Debt ceiling plays out "life and death race"! Senate tax reform tug of war could trigger a default crisis.

As the United States Senate embarks on a lengthy revision of President Trump's proposed trillion-dollar tax and spending plan, the fiscal solvency of the United States is facing an unprecedented test. Republican leaders in Congress have tied provisions to raise the debt ceiling to this landmark economic legislation. While this political strategy has accelerated the process of priority legislation, it also means that avoiding default on the debt now depends entirely on the complex legislative game that will follow. The tax reform bill is not only facing lengthy deliberation in the Senate, but Republican lawmakers have also made it clear that significant modifications will be made before it is passed. Given that the House version only passed by a narrow margin (narrowly passing by one vote on Thursday after intense negotiations within the party factions), the revised bill may face further turbulence when it returns to the House for approval. As the deadline for potential default approaches, this political tug-of-war may trigger market panic. Treasury Secretary Mnuchin has warned Congress that if the debt ceiling is not raised or suspended by August, the United States may exhaust its borrowing capacity. Short-term bond investors have already reacted, with prices for bonds due in August falling significantly (the yield on bonds due on August 21 has reached 4.34%). However, Wall Street analysts and private forecasting agencies believe that the final deadline for the debt ceiling, known as the "X date," will fall somewhere between late August and mid-October. If the United States loses its borrowing capacity, investors holding bonds that are about to mature will be the first affected - the government will be unable to issue new debt to raise funds for repayment. Currently, the Republicans have no alternative proposals to raise the debt ceiling apart from the tax reform bill. They need to convince the extreme conservative faction that has never voted to raise the debt ceiling to pass the bill by cutting Social Security expenditures and increasing border enforcement funds, among other legislative measures. If they turn to the Democrats for help, the Republicans will inevitably pay a price in terms of concessions on spending increases and other policies. This means that the ability to raise the debt ceiling entirely depends on whether the Republicans can reach a consensus on the tax reform plan. Senate Republican leader John Thune has stated that given the need to secure a majority vote to approve the bill, the goal of passing the tax reform bill by July 4 is very challenging. Thune said on Thursday, "Obviously, that's our goal and desire. We'll have to wait and see. What are we going to have to do to get to 51 votes? They've given us a good starting point, but there are some senators who would like to see the bill rewritten." The process of revising the $4 trillion tax cut proposal is like walking a tightrope: some Republicans are demanding to make corporate tax breaks permanent, while fiscal conservatives like Senator Ron Johnson of Wisconsin are advocating for increased spending cuts, which are opposed by moderate factions within the party. Some senators are also opposed to the provision in the House bill that quickly eliminates tax breaks for clean energy, arguing that this retreat will not only harm renewable energy companies but also affect the banks supporting existing projects. Alaska Republican Senator Lisa Murkowski said, "I think we will be looking at how to more realistically phase out clean energy tax credits." The Senate has used budgetary tricks to expand the tax cut by an additional $1.3 trillion, which could anger fiscal conservatives in the House (who are already dissatisfied with the added debt burden in the bill). Senator Jim Justice of West Virginia and others are calling for the permanent extension of tax breaks for tips and overtime (the current version only lasts four years), as well as modifications to the medical provider tax reform provisions to protect the state's finances. "I'm sure a lot of things will change," said Senator Josh Hawley of Missouri. "I know a lot of my colleagues have a lot of ideas on the modifications." Hawley said he will push for a provision to impose additional taxes on carried interest used by private equity, venture capitalists and real estate partners. He also wants to increase the child tax credit limit (currently capped at $2,500). Such modifications will increase fiscal pressure, leading to more demanding calls for spending cuts. Senator Johnson of Wisconsin is preparing to challenge his House colleagues from high-tax states (New York, New Jersey, California) - the "SALT lawmakers" - who support the tax reform on the condition of increasing the state and local tax deductions limit (from $10,000 to $40,000). House leaders emphasize that this provision is crucial for the bill to pass, but Johnson has threatened to withdraw support. When asked if he could be ignored by Senate Republican leaders, Johnson said he doubted whether they could get the votes needed to pass the bill without his support. "If they can, may God bless them," he said. Although the Democrats are excluded from the budget reconciliation process, they can still use Senate rules to remove non-fiscal provisions. These provisions may include the elimination of silencers on firearms and preventing state governments from regulating artificial intelligence, among other items. Deliberating on these provisions may take weeks. "We are fighting hard," said Senator Ron Wyden of Oregon, a Democrat. "The bill is filled with policy items that are not in compliance with the rules."