Negotiating Dynamics in the Debt Limit Debate

The House approved legislation this week that raises the federal debt limit and reduces government spending. The chamber narrowly passed the Limit, Save, Grow Act of 2023 (HR 2811) only after Speaker Kevin McCarthy, R-Calif., won over Republican holdouts in a flurry of last-minute negotiations. The final vote was 217 to 215. All but four Republicans voted to pass the measure. All Democrats opposed it.

The House vote - nearly party-line - constitutes the official first act in Congress’s debt limit debate. Republicans in the House and Senate hope that the vote will force Senate Democrats and President Biden to negotiate with them over how to raise the debt limit. Representative French Hill, R-Ark., described the purpose of the House vote as “to compel the president to negotiate” by demonstrating that “McCarthy has the votes to raise the debt ceiling.”

But Democrats don’t appear interested in negotiating over the debt limit.

Before the House voted, Democrats sought to downplay the Republican proposal’s significance. Majority Leader Chuck Schumer, D-N.Y., referred to it as “a bill that might as well be called the Default on America Act. Because that’s exactly what it is - DOA, dead on arrival.” Chris Murphy, D-Conn., pointed to Republicans’ last-minute changes to the bill as evidence for why Democrats should not negotiate with them. “This very public display of dysfunction is a clear indication of how disastrous a negotiation would be. I mean, these guys can’t negotiate amongst themselves.” And President Biden doubled down on the Democratic position of refusing to negotiate with Republicans even after the House vote. “Happy to meet with McCarthy, but not on whether or not the debt limit gets extended…That’s not negotiable.”

Yet notwithstanding Biden’s assertions, Democrats’ stated refusal to negotiate with Republicans over the debt limit is their negotiating posture. Republicans want to reduce federal spending. And they believe that Congress’s need to increase the debt limit gives them leverage. In contrast, Democrats want Congress to raise the debt limit without cutting spending. And they are trying to create an environment in which Republicans feel pressured to support doing so by refusing to negotiate with them.

Dynamics of Legislative Negotiation

Legislative negotiations - like the present debate over the debt limit - may end in two ways. First, lawmakers on one side may give up because they believe winning is no longer possible. In the present case, Congress passes a debt limit bill with or without spending cuts when that happens.

More often, lawmakers stop trying to win a debate because they believe the costs of victory are unacceptable. The outcome - in this case, the passage of a bill to increase the debt limit with or without spending cuts - determines the sacrifices lawmakers on both sides of a debate are willing to make to win. The debate ends when lawmakers on one side or the other conclude that the costs of winning it exceed the value of victory.

Anything can happen in Congress because lawmakers’ expectations regarding the likelihood of winning and its costs are not determined in isolation. Instead, they depend on what other lawmakers do and say. That is, costs are determined by Democrats’ or Republicans’ expectations of how their adversaries will behave during a debate. Consequently, each side tries to manipulate the other’s expectations to make it more likely that they will win and the other will lose.

Importance of Coercive Threats

The House vote and Democrats’ non-negotiable negotiating posture are two sides of the same coin. They are both examples of things that lawmakers do over the course of a debate to increase the likelihood that their side wins it. First, Lawmakers try to persuade their opponents that it is in their interest to adopt particular behavior or refrain from taking specific actions. Lawmakers want to convince their opponents that failure to do so will result in retaliation subjecting them to more significant costs. (In this case, the retaliation is understood as the political and economic costs that Democrats and Republicans associate with not increasing the debt limit.) 

Winning a legislative debate depends on lawmakers’ ability to compel behavior or deter action. And they make coercive threats over the course of a debate to influence their opponents’ behavior. Coercive threats either compel specified behavior or deter anticipated action.

A side using coercive threats to compel action must be willing to make the first move; it must take the initiative. In addition, lawmakers must be willing to sustain the threatened action until the other side adopts the behavior that they are using the coercive threat to compel.

In contrast, a side that utilizes coercive threats to deter behavior has to only make the threat and wait. In the process, it cedes the first move in the debate to lawmakers on the other side. But the strategic goal of its deterrent threat is to successfully persuade the other side to refrain from their anticipated action. It, therefore, shifts the initiative to them in a way that limits their choices.

A coercive threat to compel action is successful when lawmakers whose behavior is to be compelled believe that the costs of the threat for those making it do not exceed the benefits they hope to gain. In contrast, a deterrent threat does not have to be tolerable to the lawmakers making it. Instead, the most important consideration when assessing the threat’s value is the degree to which those threatened believe their opponents will carry out the threat.

The Takeaway

What happens next in the debt limit debate depends on how the legislative negotiation between Democrats and Republicans unfolds over the coming weeks. Congress will raise the debt limit with spending cuts if Republicans are able to convince Democrats to negotiate with them. But Congress will raise the debt limit without spending cuts if Democrats are able to persuade enough Republicans that the House proposal is irrelevant and that the only way Congress can increase the debt limit is without spending cuts.