According to Senate GOP leader Mitch McConnell, who had vowed Republicans won’t cooperate in raising the limit, said on Tuesday that he has since struck a deal with Senate Majority Leader Chuck Schumer to increase the government’s borrowing authority with only Democratic votes. McDonnel told reporters at the Capitol that “I think this is in the best interests of the country” and “in the best interests of Republicans”. Schumer has been adamant in saying that he wanted to avoid a lengthy and convoluted process, and that Democrats would carry the burden of raising the debt limit. The news quickly reverberated in the Treasury bill market, with those maturing in December rallying, as traders reduced the discount for the possibility of a delayed payment on the securities. Yields on bills maturing during the second half of December shed as much as 3 basis points after the debt agreement was reported, with the rate on the December 30th bill falling to about 0.045%.
The plan, which was moving toward a House vote on Tuesday, would create a procedure to raise the debt ceiling with a simple majority in the Senate as part of a bill to prevent automatic Medicare cuts at the start of the new year. Once that passes, the 50-50 Senate would later act on the debt ceiling, sending that legislation to the House. Furthermore, Democratic senators said they are discussing an increase to allow borrowing through 2022, something that would take about a $2 trillion increase. The bill setting up the debt limit process would need 10 Republican votes in the Senate to advance, but does not itself raise the debt limit. A second bill, which would then be used to go and actually raise the ceiling could be passed with only Democratic votes. Senator John Thune of South Dakota, the chamber’s Number 2 Republican, said that he believes the 10 Republican votes exist to make it work. This approach would tie action on the debt ceiling to stave off nearly 10% in mandatory cuts to Medicare payments under the so-called Paygo law, set to go into effect on January 1st. The pending cuts have alarmed hospital and doctors groups that say Medicare fee-for-service payments could be reduced by $14.1 billion in 2022, unless there’s action to stop them. These cuts would also affect trade adjustment assistance, which helps workers who have lost their jobs due to trade-related circumstances, and farm price supports. Congress has previously waived the Paygo rule.
According to Missouri Republican Senator Roy Blunt, “A lot of people don’t want to cut, or be part of these cuts”. The Biden administration welcomed the agreement, which would allow Senate Democrats to continue their work on President Joe Biden’s almost $2 trillion tax and social spending plan. Congressional Democrats found themselves searching for a route to avoid the government defaulting on its obligations, as Senate Republicans insisted that Democrats would have to deal with the debt limit on their own. Senate Democrats have resisted for months in raising the debt ceiling, using a multi-week budget reconciliation process.
Treasury Secretary Janet Yellen has warned that the government could hit the debt limit and have difficulty meeting its obligations after December 15th, though outside analysts have said the government has a bit more time. Back in October, Congress added $480 billion to the U.S. debt ceiling after 11 Republicans allowed a bill making the increase to pass the Senate. McConnell at the time, vowed this would be the last time Republicans came to the aid of Democrats on the debt ceiling matter. So as you can see, we are most definitely a split party when it comes to this issue, which of course isn’t fair to the millions of seniors that are left simply waiting on the outcome.