US Treasury Secretary Timothy Geithner heads up to Capitol Hill on Thursday to take his case for raising the national debt ceiling to GOP House freshmen, many of whom promised voters to oppose the move.
A first priority will be to convince the freshmen that the prospect of default on the national debt is an urgent problem with a real deadline, now set at Aug. 2. That deadline has shifted several times, from mid-May to July 8 and, most recently, to Aug. 2.
The 87-member freshmen class, many of whom were backed by the tea party movement, sees itself as a guardian of fiscal responsibility, pledged to exact big concessions in spending and entitlement reform from the Obama administration in exchange for increasing the debt limit.
Many say they were encouraged by a meeting with President Obama on Wednesday that they said showed greater openness to deep spending cuts and entitlement reform. On Tuesday, Republicans unanimously rejected the “clean” increase in the national debt limit that does not include spending or entitlement cuts.
“It was a good start,” said Rep. Jim Renacci (R) of Ohio, a former car dealer who decided to run for Congress after his business was shut down as a quid pro quo for the auto bailout.
“The president agreed that we’re spending too much and have to look at entitlements. He’s at least recognizing that it will take significant cuts to win support for raising the debt ceiling,” he added. “We need to bring a business perspective to Washington."
House Republicans at a leadership level have met with Secretary Geithner on this issue regularly. But today is the first time the secretary has met exclusively with House GOP freshmen.
In a letter to Congress last month, Geithner advised lawmakers that the US had reached its debt limit, now set at $14.3 trillion, and warned of “catastrophic consequences for citizens” if the US does not raise the statutory debt limit “as soon as possible.”
But many of the freshmen are not convinced that a default is inevitable, even after the Aug. 2 deadline. More than 40 percent of House Republicans have backed a proposed measure by Rep. Tom McClintock (R) of California and Sen. Pat Toomey (R) of Pennsylvania that aims to avoid default by requiring the US government to pay creditors first. Critics dubbed the 13-line bill the work of “default deniers.” To date, 98 House members have endorsed that bill, including 47 GOP freshmen. It has 22 cosponsors in the Senate.
In a speech at the American Enterprise Institute on May 18, Senator Toomey challenged the Treasury secretary’s claim that failure to raise the debt limit by the Aug. 2 deadline would necessarily lead to default. “The money needed to stay current on our debt is on the order of a little over $200 billion. So we’ve got about 10 times the revenue needed to avoid default on our debt,” he said.
The greater danger to the long-term fiscal health of the nation is raising the debt ceiling without addressing the spending and entitlements that are driving deficits, he added.
Meanwhile, national finance and business groups are lobbying freshmen to take seriously the need to raise the debt limit to avoid default, while encouraging their push to rein in spending and entitlements.
“My pitch is pretty clinical: What is the federal budget, what was it in 1965, and then show on a pie chart in percentages the trajectory of change of federal outlays,” says R. Bruce Josten, executive vice president for government affairs for the US Chamber of Commerce.
“Ultimately, if anyone in this town is serious about the long-term control of debt, you very simply have to recognize that you cannot deny the reality of demographics," he adds. “You have to restructure very fundamentally the edifice that entitlements are built on.”
But at the same time, default is unacceptable, they say. GOP leaders publicly reassured Wall Street in advance of Tuesday’s vote that a rejection of a clean debt limit increase did not mean that Republicans would ultimately miss the deadline.
“The financial industry has been pretty explicit with the Republicans that default on the national debt will not be tolerated,” says Ross Baker, a political scientist at Rutgers University in New Brunswick, N.J. “These contributors to the Republican Party stand to lose billions of dollars if the world community loses faith in the US.”