It’s time for some debt ceiling game theory. Treasury Secretary Janet L. Yellen has said the government will be unable to pay all its bills absent an increase in its $31.4 trillion borrowing limit as soon as next week, though no one can be sure when the so-called X-date will actually arrive. When, if ever, will the political incentives of the White House and the House Republican caucus align enough for a deal to be struck? The rules of this high-stakes game might be wackier than either side has appreciated.
Consider two possible features of debt ceiling brinkmanship: First, Republican political leverage will increase as the X-date draws closer. The administration has committed itself to a position that reaching the date without a deal would be financially catastrophic, while Republicans are more skeptical. That means Democrats will feel more pressure to make a deal.
But if the X-date is reached without a deal, the balance of power could shift. Suddenly, the administration will be in the driver’s seat — deciding, to the best of its legal and technological abilities, how to run the government without enough money to meet its obligations. In a post-X-date world, the executive branch will get new powers by default (no pun intended) and could use them to squeeze Republicans politically.
Start with Republicans’ growing advantage. In a CNN poll, 60 percent of respondents said they wanted spending cuts attached to a debt ceiling increase — the basic House GOP demand that President Biden initially rejected — while a Fox News poll found that Biden would take slightly more political blame for a default.
But the GOP advantage goes deeper than polling. The first rule of brinkmanship is that credibility matters. In a standoff, the party that is more willing (or perceived as more willing) to do what it is threatening to do has the advantage. Republicans are — probably rightly — perceived as more willing to tolerate the risk that comes from encountering the X-date.
Without the ability to borrow more, the government would have about 75 percent of the revenue it needs to cover its obligations at current rates. As a Wall Street Journal op-ed argued, the Treasury could then prioritize certain payments over others, and would have at least some legal basis for doing so. Discriminating between millions of payments would be a massive logistical challenge, but the government would have no choice but to try.
Paying interest on the debt would presumably take first priority, with defense and entitlement obligations close behind. Republicans might be calculating that, just as in a government shutdown, primarily discretionary spending would be delayed after X-date. Guess what: Nondefense discretionary spending is precisely the part of the budget the House GOP wants Biden to agree to cut.
The Treasury has refused to countenance this idea. Yellen told Congress in March, “Not paying any of our bills is default.” Maybe markets would see it that way immediately, but maybe not. If House Republicans doubt that the X-date would bring catastrophe, at least for their priorities, they would be more willing to hold out for a deal after the date has passed.
But at that point — assuming the world financial system is still standing — the political balance would start to shift. The Bipartisan Policy Center warns that Treasury prioritization after the X-date would involve “forcing executive branch officials to pick winners and losers,” or paying some government invoices and delaying others. Another way of putting this is that Congress will have, in effect, ceded to Biden officials emergency control over parts of the federal budget.
The administration’s current political strategy is based on the idea that such a contingency is unthinkable. But “Dark Brandon” — the affectionate nickname bestowed by the president’s supporters when he appears politically ruthless and effective — would be mulling ways to exploit it. Targeting budget cuts for political messaging advantage is an old executive-branch trick. After the X-date, the administration could coordinate its attacks on Republicans with its budgetary decisions.
For example, the Treasury could determine — based, of course, on the best legal guidance and economic analysis — that a number of contracts in swing districts represented by Republicans simply must be delayed for the sake of the government’s solvency. The goal would be to either move overall public opinion against the GOP, or else put enough constituent pressure on specific Republican members that they need a deal to stop the pain.
Republicans are emboldened in part because they think the X-date would not be the crisis that Democrats say. But if Republicans are right and there is no immediate catastrophe, then the administration could start to “pick winners and losers” as negotiations continue. The executive branch will have a source of initiative unavailable to the congressional GOP.
These two features of the standoff — strong Republican leverage before the X-date, and increasing Democratic leverage afterward — could create incentives for a just-in-time deal. But any deal before the X-date is likely to be quite favorable to the GOP and painful if not humiliating for Biden. If a Democratic-friendly deal is possible, it probably involves the administration’s breaching the debt ceiling that Yellen has insisted is inviolate, and gambling on recovering its leverage in the economic and legal suspended animation that would come after.