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Partisan fight flares in U.S. Congress over raising debt ceiling

Kitco News

WASHINGTON (Reuters) -A fight between Democrats and Republicans over raising the nation's debt ceiling erupted in the U.S. Congress on Wednesday, just before word was due on when the federal government is likely to run out of money to pay its bills.

A failure to work out differences over whether government spending cuts should accompany an increase in the statutory debt limit, currently set at $28.5 trillion, could lead to a federal government shutdown - as has happened three times in the past decade - or even a debt default.

President Joe Biden's fellow Democrats narrowly control both the Senate and House of Representatives. No senior Republicans have mentioned a shutdown threat in recent public statements. Democrats are insisting on a "clean" debt limit increase unfettered by a fight over spending reductions.

The top Senate Republican, Mitch McConnell, said on Wednesday that members of his party would be unlikely to support a debt limit increase given the current Democratic drive for a multi-trillion-dollar infrastructure investment bill here.

"I can't imagine there will be a single Republican voting to raise the debt ceiling after what we've been experiencing," McConnell told the Congress-focused Punchbowl News.

McConnell suggested Democrats address the debt limit in a second spending measure they are expecting to pass without Republican votes in a maneuver called reconciliation here.

Senate Majority Leader Chuck Schumer called McConnell's remarks "shameless, cynical and totally political." Schumer said Republicans did not raise such concerns during the presidency of Republican Donald Trump and that some of the debt is related to emergency aid in response to the COVID-19 pandemic.


Another leading Democrat, Senate Finance Committee Chairman Ron Wyden, accused Republicans of trying to launch a protracted debate over the cost of popular federal programs such as Social Security in order to cloud the debt limit issue.

Wyden rejected McConnell's suggestion that a debt limit bill be attached to a Democrats-only infrastructure investment bill that could advance this fall, saying, "We're going to do it quickly" through more conventional procedures.

The Treasury Department on July 31 technically bumps up against its statutory debt limit. Much like a personal credit card maximum, the debt ceiling is the amount of money the federal government is allowed to borrow to meet its obligations. These range from paying military salaries and IRS tax refunds to Social Security benefits and even interest payments on the debt.

Since the government spends more than it receives in revenues, it keeps operating by borrowing more and more.

For many years, the statutory debt limit was raised to a specific dollar level. More recently, Congress has set the limit to a specific date in the future.

Lawmakers often try to extend borrowing authority to beyond the next U.S. election so that it does not become a campaign issue. The midterm elections that will determine whether Democrats retain control of Congress are set for November 2022.

The nonpartisan Congressional Budget Office on Wednesday is scheduled to release its latest estimate of when the government actually would be unable to pay its bills - known as the "X Date."

If Congress does not raise the debt ceiling from its current $28.5 trillion by then, Treasury Secretary Janet Yellen is expected to take special steps to avoid a government default. Such stop-gap measures are effective for only a short period.

Democrats are eyeing several possibilities for heading off debt payment problems, such as attaching a debt-ceiling increase to a bipartisan infrastructure bill being negotiated in the Senate or as part of a stop-gap funding bill in September to avoid government shutdowns on the Oct. 1 start of the next fiscal year.

Failure could lead to a repeat of the government shutdowns occurring 2013, January 2018 and one that lasted from 35 days from late December 2018 into January 2019. Other factors also were in play during those disruptions.

In a sign of Wall Street's worry about the approaching limits, yields on short-term U.S. Treasury debt have inched up to around 0.05%, after having hovered near zero since early in the pandemic.

Cooperation from Republicans in passing a debt limit increase is essential given the 50-50 party split in the Senate, where most legislation needs 60 votes to advance. Democrats control the chamber because Vice President Kamala Harris can cast tie-breaking votes.

"Nobody should be allowed to take our economy hostage, particularly when we are in a fragile period like this," Wyden said, referring to the pandemic. "If you incur bills, you pay them," he added.

Reporting by Richard Cowan; Editing by Scott Malone and Cynthia Osterman

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