Congressional leaders look to avoid debt limit crisis

May 6, 2011 7:17:03 PM PDT
The partisan divide over taxes and spending is heading for another show down. Congressional leaders are looking for a way to dodge a crisis over the debt limit.

Imagine the government has a credit card and it is ringing up debt every month, spending more than it takes in. Anyone with a credit card knows that can continue only so long before you hit your credit limit. That is what is happening in Washington.

Vice President Joe Biden walked over to his meeting with congressional budget negotiators on Thursday. Leaders of both parties are trying to come up with a common strategy that will not alienate their respective political bases.

"We've got to make some real progress on that," Biden said.

At the center of the issue is the fact that the government spending, mostly on big ticket items like Medicare, Medicaid, Social Security and the military, is outpacing the money coming in.

Every month the government borrows, on average, another $125 billion.

Currently the debt is at $14.2 trillion dollars and the government's credit limit, its so-called debt ceiling, is $14.3 trillion. If Congress does not agree to raise that ceiling, the government will run out of money.

"The government will have to shut down or default on the national debt or do something pretty extreme if the debt limit isn't raised," Professor Alan Auerbach, PhD, of the UC Berkeley Burch Center for Tax Policy, said.

Auerbach says not to worry about the government defaulting on its national debt. The consequences of refusing to pay the interest on what the U.S. owes to countries like China would be too catastrophic.

The far more likely option would be a partial government shutdown to cap spending.

"The closest example we have is from President Clinton's confrontation with Congress in the 90s," Auerbach said.

In 1995, Republican's challenged Clinton over the debt limit and the government shut down, but it did not last very long because voters got angry.

"It ended when Congress saw that it wasn't turning out well for Congress and so they got back to work," Auerbach said.

Both sides are trying to do that now and they share similar goals -- trim $4 trillion from the national debt. But the president's plan calls for $1 trillion in new taxes, which is a non-starter for House Republicans. And the GOP plan to slash Medicaid and turn Medicare into a voucher program is dead on arrival with Democratic members.

"I think the advantage is to the Democrats because they have the presidency and all the institutional advantages of the presidency, but it really depends upon whether President Obama is going to act decisively and use it the way Clinton did in 95-96," ABC7 political expert Bruce Cain said.

This week, the Obama administration warned in the event of a shutdown payments of military salaries, retiree benefits, Social Security payments, unemployment benefits, tax refunds all could be stopped, limited or delayed -- a message to House Republicans that the pain will be felt everywhere, including Republican Districts.

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