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SHUTDOWN: Debt Debate Gearing Up

Portions of the federal government have been shut down for three full days, and lawmakers remain stalemated over government spending.

The White House, however, has bigger concerns.

"It's something called raising the debt ceiling," President Obama said Thursday while visiting a small business in Rockville, Md.

Why is it so difficult to end the government shutdown?

The last time there was a partial shutdown of the federal government, there was a Democrat in the White House and Republicans controlled the House of Representatives. That's where the similarities end.

As the government shutdown enters its third day, Democrats and Republicans seem no closer to bridging their differences than they were when the shutdown began early Tuesday morning. It's difficult to say when the standoff will end. The two shutdowns that occurred in 1995 and 1996 lasted a total of 27 days. And back then, the conditions for getting to a deal were much better.

Republicans won the House and Senate in the 1994 midterm elections - the first time the party had a House majority in 40 years. That set up a showdown between House Speaker Newt Gingrich, who had run on a conservative platform, and then-President Bill Clinton. That dispute came in 1995, when Gingrich wanted to balance the budget in a short time frame and Clinton wanted money spent on Democratic priorities. After two separate shutdowns and several weeks, the pressure was too high on Republicans and they cut a deal with Clinton: he would get his priorities, but would have to balance the budget for 10 years.

"They were kind of testing each other," said former Rep. Tom Davis, R-Va., who was a freshman in Congress at the time. Afterward, Davis noted, Clinton and Gingrich would go on to work together on a host of issues including welfare reform. The economy boomed, helping to mitigate budget issues.

Republicans who were lawmakers or aides in Congress in 1995 cite a variety of reasons that the shutdown ended. For Davis, it was the mounting public pressure on Republicans and their rapidly dropping poll numbers that helped spur a compromise. "There was a revolt, and they simply couldn't hold their members after a while," he said of the Republican leadership. It didn't help that Republicans were afraid of losing the first majority they'd had in decades. Davis recalls going to former Rep. Dick Armey, then the Republican Majority leader from Texas, and saying, "We're getting our butts kicked."

But Bob Walker, then a Republican congressman from Pennsylvania, had a different take from the conventional narrative that Republicans had caved. "We stayed focused in 1995 on the fact that what the end result for us was to get a pathway to a balanced budget, and so in the end when we got an agreement to just begin the process of moving toward a balanced budget," he said. "We declared victory on that and we were prepared to then get the government back into action."

This time, it's not so easy for Republicans to achieve even a piece of their chief goal - to dismantle the Affordable Care Act. The law is President Obama's signature policy achievement, and its constitutional authority was affirmed by the Supreme Court. Democrats in the Senate and Mr. Obama himself have proven with the shutdown fight that they are determined to keep the law intact.

"We didn't get an immediate balanced budget obviously but what we got was a seven-year plan toward a balanced budget that then ended up being accomplished in there years," Walker said of the House Republicans in 1995. But nowadays, he said, "I'm not certain I see where the bottom lines are."

Yet another explanation of why the 1995-1996 shutdown ended had to do with presidential politics. Former Senate Majority Leader Bob Dole, R-Kansas, was eyeing a presidential bid against Clinton in 1996.

"He just got sick of it. I think he started seeing that this was directly impacting his ability to run for president," said John Feehery, a political strategist who was the communications director for then-House Majority Whip Tom DeLay during the shutdown. Dole was key to engineering an end to the shutdown, a fact that was apparent to everyone - even Democrats.

"It was a huge factor," said American University professor Patrick Griffin, who served as Clinton's assistant for legislative affairs from 1994 to 1996. "We could always sense that there was no love lost between him and [Gingrich] - on the [Contract with America], on the shutdown. It was just not Dole's style...he was wasting time, he was not being able to get his campaign."

If anything, presidential politics will lengthen the shutdown. Mr. Obama has no re-election campaign to worry about - like Clinton did at the time - and Republican presidential campaigns cannot be won without pleasing an active base that hates the healthcare law. It would be difficult for any Republican to help broker a compromise that preserved most of Obamacare and then woo Republican primary voters.

Not that many Republicans feel as if they can work with Mr. Obama. "Many people in Congress ...believe that the president treats them with contempt and so the atmosphere for negotiating is not very good. That's a big difference," said Walker.

House Speaker John Boehner, R-Ohio, and Mr. Obama have tried and failed to negotiate big deals several times. Since the government shut down on Tuesday, they've barely talked aside from a meeting the president held with top congressional leaders Wednesday afternoon.

And a recent Politico story that detailed how Boehner and Senate Majority Leader Harry Reid, R-Nev., worked together to preserve congressional subsidies for healthcare coverage will likely have poisoned the well between the leaders of the two chambers.

That wasn't the case with Gingrich and Clinton, despite their differences. "Both President Clinton and Speaker Gingrich had a pretty civil and reasonably good personal relationship," said Mack McLarty, Clinton's first chief of staff as president. Both hailed from the south, and had "very inquisitive minds" about the world around them.

Perhaps the biggest roadblock to a deal, however, is the increasingly partisan nature of Congress caused by congressional redistricting that puts many members into seats where fewer and fewer constituents are from the opposite party. In 1995, more than 34 percent of Republican representatives in the House were elected in districts that had voted for Clinton as president. Now, only seven percent of House members come from districts that voted for Mr. Obama.

There's a larger proportion of hardline conservatives in the House in 2013, and they have so far been more successful at driving the agenda than their more moderate counterparts. "The-rank-and-file members are sick and tired of the rebels running the thing but there's too many of them who vote with the rebels to protect their flank," Feehery said, referring to Republicans who are worried about receiving a primary challenge from the right.

With so many factors working against a deal, it's hard to see a way out of the crisis. The only thing that's guaranteed to inject some urgency into the debate is the looming deadline to raise the debt ceiling on Oct. 17. While a government shutdown can have minimal effects on the financial markets, the possibility of the U.S. defaulting is much more likely to cause financial panic that could push lawmakers into a deal.

Plus, if the spending and debt ceiling deals morph into one, there may be more issues on the table to discuss such as the sequester and the whole federal budget. That, Walker said, will give Republicans more areas where they can look for victory.

The debt limit is the nation's statutory borrowing limit, and as the president explained, "It sounds like we're raising our debt, but that's not what this is about." Congress decides through separate spending bills how much debt to rack up; the debt limit is simply the amount that the U.S. Treasury is allowed to pay back.

"You don't save money by not paying your bills," Mr. Obama said, likening the scenario to eating a pricey meal and then refusing to pay the tab. "You don't reduce your debt by not paying your bills. All you're doing is making yourself unreliable and hurting your credit rating... Well, the same is true for countries."

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In depth: Government shutdown 2013

Currently, the debt limit stands at $16.69 trillion. The Treasury actually hit that limit in May and has been using "extraordinary measures" since then to avoid defaulting on the nation's debts. Treasury Secretary Jack Lew has said those extraordinary measures will be exhausted on Oct. 17, and at that point, if Congress doesn't raise the debt limit, the U.S. would have to use cash balances on hand to fund the nearly $4 trillion in operations of the government. Doing so would put at risk the nation's financial obligations to programs like Social Security and Medicare.

"What I can tell you is that in the absence of action, we're looking at a very real deadline that we will not have the ability to borrow money after Oct. 17th. And we will run down our cash very quickly," Lew said on Fox Business Network on Thursday.

The Treasury Department on Thursday released a report on the potential economic impact of debt ceiling brinksmanship, noting that a default could freeze credit markets, sink the value of the dollar and send interest rates skyrocketing. In 2011, when Congress merely flirted with the prospect of letting the nation default on its loans, the Dow Jones Industrial Average dropped over 2,000 points and Standard and Poor's downgraded the United States' credit rating.

Mr. Obama warned Thursday that for all of the negative consequences of a government shutdown, "an economic shutdown that results from default would be dramatically worse."

"In a government shutdown, Social Security checks still go out on time. In an economic shutdown, if we don't raise the debt ceiling, they don't," he said. "In an economic shutdown, falling pensions and home values and rising interest rates... all those things risk putting us back into a bad recession."

He reiterated that he will not negotiate over the debt limit.

"There will be no negotiations over this," he said. "The American people are not pawns in some political game. You don't get to demand some ransom in exchange for keeping the government running... for keeping the economy running."

However, with little progress over the spending bill (referred to as a continuing resolution, or CR) that would re-open the government, House Republican leaders have said they'll attempt to use the debt limit as a bargaining chip in economic negotiations.

On Thursday, the New York Times reported that Boehner has told members of his caucus that he will not let the nation default on its debt and will be willing to put a bill on the House floor to raise the debt ceiling, even if it doesn't have the support of a majority of House Republicans.

Still, the White House on Thursday sounded skeptical.

"Even the story that you cite," White House spokesman Jay Carney said in response to the Times' report, "which reports that the Speaker said something privately to Republican members, one of his spokesmen was on the record basically reiterating the same list of demands associated with raising the debt ceiling that we've seen in the past."

Carney added, "We are very concerned about the possibility that Republicans in the House will employee the same unfortunate tactics when it comes to the fundamental responsibility to raise the debt ceiling, and make sure that the United States doesn't default, as they have employed in shutting down the government."

With Congress coming so close to the Oct. 17 deadline set by the Treasury, some have suggested Mr. Obama should bypass Congress. Senate Finance Committee Chairman Max Baucus, D-Mont., reportedly said that invoking the 14th Amendment to raise the debt limit is "an option that should seriously be considered."

Some say the 14th Amendment gives the president authority to tell the Treasury Secretary to continue financing the nation's deficits through the sale of Treasury notes and bonds. The relevant section of the 14th Amendment says in part, "The validity of the public debt of the United States, authorized by law... shall not be questioned."

However, the Obama administration on Thursday was quick to shoot down that suggestion.

"This administration does not believe that the 14th Amendment gives the power to the president to ignore the debt ceiling," Carney said. "Moreover, even if the president could ignore the debt ceiling, the fact that there is significant controversy around the president's authority to act unilaterally means that it would not be a credible alternative to Congress raising the debt ceiling and would not be taken seriously by the global economy or the markets, and that is essentially the point of faith and credit."

He continued, "The reason why our economy is the envy of the world, the reason why our currency is the reserve currency of the world is because of that faith that investors around the world have in our constancy. They know that we pay our bills. They know that we're true to our word. And so even the doubt that would be created by that would undermine the faith that's the whole point of this exercise."

Indeed, when bypassing Congress via the 14th Amendment came up as an option in 2011, some lawmakers cried foul. Republican Sens. Lindsey Graham of South Carolina and John Cornyn of Texas introduced a resolution making clear that Mr. Obama does not have the authority to pull off a "debt limit dodge," as they called it.

Shutdown: Who's to blame and when will it end?


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