A bipartisan group of lawmakers on Wednesday unveiled a proposal to avoid a first-ever default on the national debt if House Republicans and President Biden fail to strike a deal.
The blueprint from the Problem Solvers Caucus – which includes 32 Republicans and 32 Democrats in the House – calls for suspending the debt ceiling through Dec. 31, 2023, and proceeding with the typical budget and appropriations cycle to "remove immediate pressure of defaulting on our national debt."
In the meantime, the group of centrists would establish an independent fiscal commission to come up with a plan to deal with the $31 trillion in debt over the long term. Recommendations from the commission would be due to Congress in December 2024 – after the next presidential election – and would then be voted on no later than February 2025.
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"The debt ceiling and debt crisis demand a two-party solution," said Problem Solvers co-Chair Rep. Brian Fitzpatrick, R-Pa. "We must never allow our nation to default on our debt, we must never put our nation’s full faith and credit at risk, and we must insist on responsible budget reform measures."
The debt ceiling, which is currently around $31.4 trillion, is the legal limit on the total amount of debt that the federal government can borrow on behalf of the public, including Social Security and Medicare benefits, military salaries and tax refunds.
The U.S. government bumped up against that limit in January, prompting the Treasury Department to initiate a series of actions that are known as "extraordinary" measures and are intended to stave off a default. It's unclear how long the measures can be used to avoid the Treasury running out of cash; earlier this year, Treasury Secretary Janet Yellen projected the measures will keep the government funded until at least early June.
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The backup plan from the House moderates comes amid a lengthy standoff over the debt limit. Republicans, who control the House, have promised to raise the borrowing limit only in exchange for deep spending cuts. In turn, Biden and his fellow Democrats, who control the Senate, have refused to negotiate and insisted on a "clean" debt ceiling bill that does not include any cuts.
House Speaker Kevin McCarthy, R-Calif., on Monday proposed a one-year debt ceiling increase accompanied by a set of spending cuts and policy changes. However, it is unclear whether the measure could draw the support of a majority of House Republicans.
"A no-strings-attached debt limit increase will not pass," he said in a speech on the floor of the New York Stock Exchange.
If the U.S. failed to raise or suspend the debt limit, it would eventually have to temporarily default on some of its obligations, which could have serious negative economic implications. Interest rates would likely spike, and demand for Treasurys would drop; even the threat of default can cause borrowing costs to increase, according to the Committee for a Responsible Federal Budget.
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While the U.S. has never defaulted on its debt before, it came close in 2011, when House Republicans refused to pass a debt-ceiling increase, prompting rating agency Standard and Poor's to downgrade the U.S. debt rating one notch.
