Democratic leaders may take a hard line against raising the debt ceiling if Republicans seek a tax cut that increases the deficit.
The idea is for Democrats to receive a commitment from GOP leaders that their tax reform efforts will be revenue neutral. House Minority Leader Nancy Pelosi (D-Calif.) told reporters on Friday that her party would be hard-pressed to support a “clean” debt ceiling lift with no policy attachments if it was merely to help clear the way for Republicans to slash tax rates.
“I don’t have any intention of lifting the debt ceiling to enable the Republicans to give another tax break to wealthy in this country,” Pelosi said. “When we say a clean debt limit, we mean not one that enables the Republicans to have a giant tax cut for the rich. That’s not why we’re lifting the debt limit.”
While the idea does not yet have sign-off from the Senate Democratic Caucus, it has been discussed by Senate Minority Leader Chuck Schumer (D-N.Y.) and some of his members. Schumer suggested the strategy to Pelosi last week, a source familiar with the interaction said. Still, Senate Majority Leader Mitch McConnell (R-Ky.) and the White House have said it is their preference to do deficit neutral tax reform rather than budget-busting standalone tax cuts.
It’s not clear how Democrats would be able to enforce a tax reform commitment from Republicans as a condition of averting default. But because most bills need 60 votes to pass the Senate and House conservatives are loathe to increase the debt, Democrats do have significant leverage in the months ahead.
“I tend to think that the debt ceiling ought to be extended as a matter of course without any controversy or unrelated issues. But I certainly have an open mind if there is any condition related to it,” said Sen. Richard Blumenthal (D-Conn.), in an interview last week.
As Congress returns to Washington next week, the looming debt ceiling battle is front of mind for both parties. And they have been left with a confusing set of instructions from the Trump administration.
Treasury Secretary Steven Mnuchin has publicly and privately left lawmakers with the impression that the debt ceiling needs to be raised before the August recess, which could complicate a congressional calendar devoted to repealing Obamacare and to tax reform. But while Mnuchin prefers a clean debt ceiling increase, Budget Director Mick Mulvaney wants to attach spending cuts to a debt ceiling increase. And Paul Teller, a legislative affairs liaison for Trump, told fiscal conservatives last month at Americans for Tax Reform’s headquarters to prepare their “asks” for conservative legislation to be attached to the debt ceiling increase, according to two sources with direct knowledge of the meeting.
Senate Democrats are unlikely to agree to a deal that lifts the debt ceiling and includes new spending cuts or other conservative bills, so Republicans would likely have to slip the debt increase into a fast-track “reconciliation” bill if they wanted cuts, a difficult lift for a party divided on spending priorities. Moreover, Republicans may not appreciate Democrats’ attempts to derail their tax reform efforts as a condition of moving forward.
Gary Cohn, the chief economic adviser to President Donald Trump, refused to weigh in on Congress and the administration’s own internal divisions on CNBC Friday and said it was up to Capitol Hill. Trump does have final say, though — he will have to sign whatever is sent to him by Congress.
“Every Treasury secretary would love to have a clean debt ceiling, I understand that. I think in a perfect world you’d love to have a clean debt ceiling,” Cohn said. “But if we need to get things attached to get it through, we’ll attach things. At the end of the day, Congress is going to raise the debt ceiling, because they have no choice.”