,\u201d Boyle said, citing past debt-ceiling episodes where Republicans tried to extract big spending cuts as their price for raising the cap.\u00a0<\/p>\n
\u201cI\u2019m not going to just vote for a temporary \u2026 extension so that then the next time there\u2019s a Democrat in the White House, Republicans can again cynically use the debt ceiling,\u201d he said.<\/p>\n
Unwelcome records<\/p>\n
The current $40.1 trillion national debt includes about $7.7 trillion held in trust funds for Social Security, Medicare and other government programs. It also includes about $4.6 trillion in debt held by the Federal Reserve.<\/p>\n
The remaining $27.8 trillion is held by private and foreign creditors, reflecting the portion most exposed to interest-rate risk from a potential selloff. That number is equal to about 86 percent of the U.S. economy, and is projected to hit 100 percent within a decade, breaking the World War II-era record.<\/p>\n
Net interest paid on that debt, already more expensive than national defense, is projected to top $1 trillion this year, eating up nearly 19 percent of federal tax revenue, also a record. The Congressional Budget Office says those figures will hit $2 trillion and 25 percent within a decade.\u00a0<\/p>\n
And current CBO estimates are from February, before the Iran war and higher oil prices sparked more inflation generally. Higher prices drive bond yields up as fixed-income investors demand inflation-adjusted returns.<\/p>\n
Other factors have driven up interest rates, including demand for corporate bonds to finance data centers and concerns about the Fed\u2019s willingness to combat inflation. But a key element is an unsustainable U.S. fiscal trajectory, according to Ryan Kimmel, an asset allocation strategist at fund manager DoubleLine Capital in Los Angeles.<\/p>\n
The combination drove the 30-year Treasury bond rate to 5.3 percent in mid-August, highest in nearly two decades, while 10-year and 3-month debt is trading at yields well above CBO expectations.<\/p>\n
\u201cIf you change any of those assumptions like higher interest rates \u2026 you could get into scenarios where you\u2019re seeing like a third of tax revenue going to debt service costs,\u201d Kimmel said. \u201cAnd you can get yourself into this negative feedback loop where a smaller and smaller share of your tax revenues are going towards discretionary and other mandatory spending.\u201d<\/p>\n
Meanwhile, by 2034 the Social Security and Medicare trust funds are projected to run out of money to pay full benefits, with the program\u2019s actuaries predicting steep Social Security cuts as soon as 2032 if Congress doesn\u2019t act.<\/p>\n
The worsening fiscal outlook isn\u2019t new. But the accumulation of debt and higher interest rates are \u201cstarting to scare people,\u201d said Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget.<\/p>\n
\u201cI think it is making a difference in how people are thinking and talking about this,\u201d he said.<\/p>\n
Rep. Lloyd K. Smucker, a top candidate to lead House Budget Republicans in the next Congress, cited bond market \u201cturmoil\u201d as a reason lawmakers should slow the growth of debt when raising the borrowing ceiling.<\/p>\n
\u201cI think more and more people are realizing that it\u2019s just simply unsustainable going forward,\u201d Smucker, R-Pa., said.<\/p>\n
Boyle agrees, though he blames it primarily on GOP tax cuts dating back to the George W. Bush administration.<\/p>\n
For now, the bond market is taking increased debt \u201cin stride,\u201d Kimmel said, compared with the 1990s when interest rates were generally much higher and creditors forced lawmakers into several major deficit-reduction deals.\u00a0<\/p>\n
\u2018Extraordinary measures\u2019<\/p>\n
Congress last raised the debt limit little more than a year ago, by $5 trillion in the 2025 reconciliation law.\u00a0<\/p>\n
Once the new $41.1 trillion cap is reached, the Treasury Department can typically buy at least a few extra months by deploying emergency cash and \u201cextraordinary measures\u201d like suspending certain trust fund investments.<\/p>\n
Since the CBO\u2019s February forecast, federal revenue has been coming in below expectations after the Supreme Court ruled that broad uses of the president\u2019s executive powers to levy tariffs were illegal.<\/p>\n
Lou Crandall, chief economist at investment adviser Wrightson ICAP, in a \u201cvery much off-the-cuff\u201d guess, projects the debt could hit the limit around February or March with the \u201cx-date\u201d falling in late 2027 or early 2028.<\/p>\n
Trump has called on lawmakers to raise the debt limit before the end of this year, punting the next x-date until at least after he leaves office.<\/p>\n
But Republicans\u2019 \u201creconciliation 3.0\u201d effort does not include the debt limit, as GOP leaders want to keep the package\u00a0narrowly focused and limit defections. There\u2019s talk of a lame-duck \u201creconciliation 4.0\u201d package which could include the debt ceiling, though that would be an even heavier lift.<\/p>\n
After the elections, some Republicans will be retiring, and others may lose and blame their loss on Trump, making them disinclined to support the president. Another challenge would be getting conservatives and moderates on the same page.\u00a0<\/p>\n
On the other hand, Republicans could decide they are better off raising the debt limit in the lame-duck session, while they are still in the majority.<\/p>\n
\u201cIt\u2019s possible that losing the House or Senate will crystallize things and will get Republicans to move and put in a reconciliation bill along with Iran aid,\u201d said Don Schneider, deputy head of U.S. policy at Piper Sandler, an investment bank.\u00a0<\/p>\n
But he was skeptical that Republicans would be able to act on the debt limit this year.<\/p>\n
\u201cTrump wants it done, but he is going to have to take the lead in forging consensus and urgency around it,\u201d said Schneider, a former House Ways and Means GOP aide.\u00a0<\/p>\n
Bipartisan buy-in?<\/p>\n
If not, Democrats are providing a taste of what\u2019s to come on fiscal policy next year if they take control.<\/p>\n
House Minority Leader Hakeem Jeffries, D-N.Y., said his party would seek to undo the 2025 reconciliation package\u2019s Medicaid cuts and renew expanded Affordable Care Act tax credits. Other Democrats would go further and enact \u201cMedicare for All.\u201d<\/p>\n
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Moreno (Tom Williams\/CQ Roll Call file photo)<\/p>\n