Weekly Plurus Strategies Update on the Debt Limit, Infrastructure, Reconciliation, and Other Activity in Washington
It’s almost Friday and it seems as though the jet fumes associated with the upcoming Senate recess have ushered in the spirit of short-term compromise. Here’s our latest report on the debt limit, infrastructure/reconciliation, appropriations, and other activity in Washington.
Debt Limit
Senate Leaders have now finalized a temporary, bipartisan solution on the debt limit. The deal struck between Senate Majority Leader Chuck Schumer (D-NY) and Senate Minority Leader Mitch McConnell (R-KY) would increase the federal government’s borrowing limit by $480 billion, which is projected to be exhausted in early December. This potentially puts a new solution for the debt limit on a collision course with the expiration of the recently passed continuing resolution (CR) around December 3.
Earlier today, we had been hearing rumblings that with many Republicans caught off guard and disappointed by Leader McConnell caving to Democratic pressure, conservatives were toying with the idea of forcing consideration of the debt limit measure to drag out into Saturday. In particular, Sens. Ted Cruz (R-TX), Mike Lee (R-UT), and Rand Paul (R-KY) are insisting that the measure overcome a filibuster, although Senate GOP leadership has guaranteed it will gin up the 10 votes needed to help advance the short-term debt hike. Additionally, it has not been helpful that former President Donald Trump has been highly vocal in criticizing Leader McConnell for his willingness to give Democrats an easy out of using reconciliation.
It sounds like there is now an agreement to hold up to four hours of debate, with a cloture vote likely around 7:30PM this evening. A vote on passage of the debt limit increase would follow shortly thereafter. We believe the eagerness to enter the recess, along with congressional delegation (CODEL) plans for next week, will ensure that cooler heads prevail in getting the Senate out of town ahead of the weekend. Once the Senate has approved the debt limit measure, it will also need to be adopted by the House.
As a reminder, Democrats voted with Republicans three times during theTrump Administration to raise or suspend the debt limit to avoid default, despite opposing the 2017 Republican tax cuts that added to the debt.Earlier this year, 46 Republican Senators signed a letter vowing not to cooperate with Democrats to lift or suspect the debt ceiling. This has us questioning the shift in Leader McConnell’s political calculus and making a few key observations.
First, though the markets have been reacting to the countdown to a potential default, most experts believe that neither party wanted to risk being at fault for not addressing the debt limit. We have to agree.
Second, being the political animal that he is, we believe Leader McConnell’s goal was always to get Democrats on record committing to raise the borrowing limit by a specific amount. As a reminder, if Democrats had to use reconciliation, the rules would not allow them to suspend a debt limit through a certain date, forcing them to allow debt up to a specific number. Leader McConnell has now achieved this objective and potentially provided Republicans with good campaign fodder for next year.
Next, we suspect that Leader McConnell is especially wary of Republicans being perceived as so obstructionist that Sens. Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ) flip their position on eliminating thefilibuster. Despite Sen. Manchin’s comments this week vowing to uphold the filibuster, it is possible that President Biden suggesting the real possibility of a rules change spooked Leader McConnell enough to come to the table on a short-term debt limit fix.
Finally, our instincts tell us that Leader McConnell would do everything that he could to delay Democrats in making progress on the bipartisan infrastructure bill and reconciliation. While Democrats feel that kicking the can down the road on the debt limit will now allow them to focus on reconciliation in October and November, we aren’t so sure that Leader McConnell is not orchestrating a year-end minefield that leaves Democrats scrambling on appropriations, the debt limit, and President Biden’s economic priorities simultaneously just before the holidays. Navigating this landscape will be tricky, especially as Congress is only scheduled to be in session around 30 days between now and the end of the year.
The long-term strategy on the debt limit remains murky and it is likely that Democrats, who continue to vow that they will not use reconciliation on the debt ceiling when the current agreement expires, will be distracted as we head towards the end of the year. Our gut says that reconciliation remains an option going forward, especially as the parliamentarian has ruled that Democrats can generate a separate budget resolution from the one that was used to unlock the reconciliation process on social spending. However, even this process would require some GOP cooperation, as at least one GOP Senator would be needed to achieve a quorum in a Budget Committee meeting to advance the new reconciliation orders to the floor. Of course, using reconciliation would also prompt another time consuming and politically fraught vote-a-rama.
We could also potentially see Democrats try to tie the debt limit to a must-pass appropriations bill at the end of the year, though that could prompt similar opposition from Republicans as we saw to this approach in the past few weeks. Another potential path forward would be a 14th amendment strategy that might allow the federal government to mint a trillion-dollar coin to avoid a default on the federal debt. While this tactic has been vehemently opposed by President Joe Biden and Treasury Secretary Janet Yellen, if invoked, Republicans would be in a position to sue in support of allowing the U.S. Government to default on its debt. Undoing the filibuster also remains on the table, and given what has transpired over the past 48 hours, Democrats could feel empowered to use this threat to entice Republicans to negotiate. We’re grateful for the temporary reprieve and will be monitoring developments closely in the weeks ahead.
Infrastructure/Reconciliation
The debt limit is just one of several challenges as Democrats continue to negotiate an agreement amongst themselves to pass the bipartisan infrastructure bill and the social spending reconciliation package. Spooky season just got a lot spookier with Congressional Democratic leadership setting October 31 as a target date for wrapping up their work on infrastructure and reconciliation. This target date is once again critical, as key surface transportation programs will expire on November 1, following passage of the 30-day FAST Act extension last weekend.However, the White House has committed to no specific timeline, so long as the two packages ultimately find their way to the president’s desk.
While much of this week’s oxygen was consumed by the debt limit strategy, we believe some progress may have been made on reconciliation this week, especially as we continue to see a more engaged President Biden in trying to settle the rifts within his own party. On Monday, President Biden met with virtually with progressives to hear from Members on their priorities and red lines. A similar virtual meeting was held with moderate Democratic frontliners on Tuesday. President Biden also met with Sen. Manchin before departing for Chicago earlier today.
Leader Schumer has continued to call for unity to get both bills passed this month, while Sen. Dick Durbin (D-IL) has said he is listening to Sens. Sinema and Manchin, attempting to bring them across the finish line as they continue to oppose the price tag and set other conditions on reconciliation. After a failed attempt to decouple the bills to move theinfrastructure package through the House last week, it appears that infrastructure and reconciliation are now linked again. This coupling likely means that House GOP support for the bipartisan infrastructure package is dwindling.
Also unresolved is the fight over the final topline number. However, one thing is clear: the bill won’t ring up at $3.5 trillion. During a meeting with Congressional Democrats on Capitol Hill last Friday, President Biden said he expects the topline number will fall between $1.9 and $2.2 trillion. Sen. Manchin has straddled the line between not ruling out a package of this size, while also hanging his hat on an earlier agreement he made with Leader Schumer that the package would not total more than $1.5 trillion. Meanwhile, progressives have balked at the $1.5 trillion figure and continue to insist that the final topline will be somewhere between $1.5 trillion and $3.5 trillion.
We had the chance to check in with a senior staffer in Leader Schumer’s office who confirmed there is “a lot of uncertainty” about reconciliation. He reported that leadership still needs to get topline numbers from Sens. Sinema and Manchin, as well as any other conditions they are placing on the Build Back Better Act. Until this is clear, the staffer said “everything is in a holding pattern.” It was this staffer’s guess that the final reconciliation bill will be in the “low $2 trillion range.”
A topline number that is smaller than $3.5 trillion means Democrats will either be forced to cut the number of programs addressed in the bill, an approach favored by centrists, or shorten the spending timelines in order to ramp up the pressure on future Congresses to extend programs, the path forward favored by progressives. The White House has also expressed support for means testing various programs to restrict eligibility by income. How this will all play out remains unclear.
It goes without saying that until there is a topline, there will also be no agreement on pay-fors. A smaller package means lawmakers may now be able to ditch some unpopular tax increases or revenue raising measures. However, winnowing down the list of offsets has remained increasingly difficult as Sens. Sinema and Manchin have not yet solidified their positions. For example, we are hearing that Sen. Sinema may be opposed to any corporate tax increase, which for the time being means that all revenue raisers remain on the table.
Appropriations
Last week, Congressional Democrats averted a government shutdown by passing a CR to keep the through December 3. While we question whether or not any bipartisan progress has been made on appropriations this week, we believe Democratic Senate appropriators have continued to work on their bills. As a reminder, plans for theSenate Appropriations Committee to markup additional Fiscal Year 2022 (FY22) bills were yanked after Republicans indicated they would not be cooperative until there are negotiations to agree to top line numbers for defense and non-defense spending.
Regardless, we are hearing that some Democratic Senate appropriations cardinals are aiming to unveil their bills in mid-late October. As we are skeptical that the crowded legislative agenda will allow much time formuch engagement between the big four and the White House on overarching spending levels, we ultimately think Democrats will do what they did last year and simply post their bills. This does not bode well forCongress finalizing FY22 appropriations by the December 3 deadline and it is possible that we could see another CR, and potentially some agencies operating on CRs for the remainder of the fiscal year. If this were to be the case, it would preserve many of the Trump era policies enacted as part of last year’s appropriations bills.
While the FY22 appropriations cycle has yet to conclude, we are already starting to see Fiscal Year 2023 (FY23) appropriations letters. While it is not yet clear if the Biden Administration will issue its FY23 budget on time, we’re already betting that next year there will be a CR into thespring due to the midterm elections.
Voting Rights
On Wednesday, Sens. Jeanne Shaheen (D-NH) and Maggie Hassan (D-NH), along with 47 Democratic Senators and Democratic Senate leadership, introduced the John Lewis Voting Rights Advancement Act. This new voting rights legislation is intended to shore up provisions of the Voting Rights Act that have been weakened by judicial decisions over the last decade by preventing discriminatory changes to voting laws and procedures that are likely to result in voter suppression. Leader Schumer said he wants to have a vote on the bill in the next few weeks.
Notably, this bill is similar to the John Lewis Voting Rights Act, which was passed by House Democrats. However, it is a separate effort from the Freedom to Vote Act, which was introduced last month with Sen. Manchin as a cosponsor.