Why Mitch McConnell Is Working With Democrats To Lift Debt Ceiling

Senate Minority Leader Mitch McConnell has struck a deal with Democrats that will allow them to raise the U.S. debt ceiling without relying on Republican votes and avoid a potential sovereign debt default.

The House of Representatives approved a measure on Tuesday that will allow Senate Democrats to raise the debt limit with just 51 votes in a one-time procedure.

That procedure will have to be approved by 60 senators before Democrats can proceed to raise the debt ceiling and McConnell has expressed confidence that he has support for the plan.

Some Republicans have criticized McConnell's willingness to make a deal on the debt ceiling and want Democrats to raise it using the budget reconciliation process.

Former President Donald Trump has also been highly critical of McConnell's previous agreement with Democrats, which extended the debt ceiling into December.

Despite GOP criticism, McConnell appears to be focused on the very real threat that failing to raise the debt ceiling represents.

The debt limit—or debt ceiling—is a legal limit on how much the federal government can owe to those who hold the country's debt in the form of Treasury bonds, as well as money the government has borrowed from other federal accounts.

The ceiling must be raised regularly so the U.S. can pay for expenses that have already been authorized by Congress and the president.

Secretary of the Treasury Janet Yellen has warned that the U.S. is likely to hit its current debt limit by December 15. The Bipartisan Policy Center estimates that the U.S. could default on its national debt between December 21 and January 28, 2022.

The date of a potential default is called the "X date" and reaching it could have potentially catastrophic consequences for the U.S. and world economies.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told CNN in September that in the event of a debt default "No one would be spared."

"It would be such a self-imposed disaster that we wouldn't recover from, all at a time when our role in the world is already being questioned," MacGuineas said.

The U.S. has never defaulted on its debt but if it does and a solution is not reached quickly, the federal government would have to make sweeping spending cuts.

Federal workers could go unpaid, while Medicare benefits, military salaries and Social Security checks would also be affected. Almost 6 million jobs could be lost, according to estimates from Moody's Analytics.

Moody's warned in a September report that stock prices could fall by around one-third, "wiping out $15 trillion in household wealth."

"Global financial markets and the economy would be upended, and even if resolved quickly, Americans would pay for this default for generations," Moody's said.

If the debt ceiling is not raised in time, it's also possible for the U.S. to enter "technical default"—meaning the federal government will continue to pay bondholders but not other commitments, such as payments to federal contractors.

However, it is not clear whether the Treasury has the legal authority to pay bondholders and not others, or if a technical default would be less harmful to the U.S.

Even in the event of technical default, ratings agencies including Moody's would be likely to downgrade the nation's credit rating, raising the cost of borrowing and likely resulting in spending cuts and tax rises.

Faced with these possibilities, McConnell has made a deal that will allow Democrats to raise the debt ceiling while also aiming for a political win by providing no GOP votes for the increase itself.

If the one-time process is approved in the Senate, Democrats will then be able to raise the debt ceiling to an exact dollar amount, which is likely to surpass $30 trillion. They will have until January 15, 2022 to do so.

Mitch McConnell Speaks on Capitol Hill
Senate Minority Leader Mitch McConnell speaks on Capitol Hill in Washington, D.C, on October 5, 2021. McConnell has reached a deal with Democrats to raise the debt ceiling. JIM WATSON/AFP/Getty Images