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PRESENTED BY

BY JOHN BRESNAHAN, ANNA PALMER AND JAKE SHERMAN
WITH MAX COHEN AND CHRISTIAN HALL

THE TOP

As far as we can tell, the Democrats’ strategy when it comes to lifting the debt limit is this —  Senate Minority Leader Mitch McConnell and his GOP colleagues will fold and help President Joe Biden and Senate Majority Leader Chuck Schumer extend the government’s borrowing authority. 

On its face, it seems to us like a really risky bet. Why? Because typically when McConnell takes a public position, he stands firm and ignores all public pressure to flip — and he brings his conference along with him. See Brett Kavanaugh, Amy Coney Barrett and Neil Gorsuch.

So we decided to talk to McConnell Tuesday afternoon to get a sense as to where he stands and to test the Democrats’ position for ourselves. After our interview, it seems safe to say that McConnell is intent on holding all Republicans against lifting the debt limit.

Take it away, McConnell:

“Let me make it perfectly clear. The country must never default. The debt ceiling will need to be raised. But who does that depends on who the American people elect. I have voted a number of times to raise the debt ceiling in divided government. 

“I voted to raise the debt ceiling to cover all of the spending through the present, as part of a bipartisan negotiated caps deal between the previous administration, the speaker and myself. So the only issue is, whose responsibility is it to do it? A Democratic president, a Democratic House, a Democratic Senate. 

“We have opposed virtually everything they’ve done this year. They’ve done it through two reconciliation bills, a rescue bill and now they’re trying to do it again. It’s their obligation. They should step up. It’s hard being in the majority. They are the ones who will raise the debt limit.” 

The White House and Democratic leaders believe that McConnell’s support will crumble once the default cliff approaches. Perhaps that’s true — but it would run contrary to recent history in the Senate Republican Conference. One of McConnell’s strong suits is understanding where his conference is and projecting that position publicly. 

McConnell’s standard here is that since Democrats control the White House and Congress, they need to lift the debt ceiling on their own. Democrats are going to have a field day with this one, and they’ll remind the Kentucky Republican that they helped him lift the debt limit multiple times when Donald Trump was in the Oval Office. McConnell doesn’t seem to really care about those arguments. He doesn’t hold himself to the standard that just because Democrats did something, he’ll respond in kind. 

We asked McConnell what he made of the White House and Senate Democrats’ strategy, which is essentially to try to engage him in an intellectual debate about the minority needing to raise the debt ceiling as a matter of responsibility. Did he see Schumer’s charts and CRS report on the debt incurred during the Trump era? McConnell wasn’t moved by this line of reasoning either.

The Kentucky Republican offered this response: 

“Do you guys think I’m bluffing? … I’ve said the same thing to several intermediaries who’ve come around.”

McConnell told us that the Biden administration and Democratic senators have apparently sent emissaries in to talk him down from his position. We saw former Treasury Secretary Henry Paulson in the Capitol Tuesday, for example.

More McConnell: 

“Everybody pretty much understands whose responsibility it is. It must occur. America should never and will never default. They’re in charge of this government. They’ve been trying to demonstrate that all year long in party line votes to jam us. They will raise the debt ceiling.”

We further asked McConnell if he would consider voting for a clean debt ceiling increase — meaning if Democrats tried to pass it delinked from the government funding process. Democrats’ leading option is to attach a debt-limit boost to the continuing resolution funding federal agencies beyond Sept. 30, a proposal the House could vote on as soon as next week.

He’s simply not interested. McConnell:

“That’s their problem. I’m not voting [for a debt limit increase]. How many different ways do I need to say this? …  I hate to say ‘Read my lips’ because that didn’t work out too well for the guy who said that. So I won’t use that particular terminology.”

So that’s where McConnell is. He has warned Democratic leaders and the White House since July that they should include a debt-limit increase in their $3.5 trillion reconciliation package. Democrats decided not to do this.

Where do Democrats go from here? Good question. They can rework their budget resolution to include debt-limit instructions for reconciliation — although Democrats say they won’t do that at this point. There was some thought that Democrats could try to get an agreement with the GOP to not filibuster the debt ceiling and allow the Senate to pass it on a 51-vote threshold. But our pal Burgess Everett of Politico reported Tuesday that Sen. Ted Cruz (R-Texas) will force Democrats to pass the debt ceiling hike with 60 votes.

Also: There continues to be trouble in reconciliation land. Three House Democrats — Reps. Kurt Schrader of Oregon, Kathleen Rice of New York and Scott Peters of California — are opposed to the leadership’s plan to overhaul prescription drug pricing for Medicare. The trio says they will not vote for the proposal being considered by the Energy and Commerce Committee, which threatens the panel’s ability to find hundreds of billions of dollars in savings party leaders need for the reconciliation package.

The powerful panel is going back into session for a third day of markups this morning as the reconciliation clock is ticking. Speaker Nancy Pelosi wants all the House committees to finish their work today so that the Budget Committee can assemble everything into one bill next week

We broke this story in Punchbowl News Midday and PM this week. You should subscribe to Premium so you know this before everyone else does.

DEBT LIMIT

Who Washington is reading on the debt limit date

We’ve heard around town that there’s one person to follow when it comes to the debt ceiling: Lou Crandall. Crandall is the chief economist of Wrightson ICAP, and you should subscribe to their stuff here. We aren’t getting anything to direct you there — in fact they don’t know we’re writing this  — but they’re good.

Here’s why we bring this up: Crandall estimated last week that  the Treasury Department will run out of borrowing authority by Oct. 22, and the first “Code Red day” would be Oct. 15. CBO has estimated “October or November,” but there’s been very little for lawmakers to look at on this critical matter.

This morning, Wrightson ICAP suggested that the debt limit may be reached in the first few days of November or in the first half of October — it’s truly that unclear still. But Treasury should have a better idea by the end of this week, Crandall noted.

Treasury Secretary Janet Yellen, in a letter to congressional leaders last week, would only estimate that the debt limit would be reached “during the month of October."  

To sum it up, it seems possible that the debt limit will need to be lifted within weeks in order to avoid any kind of serious blow to the U.S. economy, which is still struggling to fully recover from the Covid-19 pandemic. There’s been a lot of chatter behind-the-scenes on the Hill that the deadline was really November or maybe even December, but that doesn’t seem to be the case.

The political pressure on this issue is only going to grow next week when the House returns to town for the first time since August. By then, the reality is likely to start hitting Wall Street that they should be paying more attention to what’s happening on the debt limit. Shocking to no one, our friends in New York seem to be ignoring it so far. 

This couldn’t come at a more sensitive moment for Democrats. They’re scrambling to put together a $3.5 trillion reconciliation package in the House, yet they now have to worry about the dual threat of a government shutdown and potential debt crisis

THE GOLDEN STATE

Newsom easily beats back GOP challenge in recall election

Gavin Newsom quashed Republican dreams of ousting him from the California governor’s mansion last night, handily beating back a recall election. Newsom’s victory came after a number of high profile Democrats, including President Joe Biden and Vice President Kamala Harris, visited the state to campaign for him.

LAT’s Phil Willon, Taryn Luna and Julia Wick in Sacramento with the latest: 

California Gov. Gavin Newsom survived a historic recall election Tuesday, winning a major vote of confidence during a COVID-19 pandemic that has shattered families and livelihoods and tested his ability to lead the state through the largest worldwide health crisis in modern times.

The recall offered Republicans their best chance in more than a decade to take the helm of the largest state in the union. But the effort was undercut when Newsom and the nation’s leading Democrats, aided by visits to California by President Biden and Vice President Kamala Harris, portrayed the campaign to oust the governor as a “life and death” battle against “Trumpism” and far-right anti-vaccine activists.

Conservative talk show host Larry Elder led the 46 candidates on the second question on the ballot hoping to become governor, but that became meaningless after a majority of California voters decided to keep Newsom in office.

NYT’s Tim Arango in Costa Mesa, Calif.: "[A]fter The Associated Press called the race for Gov. Gavin Newsom, Mr. Elder spoke to the crowd and conceded. ‘Let’s be gracious in defeat,’ he said, adding, ‘We may have lost the battle, but we are going to win the war.’"

Consider this: Newsom won in Nov. 2018 with 61.9% of the vote. As of early this morning, 64.2% of Californians said he shouldn’t be recalled. His total may drop a few points in the coming weeks since 30% of the vote is still outstanding. But it may just turn out that this effort will have strengthened Newsom’s hand.

Also: Larry Elder led the very crowded field among potential Newsom replacements with over 46%. Caitlyn Jenner finished with 1.1% of the vote.

Read NYT’s Jonathan Martin’s news analysis in San Leandro, Calif.: “Newsom’s Anti-Trump Recall Strategy Offers Republicans a Warning for 2022”

California basks in its clairvoyance. “The future happens here first,” says Gov. Gavin Newsom, calling his state “America’s coming attraction.”

By emphatically turning back the effort to recall him from office, however, Mr. Newsom made clear that California’s cherished role presaging the politics of tomorrow was not as significant as another, larger factor in Tuesday’s results: the tribal politics of today.

The first-term Democratic governor will remain in office because, in a deeply liberal state, he effectively nationalized the recall effort as a Republican plot, making a flame-throwing radio host the Trump-like face of the opposition to polarize the electorate along red and blue lines.

Mr. Newsom found success not because of what makes California different but because of how it’s like everywhere else: He dominated in California’s heavily populated Democratic cities, the key to victory in a state where his party outnumbers Republicans by five million voters.

WHAT WASHINGTON IS READING

MOMENTS

9 a.m.: President Joe Biden will receive the daily intelligence briefing. 

12:45 p.m.: Jen Psaki will brief reporters.

1:30 p.m.: Biden will host CEOs and business leaders to talk about Covid-19.

3:50 p.m.: Vice President Kamala Harris and Treasury Secretary Janet Yellen will speak about “proposed investments in childcare that will benefit women, children, and working families.”

4:45 p.m.: First Lady Jill Biden will be in Des Moines with Rep. Cindy Axne (D-Iowa), visiting a community college.

5 p.m.: Biden will deliver “brief remarks” about a “national security initiative.”

CLIP FILE

NYT

→ “Biden Urges Climate Action: ‘We Don’t Have Much More Than 10 Years,’” by Zolan Kanno-Youngs and Jim Tankersley in Arvada, Colo.

WaPo

→ “Justice Department asks federal judge to block enforcement of Texas abortion law,” by Rachel Pannett

→ “White House considered requiring vaccines for international air travelers,” by Annie Linksey and Yasmeen Abutaleb

WSJ

→ WSJ Editorial Board: “Blitzing the Senate Parliamentarian”

AP

→ “Rival Koreas test missiles hours apart, raising tensions,” by Hyung-Jin Kim and Kim Tong-Hyung in Seoul, South Korea

→ “Hurricane battered Louisiana braces for Nicholas drenching,” by Jay Reeves and Rebecca Santana in Point-Aux-Chenes, La.

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Editorial photos provided by Getty Images