Democrats Weigh Using Debt Ceiling Debate to Thwart GOP Tax Cuts

(Bloomberg) -- Congressional Democrats might abandon their calls for raising the nation's debt limit without any conditions, with House and Senate party leaders now discussing whether to use their leverage to try to prevent Republicans from enacting tax cuts for wealthy Americans.

House Minority Leader Nancy Pelosi signaled the shift Friday, telling reporters that “we're not there to raise the debt ceiling to throw a few crumbs to the middle class” and provide big cuts for the wealthy. 

It's unclear how this would work in practice, but Democratic aides in both chambers said they are discussing possible strategies to tie the debt ceiling to blocking tax cuts.

Such an approach would be a significant change for Democrats, who have spent the past eight years arguing that debt ceiling increases should be free from conditions, and could further complicate efforts to raise the government's borrowing authority when the current limit is reached later this year.

Failing to extend the debt ceiling could lead to the U.S. government defaulting on its debt, which may trigger a financial crisis. 

Already, some House Republicans and some key White House officials say they plan to insist on their own menu of spending cuts and other provisions as part of any deal.

‘Clean' Measure

Democrats have been willing in the past to provide Republicans enough support on “clean” debt-ceiling measures to help make up for the loss of votes among conservatives, mostly in the House, who refuse to support them without deep cuts to domestic programs. Democrats were key to helping resolve the 2011 fight over the debt limit, a protracted standoff that contributed to S&P Global Ratings' decision to downgrade the U.S. to AA+ to AAA.

Already, members of the House Freedom Caucus have said they will push for spending cuts in this year's debt-ceiling debate in exchange for their support. On Friday, President Donald Trump's chief economic adviser, Gary Cohn, said the White House would consider spending cuts or policy changes favored by Republicans in order to avert an unprecedented default. That appears to align him with White House budget director Mick Mulvaney, but against Treasury Secretary Steve Mnuchin, who has called on Congress to pass a “clean” debt-ceiling hike.

“Treasury secretary would love to do a clean debt ceiling -- I get that. But if we need to get things attached to get it through, we'll attach things,” Cohn said on CNBC.

Several conservative groups met at the White House last week to discuss a strategy. Ideas they discussed included caps on mandatory programs such as Social Security and Medicare, extending automatic across-the-board spending cuts and matching any debt-limit increase with spending cuts, according to two participants in the meeting.

Republicans in both chambers are seeking to draft and approve a tax-cut package this year that would lower individual and corporate tax rates, although no proposal has been circulated yet. Several leaders, including Senate Majority Leader Mitch McConnell, have said they want any tax overhaul to be revenue-neutral. But Trump has repeatedly promised large cuts.

Earlier this week, he tweeted, "The massive TAX CUTS/REFORM that I have submitted is moving along in the process very well, actually ahead of schedule. Big benefits to all!"

Any debate on taxes, a key campaign promise for Trump and congressional Republicans, likely will come sometime after the debt ceiling must be raised.

Democratic leaders in the Senate plan to discuss the possibility of tying support for an increase to concessions on the tax cuts when lawmakers return from a week-long Memorial Day recess next week, said a Democratic aide in the chamber.

--With assistance from Steven T. Dennis Anna Edgerton Saleha Mohsin and Erik Wasson

To contact the reporter on this story: Laura Litvan in Washington at llitvan@bloomberg.net.

To contact the editors responsible for this story: Kevin Whitelaw at kwhitelaw@bloomberg.net, Justin Blum