President Barack Obama made a demand of House Speaker John Boehner near the end of their first White House meeting on the fiscal cliff: Raise the debt limit before year's end.
Boehner responded: "There is a price for everything."
And with that exchange, described by sources familiar with the Nov. 16 session, an issue that has been overshadowed by the fiscal cliff showdown moved to the forefront of already complicated negotiations to avert more than $500 billion in spending cuts and tax increases by the new year. With bitter memories of the 2011 debt-limit standoff still fresh, both sides are engaged in another aggressive round of hardball.
Within a few months, Congress will once again need to increase the nation's borrowing capability. Obama and congressional Democrats, still stung by the last bruising fight, want to hike the debt ceiling without drama. But Boehner wants to use the debt limit to extract more concessions from Democrats. He told Obama at the White House that it's "my leverage," although he added that he's flexible on when it should be done.
Most of the attention so far has focused on income tax increases and the entitlement program changes that could affect every American. But the debt ceiling holds equal, if not greater, importance for the economy and the political fortunes of both parties. Rating agencies are threatening another downgrade of U.S. debt if Congress strains to increase the borrowing limit like it did last year.
The politics of this fight are simple: Democrats are roundly peeved with how Congress and the White House handled the debt ceiling in 2011 and say they won't fight on it again. Democrats on Capitol Hill thought the administration gave up too much for a vote that was once a legislative technicality.
Republicans know it's a difficult vote for nearly all of their members. They need something to show for it -- and to uphold Boehner's principle that the nation should only acquire more debt if it's willing to cut an equal amount of spending or save a commensurate amount of money through entitlement reform.
This time, Obama is saying he won't indulge the speaker.
Boehner shouldn't expect a thing in return for raising the debt ceiling, and certainly not his demand for spending cuts that exceed the jump in the borrowing limit, Democratic officials said.
"Do you really think we would come up with a $4 trillion grand bargain and then try to find another $1 trillion in cuts to offset a debt ceiling increase? I don't think so," said a Senate Democratic aide.
Congressional Democrats are pushing Obama to hold firm. They've even privately suggested Obama consider raising the debt ceiling without Congress. Their argument is that the 14th Amendment to the Constitution says the "validity of the public debt ... shall not be questioned," which means the president can raise the cap on his own.
In fact, at the tail end of a news conference on Nov. 15, House Minority Leader Nancy Pelosi (D-Calif.) said as much publicly, although the offhanded remark largely flew under the radar.
"Well, I am with the 11th Amendment, so, is it the 11th Amendment that -- 14th?" Pelosi said. "Whatever it is, I am with the Constitution of the United States."
Nothing raises the ire of Republicans in Congress like the specter of Obama taking matters into his own hands. If the White House goes that route and raises the debt ceiling by executive order, Boehner and his leadership team would likely take immediate legal action to halt the debt ceiling increase, sources familiar with his thinking said.
For Republicans, the debt ceiling represents another pressure point in a year full of what they refer to as "action-forcing" moments. They see each bit of the fiscal cliff as another slice of leverage over Democrats to cut spending and alter entitlement programs. And they see the debt ceiling deadline as one of their biggest pressure points after an election that left them without much leverage.
Boehner will struggle to persuade his members to support a debt-limit increase if the fiscal cliff package doesn't include substantial changes to Medicare and Medicaid -- and the chances of such dramatic alterations remain slim, given the organized opposition from powerful interest groups such as AARP, analysts said.
"Although it is not technically part of the fiscal cliff, it hovers over all these discussions on taxing and spending," said Steve Bell, a former aide to retired Sen. Pete Domenici (R-N.M.) and senior director of economic policy at the Bipartisan Policy Center, which will release a report Tuesday on the latest debt-limit fight. "If you put together some sort of gerrymandered deal, a little change here and there, ... that is not going to be what Republicans will view as a credible package" in exchange for any debt-limit increase.
Pete Davis, a former Capitol Hill aide and president of Davis Capital Investment Ideas, wrote in a note to his clients last week that he sees a 60 percent chance of temporarily going over the cliff, in part because Republicans could refuse a debt-limit increase that isn't offset by equal cuts.
"A one-year hike would cost about $1.2 [trillion]," Davis wrote. "There's no way they could pay for that."
But among Republicans, there does seem to be some thinking that moving past the debt ceiling fight in December could be useful. First, the pressures and complexity of the fiscal cliff will allow Boehner and leadership lots of moving parts that they can claim as leverage. And there's a fear that if the debt ceiling debate stretches into February and March -- outside the fiscal cliff framework -- there's a risk that lawmakers will place unreasonable demands on lifting the cap.
One question will be how many members of the House share the views of Rep. Tim Huelskamp (R-Kan.).
Huelskamp, whose main issue is the debt ceiling, thinks last year's deal was subpar. He said Obama doesn't have as much leverage as he thinks because a "51 percent election margin is not much of a mandate." He said he is holding out for massive cuts to spending and reforms to entitlement programs -- but prefers that deal come together in 2013.
He views the fight over the debt cap as far more damaging than any other component of the fiscal cliff and thinks it should be dealt with separately.
"I thought in the last two years, it was the single biggest opportunity for us to put America on a path of fiscal responsibility," Huelskamp said in an interview. "I really did believe that. And we missed that opportunity with the deal that was agreed to."
Douglas Holtz-Eakin, a former Congressional Budget Office director and economic adviser to Sen. John McCain's 2008 presidential campaign, said dealing with the debt limit during the fiscal cliff talks may be too much to address in one shot.
"The administration is playing a very dangerous game," said Holtz-Eakin, president of the American Action Forum. "The more you try to jam in a lame duck, the more complicated the deal gets and the more likely we fail."
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