2011 Debt Limit Debate Demonstrates How Legislative Deals Happen

The federal government hit its $31.4 trillion debt limit on January 19. As a result, the Treasury Department is using extraordinary measures to keep the government below its borrowing cap. Treasury officials estimate that the government will exhaust those measures by June 5. 

Yet it is not clear how Congress will raise the debt limit by that date. House Republicans want to attach spending cuts to the debt limit. But Democrats refuse to negotiate over the debt limit altogether. They want Congress to pass a clean debt limit increase – without spending cuts - instead.

But the conflicting demands of House Republicans and Senate Democrats do not mean that Congress cannot raise the debt limit by early June. On the contrary, how lawmakers overcame a similar impasse in 2011 suggests that Republican threats to oppose raising the debt limit without cutting spending could successfully force Democrats to the negotiating table.

The 2011 Debate

The government hit its $14.3 trillion cap on May 16. As a result, the Treasury Department implemented extraordinary measures to stay below the borrowing cap until Congress could act. At the time, Treasury Secretary Geithner informed lawmakers that they had until August 2 to raise the debt limit. That was when Treasury officials estimated that the government would exhaust its ability to keep the government from breaching the debt limit using extraordinary measures.

However, it was unclear how Congress would meet Geithner’s August deadline. The Republican-controlled House and Democratic-controlled Senate appeared too far apart to compromise. Republicans wanted to attach spending cuts to legislation increasing the debt limit. And Democrats opposed adding spending cuts to legislation increasing the debt limit. They demanded instead that Congress raise the government’s borrowing cap by $2.4 trillion without cutting spending.

Accounts of the 2011 debate credit Minority Leader Mitch McConnell, R-Ky., and then-Vice President Joe Biden with making it possible for Congress to raise the debt limit. But a closer look at how that debate unfolded suggests that McConnell and Biden were not solely responsible for how it ended. Instead, Republican threats to not raise the debt limit without cutting spending created an environment in which McConnell and Biden (along with Majority Leader Harry Reid, D-Nev.) would eventually be able to negotiate a deal. Moreover, the fact that McConnell and Biden repeatedly tried and failed to negotiate an agreement to increase the debt limit without cutting spending before they succeeded in negotiating a deal that cut spending suggests that Republican threats – not McConnell’s negotiating skills - eventually persuaded Democrats to come to the table.

Republican Divisions

Many House and Senate Republicans rejected the deal-at-any-cost mentality that Speaker John Boehner, R-Ohio, and McConnell exhibited early in the 2011 debt debate. The divide between the leaders and rank-and-file Republicans deprived Boehner and McConnell of leverage in their negotiations with Democrats. And it indicated that the talks would fail if Democrats continued to oppose Republican demands. The divide also scuttled a separate round of talks between President Obama and Speaker Boehner. In each round of negotiations, Boehner and McConnell could not negotiate a deal to raise the debt limit with Democrats and rank-and-file Republicans that did not include spending cuts. As a result, the two leaders' negotiating skills were immaterial as long as Republicans stuck by their demands and Democrats refused to budge.

McConnell weakened his negotiating position on June 19 when he announced that he would support a clean short-term debt limit increase if Democrats continued to oppose Republican efforts to attach spending cuts to it. In addition, McConnell asked his fellow Republicans to join him in raising the debt limit without cutting spending so that Congress could avoid defaulting on the nation’s debt. 

But House and Senate Republicans rejected McConnell’s request. Instead, they advocated a so-called cut, cap, and balance deficit reduction plan. Unlike McConnell's plan, the Republican cut, cap, and balance proposal cut spending immediately (i.e., in fiscal year 2012), capped discretionary spending moving forward, and called for Congress to pass a balanced budget amendment to the Constitution. The House passed the Cut, Cap, and Balance Act of 2011 (HR 2560)  on July 19 by a vote of 234 to 190. But the Democratic-controlled Senate rejected the plan the following day by a vote of 51 to 46.

McConnell tried and failed again on July 12 to negotiate a deal to raise the debt limit without spending cuts. The minority leader’s proposal empowered the president to raise the debt limit after notifying Congress. In addition, McConnell's proposal allowed lawmakers to oppose the debt limit while ensuring it would be increased. As a result, Congress could stop the president from raising the debt limit by passing a resolution disapproving it. But the president could veto that resolution, requiring the House and Senate to override the president's veto by a two-thirds vote.

A cross-section of the Senate Republican Conference opposed McConnell’s proposal. For example, conservatives opposed the plan. And Jim DeMint, R-S.C., and Mike Lee, R-Utah, pledged to filibuster it. Bob Corker, R-Tenn., criticized how McConnell developed the proposal in secret. And House Republicans opposed McConnell’s proposal. They called on Speaker Boehner to block a floor vote on McConnell’s proposal.

McConnell tried and failed yet again to negotiate a deal to increase the debt limit after rank-and-file Republicans in the House and Senate rejected his latest proposal. Specifically, McConnell started negotiations with Majority Leader Reid over a deal to increase the debt limit without cutting spending. The subsequent McConnell-Reid proposal was based on McConnell’s complex debt limit disapproval process. The two leaders added a special commission to the plan to create the impression that it cut spending without actually cutting spending. Instead, the commission would merely recommend spending cuts. While its recommendations would receive fast-track consideration on the House and Senate floors, there was no guarantee that the recommended spending cuts would happen because both chambers had to agree to approve them. The president had to sign them into law before they could take effect. As before, lawmakers rejected the McConnell-Reid plan to increase the debt limit because it did not guarantee that its spending cuts would take effect.

The Budget Control Act

McConnell approached Reid and Biden to negotiate another debt limit deal after the Reid-McConnell proposal faltered. The Senate rejected a last-minute offer by House Republicans to offset the debt limit by cutting spending and raising revenue. Yet, in a departure from previous efforts, McConnell acknowledged upfront this time that any deal to increase the debt limit had to cut spending to be successful. 

Details of the McConnell-Biden deal first emerged on July 30. The plan raised the debt limit by $2.4 trillion – the level Democrats initially demanded – in two steps. And $2.4 trillion in spending cuts would offset the debt limit increase – what Republicans initially demanded. Nearly half of the total amount - $1 trillion - would take effect immediately. A joint House-Senate committee would then identify the remaining $1.4 trillion in spending cuts. The joint committee's recommendations would receive fast-track consideration in the House and Senate. Finally, the plan imposed across-the-board spending cuts to achieve the remaining $1.4 trillion in spending cuts if Congress failed to enact the committee’s recommendations – or if the committee failed to report any suggestions.

The Takeaway

The House passed the Budget Control Act (Public Law 112-25) on August 1 by a vote of 269 to 161. The Senate passed it on August 2 by a vote of 74 to 26. The entire process took three days once congressional leaders realized that House Republicans’ threats to oppose raising the debt limit without cutting spending were credible.