Is Washington careening toward another debt limit crisis?

Another showdown appears to be brewing over the national debt limit – and under what conditions Congress will raise it next time. But something big will happen between now and then that may prevent it.

Manuel Balce Ceneta/AP
House Speaker John Boehner of Ohio speaks at the Peter G. Peterson Foundation's 2012 Fiscal Summit, on May 15, in Washington.

Is Washington getting ready for a replay of the 2011 debt limit crisis? It sure seems like it at the moment.

House Speaker John Boehner on Tuesday drew a line in the sand with his wingtip, saying that House Republicans will not approve another increase in the nation’s debt ceiling unless there are offsetting cuts in the federal budget. On Wednesday, the White House responded in kind, saying President Obama won’t let the GOP hold the US and global economies “hostage” to its “ideology.” Republicans must accept a “balanced approach” to reducing the federal deficit that includes both budget cuts and tax increases, said White House spokesman Jay Carney.

“We’re not going to re-create the debt ceiling debacle of last August,” said Mr. Carney, after a luncheon meeting between Mr. Obama and congressional leaders.

Might we do so anyway, no matter what the White House insists? After all, things got pretty tense last time. Before it ended, Standard & Poor’s had downgraded America’s debt for the first time in its history.

The United States government has more than $16 trillion in debt at the moment. When it bumps up against the debt limit – the statutory limit of money the US can borrow – Congress either votes to raise it or risks that the US will be unable to pay its bills.

The White House wants the next debt-limit vote to be on what it calls a “clean bill” – simple legislation that deals with the limit only. That’s the way the issue had been handled in decades past, for the most part. Republicans would prefer to use the threat of a possible default as leverage to induce bigger budget reductions than the White House might otherwise accept. After all, that worked OK for them last time around. The budget compromise that Obama finally signed included $917 billion in cuts, spread over 10 years, in exchange for a $900 billion debt-limit increase.

Well, never underestimate Washington’s ability to create a dangerous stalemate. But we think fears of a 2011-style debt-limit crisis are overblown, at least given current conditions.

Why? Mostly because the debt limit probably won’t have to raised again until early next year, according to Treasury Secretar Timothy Geithner. And something politically big will happen before then: the 2012 presidential election.

If Obama wins, he’ll be able to claim a mandate for his approach to fiscal issues, with some justification. That’s likely to increase his leverage. If Mitt Romney wins, it probably won’t be a problem, as he’s likely to agree to the sort of approach Speaker Boehner would like.

There could be more complicated political outcomes, of course. Obama could win, but the Democrats could lose the Senate, making it easier for Republicans to get their favored bills through Congress to the president’s desk.

But we still think our general idea holds: This is an argument that will be clarified in some manner by the nation’s quadrennial electoral contest. After all, the arguments over the debt limit mirror the arguments over fiscal policy in general: Obama wants the GOP to accept at least some tax increases, and Republicans say they won’t. Voters will get their say on the matter in November.

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