WASHINGTON – President Barack Obama demanded that lawmakers raise America’s $16.4 trillion federal debt limit quickly, warning that benefits that the elderly and military veterans rely on will be affected if they don’t and warning Republicans against insisting on cuts to government spending in exchange for not “crashing the economy.”
Obama said he was willing to negotiate with Republican leaders about reining in deficit spending but insisted that those talks be separate from decisions to raise the federal debt ceiling and avert a possible first-ever national default.
“We are not a deadbeat nation,” he declared at a news conference Monday, less than a week away from taking the oath of office for a second term.
In addition to noting possible effects on older Americans and veterans, Obama recited a litany of possible consequences if Congress fails to raise the debt ceiling, including sending the economy back into recession.
“We might not be able to pay our troops, or honour our contracts with small business owners,” he said. “Food inspectors, air traffic controllers, specialists who track down loose nuclear materials wouldn’t get their paychecks. Investors around the world will ask if the United States of America is in fact a safe bet. Markets could go haywire, interest rates would spike for anybody who borrows money.”
Obama warned that Republicans who want to dramatically cut spending in return for raising U.S. borrowing limits “will not collect a ransom in exchange for not crashing the economy.”
Obama’s remarks were in line with a newly toughened stance he has shown toward Congress a week before he is sworn in for a second term. The re-elected president has run his last race — U.S. presidents can serve no more than two terms — and has appeared willing to spend the political capital he believes he accrued after winning handily in November and seeing Democrats improve their numbers in Congress.
Obama made his remarks as a new Congress was settling in for its own new term. The new Congress is expected to be as deeply divided as the last, though Republicans face a smaller majority in the House and Democrats will enjoy a bigger majority in the Senate.
In Obama’s first term, Democrats on the left accused him of giving ground too easily to Republicans on the debt ceiling issue during a huge partisan fight in the summer of 2011. That battle resulted in an unprecedented downgrade of the U.S. credit rating and left in place the contentious federal income tax cuts established during the George W. Bush administration.
Obama spoke at the 21st and final news conference of his first term, just days after he signed legislation that narrowly averted a “fiscal cliff” of automatic spending cuts and across-the-board tax increases as the Bush tax cuts expired on Jan. 1. A last-minute deal preserved the tax cuts for families earning less than $400,000 per year and delayed the spending cuts.
Obama said he would consider future spending cuts to reduce the deficit, but only if they are done independently from a vote to raise the federal debt limit.
“The full faith and credit of the United States of America is not a bargaining chip,” he said. “And they better decide quickly because time is running short.”
In a blunt rebuttal to Republicans who say they will not agree to any more tax increases, the president said both taxes and spending must be on the table.
Within minutes, Senate Republican leader Mitch McConnell said the president and his allies in Congress need to get serious about spending, and the debt-limit debate is the perfect time for it.
“I do know that the most important issue confronting the future of our country is our deficit and debt,” McConnell said. “So we are hoping for a new seriousness on the part of the president with regard to the single biggest issue confronting the country, and we look forward to working with him to do something about this huge, huge problem.”
The most powerful Republican in Congress, House of Representatives Speaker John Boehner, said in a statement, “The American people do not support raising the debt ceiling without reducing government spending at the same time. … The House will do its job and pass responsible legislation that controls spending, meets our nation’s obligations and keeps the government running, and we will insist that the Democratic majority in Washington do the same.”
Underscoring the urgency, Treasury Secretary Timothy Geithner said in a letter to Boehner that the government will exhaust its borrowing limit as soon as mid-February, earlier than expected. The Treasury has been using bookkeeping manoeuvrs to keep from surpassing the debt ceiling, but Geithner said those measures will be exhausted by mid-February to early March.
Lawmakers face three distinct deadlines before April 1. The debt limit must be raised to prevent a default, a series of across-the-board spending cuts is to kick in on March 1 and funding for most government programs will run out on March 27.
Obama virtually dared Republicans to let the government shut down rather than renew funding beyond the March deadline. “It will hurt the economy,” he said emphatically.
Jabbing at Republicans, he quoted Boehner’s remarks of two years ago that allowing a default on U.S. obligations — the practical effect of failing to raise the debt limit — would be a disaster.
Until the partisan fight over the debt ceiling broke out in 2011, the limit on borrowing had been increased by Congress as a matter of course.
But with a surge in Republicans aligned with the anti-tax Tea Party movement elected to the House of Representatives in 2010, the opposition party has sought to use the power over the debt to enforce its desires for smaller government and spending cuts.
Conservative Republicans in House rebelled during the fiscal cliff talks, and were blamed for scuttling a so-called grand bargain that would have included both tax hikes for wealthy earners, a Democratic priority, and spending cuts to costly entitlement programs, a Republican goal. The House Republicans revolted over increasing taxes for anyone, including the wealthy, following conservative dogma of the past two decades.
Obama said he is still “open to making modest adjustments to programs like Medicare to protect them for future generations,” referring to the federal health care program for the elderly. He said he also wants to close tax loopholes.
Combined with other bills he signed earlier in the term, he said he and Congress have reduced deficits by about $2.5 trillion over a decade, somewhat less than the $4 trillion he said is necessary to get them down to a manageable size.
Failure to raise the debt limit would put the United States into a first-ever default, a step that Obama warned could “blow up the economy.”
Congressional Democrats have recently urged the president to lift the debt limit unilaterally. He said — as he has before — that he won’t do it, that Congress had voted for the spending that resulted in federal borrowing, and should now agree to pay the bill.