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Conservatives are beginning to draw battle lines in next month's fight over raising the nation's borrowing limit, setting the stage for a showdown that could rattle the markets.
North Carolina Rep. Mark Walker, head of the influential Republican Study Committee, said this week that any increase in the federal debt ceiling should be paired with more stringent eligibility requirements for Medicaid. The committee is still considering whether to seek other spending reforms as well and will discuss their priorities with GOP leadership next week.
But the committee represents more than half of the Republican lawmakers in the House — endangering any bill that does not have its full support.
"We're very aware and understand the ramifications, and we want to make sure that we don't default," Walker told CNBC. "But at some point … we have to look at specific reforms to make sure that we're being fiscally responsible."
Lawmakers are up against a Sept. 29 deadline to raise the debt ceiling or risk a potentially catastrophic default on the nation's debt. In 2011, the Standard & Poor's 500 stock index dropped more than 20 percent and the ratings agency stripped the United States of its AAA rating as Washington wrestled with lifting the debt limit until the eleventh hour.
Over the past few months, the White House and Republican leadership have tried to reassure the public that there is no danger of default. Treasury Secretary Steven Mnuchin has urged Congress to pass a "clean" bill, with no strings attached.
But raising the debt ceiling has become a perilous vote for Republicans, with fiscal hawks balking at the prospect of approving an increase in federal borrowing without corresponding reductions in spending.
An internal memo from the conservative advocacy group FreedomWorks warned that voting for a clean bill would "demoralize conservative grassroots activists after the failure on Obamacare repeal and the lack of any significant legislative victories from a Republican-controlled Congress." The memo suggests tying the debt ceiling to efforts to roll back regulations or to a so-called "debt brake" that would limit future spending to a percentage of GDP could win support among the base.
The House Freedom Caucus staked out its opposition to a clean debt limit increase back in May. The group has backed a bill sponsored by Rep. David Schweikert, R-Ariz., that would allow the government to prioritize interest payments to avoid default — a controversial process that Mnuchin has opposed. The Freedom Caucus has also floated the potential for $250 billion in cuts to mandatory spending programs.
But any deal to win over conservative lawmakers in the House would almost certainly face defeat in the Senate. Republicans hold only 52 seats in the upper chamber, and raising the debt ceiling would require a filibuster-proof 60 votes to pass.
Democratic Sen. Chuck Schumer has emphasized that Democrats will be loath to support lifting the cap if Republicans' tax reform proposal adds to the deficit. Senate Majority Leader Mitch McConnell met with Mnuchin and Schumer early this month to discuss options for moving forward. Speaking in Louisville last week, McConnell projected public confidence even though no deal has been reached.
"There is zero chance — no chance — we won't raise the debt ceiling. No chance," he said.