(Updated with comments from Toomey, the Treasury, and the Fed in the sixth and seventh paragraphs.)
President Barack Obama, Treasury Secretary Timothy Geithner, and even Republican House Speaker John Boehner all agree: Failure to raise the $14.3 trillion debt ceiling would cause a fiscal apocalypse, wreck the good faith and credit of the U.S. for decades, and destroy millions of jobs. Yet Republican Representative Paul Gosar, an Arizona dentist who rode the anti-Washington Tea Party wave into office in November, isn't buying it. "I think there's a lot of question as to that doom and gloom," he says.
With the U.S. projected to reach the statutory ceiling sometime between Apr. 5 and the end of May, the biggest uncertainty isn't whether Congress will raise the limit but what it will take to persuade Republican insurgents such as Gosar to get with the program. "Raising the ceiling is virtually inevitable," says Stan Collender, a former congressional budget analyst and managing director at Qorvis Communications in Washington. "The only question is: Who's going to blink first?"
A first skirmish could come within weeks. Stopgap funding for the current fiscal year runs out on Mar. 4. In exchange for approving an extension, some Republicans are demanding cuts ranging from $60 billion to $100 billion in non-security discretionary programs this fiscal year, which ends Sept. 30. The White House, however, has signaled it will resist any cuts beyond the five-year freeze in discretionary, nonsecurity spending Obama proposed last month, which would save $400 billion over the next decade. In addition, the President made clear he would oppose any attempt to scale back entitlements such as Social Security or Medicare. And cuts in programs that make up his new innovation agenda—education, research, and infrastructure spending—aren't up for discussion.
Some Tea Party Republicans may relish the opportunity for a deadlock with Obama leading to a government shutdown. That's an outcome Boehner will seek to avoid: In 1995, he had a front-row seat to the public outrage directed at his party when it forced a government shutdown in a confrontation with President Bill Clinton.
Nonetheless, Boehner and other Republican leaders, who owe their House majority to the Tea Party, remain intent on using the threat of default to push Democrats to slash spending. Failing to raise the debt ceiling would be "a financial disaster," Boehner said on Fox News on Jan. 30. But "if the President's going to ask us to increase the debt limit, then he's going to have to be willing to cut up the credit cards."
Where Boehner would use scissors, some in his party advocate breaking out a chainsaw. Senator Pat Toomey, an antitax freshman from Pennsylvania, has proposed requiring the U.S. to pay interest on the debt before any other federal spending. This would allow the government to avoid raising the debt limit, he claims, and at the same time reduce by one-third the amount of money available in the budget, forcing drastic cuts. Aides stress that Toomey is proposing only a temporary solution to avoid a default on U.S. bonds if there is a political impasse in Congress. "The most irresponsible thing we can do is continue to raise the debt ceiling without reining in spending," Toomey said in a statement.
Treasury officials say Toomey's idea is unworkable because it wouldnï¿½t protect salaries for the military and government workers or many other contractual obligations. "If payment of these obligations were abruptly stopped, the world would recognize it as a first-ever failure by the United States to meet its commitments," Treasury Secretary Timothy Geithner said in a Feb. 3 letter to Toomey. Federal Reserve Chairman Ben Bernanke also cautioned lawmakers about not raising the debt ceiling, saying such an action could put the U.S. "into a position of defaulting on its debt and the implications of that, for our financial system, for our fiscal policy, for our economy, would be catastrophic."
Illinois Senator Mark Kirk is pushing to hold a series of votes extending the ceiling for a month or two, with each one tied to deeper spending curbs.
That may not play too well in financial markets. To prevent a default, Geithner has tried to build relations with key congressional Republicans. Since January, he has spoken or met with House Speaker John Boehner of Ohio, Ways & Means Chairman Dave Camp of Michigan, Majority Leader Eric Cantor of Virginia, and Budget Committee Chairman Paul Ryan of Wisconsin. Treasury also has taken steps to put off hitting the debt limit. Last week, the department announced that it expects to borrow $237 billion during the first quarter, less than previously estimated. The lower projection was a result of Treasury scaling back a special Federal Reserve borrowing program, freeing up more headroom to finance government operations. Treasury aides say the department will consider other delaying tactics.
The bottom line: Both party's leaders support raising the debt ceiling. The Tea Party is attempting to use the ceiling to force spending cuts.