The House on Wednesday narrowly passed a $290 billion increase to the amount of debt the Treasury is allowed to have. Currently, the debt ceiling is set at $12.104 trillion, and if the Senate passes the House-approved increase, it would rise to $12.394 trillion.
The increase would cover Treasury's borrowing needs through Feb. 11, 2010. That is a far cry from the $1.9 trillion increase that lawmakers last week said they wanted to pass.
The smaller increase in the debt ceiling came about because of pressure brought by a bipartisan group of fiscal hawks in both the House and the Senate, who have threatened to vote against a much-larger debt ceiling increase unless they get various commitments to increase fiscal responsibility in the legislation.
The Democratic leadership would have preferred to pass a large increase to the debt ceiling to carry Treasury through all of next year rather than having to have another vote on the issue before the mid-term elections in November.
But House and Senate leaders can't ignore the fiscal hawks, since they need every vote they can get.
"It's all on the shoulders of leadership. They're responsible for making sure we don't default," said Charles Konigsberg, chief budget counsel of the Concord Coalition, a deficit watchdog group.
As of Tuesday, the amount of debt subject to the limit on Treasury's books was $12.016 trillion. If the debt ceiling isn't increased by the end of this year, the nation could default on its debt. That would unleash a chain of events that could devalue U.S. bonds and seriously harm the nation's reputation with creditors around the world. In short, it's not something lawmakers can afford to let happen.
For the fiscal hawks, agreeing to vote for a short-term increase to the ceiling buys them time to negotiate further with the leadership to address their demands, which differ somewhat in the House and the Senate.
Fiscal conservatives in the House, known as Blue Dogs, have said they would vote against a big increase in the ceiling unless the legislation re-enacts so-called pay-go rules, which require lawmakers to pay for any new spending proposals or tax cuts. But that proposal excludes about $3 trillion worth of policies that are likely to be extended, including the Bush tax cuts for the majority of Americans.
That's why the House version of pay-go may be a no-go in the Senate. Senate Budget Chairman Kent Conrad, D-N.D., has said he supports pay-go but not if it exempts pricey policies.
Meanwhile, a bipartisan group of senators says it won't vote for a large debt ceiling increase unless the leadership commits to a "credible process" for reining in the country's debt.
The senators' proposal, similar to one in the House, is to create a bipartisan fiscal commission charged with making recommendations to Congress for reining in runaway spending growth that threatens to overwhelm the federal budget. Lawmakers would be required to vote up or down on the recommendations but would not be allowed to amend or filibuster them.
Documents obtained by CNN show that top advisers to the president have been privately weighing various versions of a commission, though it would be created by a presidential executive order and thus could not mandate that Congress vote up or down on its recommendations.
Reining in the nation's debt has come to the fore this year, because the economic crisis accelerated the timetable that lawmakers have to deal with long-term fiscal problems, and as lawmakers of both parties consider very expensive proposals going forward.