U.S. debt showdown: 7 questions answered
You've heard this song before: The brinkmanship on Capitol Hill has been ratcheting higher as Washington's fiscal deadlines loom, with the worst-case scenario a severe recession in Canada's biggest trading partner. Here's what you need to know about the latest standoff between Democrats and Republicans.
What's the deadline this time?
There are two. First, Oct. 1 is a new budget year in the U.S. and requires Congress to pass a spending bill to allow agencies to stay open. Second, a mid-month deadline — estimated at Oct. 17 — requires Congress to increase the government's $16.7-trillion debt ceiling to avoid a first-ever default on its payments.
What's the debt ceiling again?
It's a legal limit on how much debt the U.S. government can accumulate. Congress created the debt limit in 1917 and it's unique to the United States. Most countries let their debts rise automatically when government spending outpaces tax revenue. U.S. presidents have a long history of seeking higher debt limits.
What's holding things up?
Republicans are pushing to use the stop-gap spending bill and the increase in the debt ceiling as leverage against Obama's three-year-old Affordable Care Act, often dubbed Obamacare. Republicans, prodded by their conservative Tea Party wing, want to use the temporary spending bill to strip funding from the health-care program. House Republicans also want to attach other provisions to the debt ceiling, including approval of the Keystone XL pipeline from Canada and provisions blocking pollution regulations.
Didn't this already happen?
Yes. In 2011, Republicans extracted $2.1 trillion in spending cuts over a decade for a similar increase in the borrowing cap. Shutdown-averting stopgap spending bills traditionally have been steered clear of these kinds of battles for fear of a politically damaging shutdown. But with the new health-care law poised to enrol millions of people into Obamacare starting Oct. 1, there's a new urgency among opponents to pull out all the stops to try to derail it.
What's different this time?
This time, Obama says he's not budging. A confrontational Obama is betting Republicans blink to avoid a government shutdown or default. The president and his aides maintain there will be no bargaining.
What's at stake?
For Republicans, the risk is that they'll be perceived by American voters as the unreasonable party.
For Democrats, the White House is convinced any concessions would place the president in the position of having to bargain again and again when the next debt ceiling looms. "First they want an arm. Then they want a leg," Obama adviser David Axelrod said.
For Americans, a partial government shutdown would keep hundreds of thousands of federal workers off the job and close national parks. If the U.S. defaults, the government would not be able to pay interest obligations, pension benefits, payments to thousands of contractors, and salaries for the military.
For the rest of the world, a default in the U.S. would have inevitable influence worldwide. Mark Zandi, chief economist of Moody's Analytics, talked to CBC senior business correspondent Amanda Lang about the potential fallout in the U.S.: "Financial markets will be roiled, stock prices will decline, it would be a severe recession and there literally is no policy response to it ... It'll be bedlam. It'll be a mess."
If they get through this, when might the next U.S. government standoff be?
Soon. The stopgap spending bill would keep the government running until Nov. 15.
With files from CBC News and Reuters