Sen. Susan Collins suggested this week that some Republican lawmakers could support an effort to raise the debt ceiling if Democrats agreed to abandon a sprawling $3.5 trillion tax and spending bill that consists of the bulk of President Biden's economic agenda.
"Some Republicans would vote to raise the debt limit if they knew the Democrats were going to abandon the $3.5 trillion package, which appears unlikely, but that's an agreement that could be reached," the Maine Republican told reporters on Monday.
Democrats – who are hoping to dramatically expand the social safety net in their partisan bill – immediately rejected the compromise offer. Although details of the multitrillion-dollar measure are still being negotiated, it's expected to ultimately include billions to expand Medicare, establish free community college, provide paid family leave and combat climate change.
"I will not negotiate with someone over whether or not they are going to destroy the full faith and credit of the United States," Sen. Brian Schatz, D-Hawaii, wrote on Twitter.
For weeks, lawmakers have been at a stalemate over the debt ceiling: Democrats are pressuring Republicans to support an effort to raise or suspend the ceiling, adamant that they won't stick it in the reconciliation bill. But Senate Minority Leader Mitch McConnell, R-Ky., has rejected an appeal by Treasury Secretary Janet Yellen to raise the ceiling, arguing that Democrats have the ability to go it alone.
The gridlock worsened this week, with Biden excoriating Republicans for blocking an effort to raise the debt ceiling, slamming them as "reckless" and "disgraceful."
"A meteor is headed to crash into our economy," Biden said. "Democrats are willing to do all the work stopping it. Republicans just have to let us do our job. Just get out of the way. You don’t want to help save the country? Get out of the way so you don’t destroy it."
If the U.S. failed to raise or suspend the debt limit, it would eventually have to temporarily default on some of its obligations, which could have serious and negative economic implications. Interest rates would likely spike, and demand for Treasurys would drop; even the threat of default can cause borrowing costs to increase.
Moody's, a financial analysis firm, has warned that a failure to increase the limit could precipitate a 4% decline in economic activity, the loss of nearly 6 million jobs and an unemployment rate of close to 9%.
The Treasury Department began implementing so-called extraordinary measures to keep the government running after the debt limit was reinstated in August around $22 trillion – about $6 trillion less than the actual level. Yellen has told Congress the federal government will run out of cash to pay its bills by Oct. 18.
The battle to raise the government's borrowing limit carries big risks for state and local officials: With the total debt standing at $28.5 trillion, the government would be forced to slash federal programs unless the cap is either suspended or lifted.
The U.S. has never defaulted on its debt before, although it came close in 2011 when House Republicans refused to pass a debt-ceiling increase, prompting rating agency Standard and Poor's to downgrade the U.S. debt rating one notch.