Fears of US government shutdown as debt ceiling game of chicken begins

Top Democrats are expected to dare Republicans to block a stopgap funding measure, which would trigger the double-barreled fiscal crisis of the US defaulting on its mammoth debt and a shutdown of the federal government, according to two sources familiar with the proposal.

The plan being considered by the House speaker, Nancy Pelosi, and the Senate majority leader, Chuck Schumer, involves suspending the debt ceiling past the 2022 midterm elections in a stopgap bill that would keep the government funded through early December, the sources said.

Democrats want to then dare Republicans to block the stopgap funding measure with a filibuster and prevent it from receiving 60 votes needed to pass the Senate – which could cause a government shutdown on 1 October and leave the US unable to pay its bills.

The US has almost always avoided defaults and the sources said they expected some resolution on this occasion, too, even if negotiations, like in years past, continued until the 11th hour.

But economists say a failure to raise or suspend the debt limit when tied to the stopgap funding measure would be particularly catastrophic as the US would be unable to service its debt obligations in the midst of a potentially non-functional federal government.

Resolving the impasse – which typically becomes a political football under a Democratic president as Republicans criticize their spending – now requires one party to blink.

The strategy to tie the potentially catastrophic prospect of the US defaulting on its $28tn of debt with a government shutdown could put Republicans in a difficult position after their repeated refusal to raise the debt limit in a bipartisan fashion.

It also underscores the extent of the dysfunction of Congress, as Republicans decline to back measures from voting rights legislation to police reform to a 9/11-style commission to investigate the deadly 6 January attack on the Capitol.

The high-stakes showdown over the debt ceiling is accelerating after the treasury secretary, Janet Yellen, said recently the US could default in mid-October and cause “irreparable harm” to the economy if Congress failed to take action.

In a letter to Pelosi, Yellen said the extraordinary measures the treasury department had been employing to finance the government on a temporary basis after the nation’s debt hit its statutory limit on 1 August would be exhausted next month.

“Once all available measures and cash on hand are fully exhausted, the United States of America would be unable to meet its obligations for the first time in our history,” Yellen wrote.

That meltdown could affect the US credit rating, which raises the specter of increased treasury interest rates, which could cost the government billions and lead to higher borrowing costs for American businesses, since their rates are benchmarked to treasury rates.

Democrats have insisted for months that Republicans join them in taking action on the debt ceiling, arguing that it was mainly because of Republicans that the national debt increased by roughly $8tn over the course of the Trump administration.

Pelosi added in a recent news conference that the need to suspend the debt ceiling stemmed in part from Republican tax cuts to the wealthy. “We’re paying the credit card, the Trump credit card,” Pelosi said.

But the Senate Republican leader, Mitch McConnell, has remained adamant that Republicans will not support Democrats in raising the debt ceiling as part of a standalone bill, and that it should instead be included in a sprawling infrastructure package that can be passed on a party-line vote.

“Let’s be clear,” McConnell said in a tweet on Wednesday. “With a Democratic president, a Democratic House and a Democratic Senate, Democrats have every tool they need to raise the debt limit. It is their sole responsibility.”

Both Pelosi and Schumer have also noted that Democrats joined Republicans to handle the debt limit when Trump was president and believe the Republicans should now return the favor – rather than leave vulnerable Democrats open to attack ads if the ceiling is raised on a party-line vote.

In pressing the point, Pelosi said that Democrats would not include a provision to raise the debt ceiling in the $3.5tn budget resolution for Biden’s infrastructure agenda that they intend to pass with the reconciliation process, to avoid a filibuster.

Instead, top Democrats are moving forward with a plan to add such language in the stopgap funding measure that would keep the government funded through either 3 December or 10 December, the sources said, and hope to persuade 10 Senate Republicans to support the bill.

The inclusion of the debt limit in the stopgap measure is not final, the sources cautioned, and discussions will continue as the House returns from a summer recess. It could still be added to a disaster relief bill, for instance, or be tackled in a standalone bill.

Part of the worry for top Democrats is that the path to 60 votes in the Senate was significantly narrowed last month after the majority of the Senate Republican conference signed on to a letter vowing to block any bill that attempted to raise the debt ceiling.

Only four Senate Republicans – the Senate appropriations committee chairman, Richard Shelby, Lisa Murkowski, Susan Collins and John Kennedy – declined to sign the letter, a number far short of the threshold required to defeat an expected filibuster.