- With the debt ceiling deadline set for early December, some prominent politicians are drafting ideas to reform or end the borrowing limit ahead of a possible crisis.
- Treasury Secretary Janet Yellen last month said she would support repealing the debt limit.
- Ten years ago, Senate Minority Leader Mitch McConnell floated the idea of giving the president the responsibility of lifting the borrowing cap.
Raising the debt limit used to be routine in Washington, but over the years it has become more of a partisan battleground, resulting in perennial crises that threaten to undermine global faith in American markets and thrust the U.S. economy into recession.
The nation is weeks away from yet another such predicament. After raising the debt limit with days to spare earlier this month, Congress needs to act again on it before some point in December. And another partisan brawl is brewing over the action, which gives the Treasury Department the ability to pay for programs lawmakers have already authorized.
Given how predictable and potentially calamitous that gridlock is, it's a wonder Congress hasn't overhauled or removed the borrowing cap altogether.
There are ways to do just that, even though it isn't likely before the next deadline. Important players on both sides of the aisle have proposed solutions. Treasury Secretary Janet Yellen and GOP leader Mitch McConnell, of Kentucky, have over the years supported dramatic rewrites to the debt limit.
Ten years ago, McConnell floated the idea of giving the president the responsibility of lifting the borrowing cap subject to congressional review. Last month, Yellen told the House that she would support a bill erasing the ceiling outright or granting the Treasury secretary power to reset it from time to time.
It might be time for Republicans and Democrats to review the possibilities. Without a measure to lift or suspend the debt limit, Treasury says it only has enough funds to pay the country's bills through early December.
Ditching the debt ceiling
One option is an outright repeal of the debt limit.
Yellen told House lawmakers in September that she supports a couple of pieces of legislation that effectively cancel the borrowing limit in its current form. She noted Congress decides on taxes and spending but said it should provide better ways to pay those obligations.
"If to finance those spending and tax decisions, it's necessary to issue additional debt, I believe it's very disruptive to put the president and myself, the Treasury secretary, in a situation where we might be unable to pay the bills that result from those past decisions," she said on Sept. 30.
There are at least two bills in the current Congress that might appeal to Yellen.
The first, introduced in May by Sens. Chris Van Hollen, D-Md., Brian Schatz, D-Hawaii, and Michael Bennet, D-Colo., would repeal the ceiling.
"Paying our debts should be an automatic act, not a politicized weapon used for leverage," Schatz said in a press release published in May. "It's clear that the debt ceiling is not about fiscal responsibility, but about unnecessary brinksmanship."
More recently, House Budget Committee Vice Chair Brendan Boyle, D-Pa., and Chair John Yarmuth, D-Ky., introduced the Debt Ceiling Reform Act, legislation that would relieve Congress of its authority over the borrowing cap and transfer that power to the Treasury Department.
The two House Democrats introduced their two-sentence bill in late September.
Asked to expand on Yellen's thoughts, both the Treasury Department and White House declined to comment.
The McConnell pitch
An alternative suggestion came in 2011, when McConnell, then as now Senate minority leader, offered a plan to avoid a looming sovereign default.
With Congress closer than ever to the nation's drop-dead date and the S&P's move to downgrade the U.S. credit rating, McConnell floated a plan that would have guaranteed the president's requests for new government borrowing powers.
"The president, as CEO of the nation, would inform Congress of the new debt ceiling level, and Congress could block it with a joint resolution," explained Tom Block, a policy analyst at Fundstrat Global Advisors.
The plan McConnell pitched 10 years ago has clever and pragmatic elements.
Since the bulk of federal spending is linked to presidents' campaign promises, McConnell's strategy would force the White House to bear the responsibility for lifting the debt cap. If Congress finds the plan too extreme, lawmakers could then pass a bill to prevent the White House from adjusting the ceiling as proposed.
The bill would then travel to the Oval Office where the president would presumably veto a bill that challenged the administration's suggestion. That disapproval would allow the debt ceiling to increase as planned or lead Congress to attempt an override of the veto with a two-thirds majority.
It's rare in the current partisan era to find enough politicians to secure a majority, much less a two-thirds supermajority. That means that the McConnell plan would likely default to debt-ceiling increases unless the president's proposal was so absurd that it unified 67% of federal lawmakers.
A representative for McConnell declined to comment for this story.
The idea has legs. Sen. Joe Manchin, the powerful conservative West Virginia Democrat, said Tuesday that he would support such reform to the debt ceiling procedure.
It should be set up so "the president has the right to make that decision, we have the right to override it if we think he went too far," he said.
While the minority leader may have been open to such a plan in 2011, there's little evidence to suggest he supports it now. Further, the bill that solved that year's debt-ceiling crisis likely appealed to McConnell given language that reined in government spending and deficits.
Manchin's remarks, notably, came as he pushes to shrink President Joe Biden's social and climate spending plan. An increase to the debt ceiling does not authorize new government spending. Instead, it allows the Treasury Department to continue to pay off bills Congress has accumulated through legislation it has already passed.
Still, that hasn't stopped Republicans and Democrats from using the threat of the nation's first-ever default and economic calamity to score political points.
Most economists, including Yellen and former living Treasury secretaries, say that a default would spark a recession and jeopardize the full faith and credit of the United States. U.S. debt would be less attractive to bondholders around the world, causing a spike in interest rates, and undermine the stability of the U.S. dollar as the globe's reserve currency.
The next showdown
While leaders of both parties have from time to time pushed for material changes to the debt ceiling, it's uncertain whether lawmakers will be able to drum up enough support anytime soon.
Without major restructuring, lawmakers are left with two options to act before the looming December deadline.
The first requires bipartisanship: Democrats can try to persuade 10 Republicans to vote with them to block a GOP filibuster with 60 votes. This way would empower the GOP to make demands, which would likely include a severe reduction to or outright abandonment of Democrats' $2 trillion reconciliation bill.
Since Democrats campaigned on promises to overhaul the nation's physical infrastructure and enact legislation on progressive priorities such as climate change and poverty, that option isn't realistic.
McConnell, meanwhile, has promised that all Republicans will oppose a debt-ceiling compromise since Democrats have opted to force much of their agenda through the Senate via reconciliation.
Democrats will then be forced to use reconciliation, a special process that allows bills to clear the Senate with a simple majority, to raise the debt ceiling in December.
While it's their only realistic option, Democrats may not like the idea of passing a debt-ceiling increase via reconciliation since it would force the party to vote for a dollar-figure amount.
While Democrats have argued thus far that the debt limit is a bipartisan responsibility, House Speaker Nancy Pelosi signaled on Sunday that she's open to Democrats acting alone through reconciliation.
"That's one path. But we're still hoping to have bipartisanship," she said on CNN's "State of the Union."
— CNBC's Nate Rattner contributed to this report.