My overall thoughts on the issue.
The Tea Party View:
A faction of the GOP (generally members aligned with the Tea Party) sees the Affordable Care Act (ACA) as unconstitutional and catastrophically destructive to the nation. This perspective is an article of faith, making it a more intractable position. The ACA is a proverbial “red line.” From the view of that faction, the ACA “must” be stopped at all costs. Any and all leverage, including the funding of government and the debt ceiling are appropriate means for bringing about that end. That some within the faction have opposed raising the debt ceiling in the past, further reinforces that faction’s view of the debt ceiling’s utility in pursuit of their ideological goal.
Consequences of its View:
Given the above, the Supreme Court’s ruling is irrelevant to that faction. That faction’s belief in the “righteousness” of its cause takes precedence over the Supreme Court’s opinion, even as the constitution makes the Supreme Court the final arbiter on constitutional issues. Some material risks exist and potential material benefits are associated with the ACA. Very little concrete evidence is currently available. Some anecdotal information about certain companies reducing hours and/or shifting part-time employees to the Health Exchanges exists. On a macroeconomic perspective, significant adverse impacts do not conclusively show up in the national data. For example even as some firms have reduced hours worked for employees, the average workweek has risen from the lows reached during the recent recession and stabilized. Some figures: January 2009: 33.3 hours; January 2010: 34.0 hours; January 2011: 34.2 hours; January 2012: 34.5 hours; January 2013: 34.4 hours; August 2013: 34.5 hours (latest available). The anecdotal information has not been a factor cited in the Fed’s Beige Books. So, at least from a macroeconomic standpoint, it’s too soon to tell. Those uncertainties are selectively ignored. Consistent with confirmation bias, the faction has attributed weaknesses in the economic data largely or wholly to the ACA, especially as some anecdotal information of adverse impacts exists. In that faction’s view, those weaknesses provide indications that the ACA will have a catastrophic economic impact consistent with its hypothesis, even as the data is inconclusive right now and insurers appear to have adapted (
The Republicans' best-funded allies have abandoned them - The Term Sheet: Fortune's deals blogTerm Sheet).
Lack of Proportionality:
The ACA’s impact is not of a magnitude that justifies suspending funding to the government as a whole. It also is not of a magnitude that justifies a refusal to raise the debt ceiling, in effect forcing the government to immediately balance its budget with a substantial adverse economic impact and/or default to holders of its debt. Given that the Tea Party faction sees the ACA as an attack on the nation’s constitution and attributes catastrophic economic damage to the law, that sense of proportionality does not exist among that faction. At the same time, that faction’s having made the ACA an identity issue precludes meaningful compromise from that faction. Instead, it expects others to compromise to give it progress toward its end goal of overturning the ACA.
The House’s Actions:
With an unyielding stance, the Tea Party faction has essentially gained control of the House Leadership when it comes to the House’s agenda. That’s the result of a combination of its determination and an historically weak House Speaker. As a result, the House has technically passed funding bills, but bills with provisions related to the ACA, even as it knows that neither the President nor Senate will accept them. That strategy has been thwarted by the Senate’s consistent removal of those provisions from continuing resolution legislation. Frustrated by that outcome, the House has proposed conferees to negotiate. Negotiations would extend to differences. Those differences do not relate to funding levels, but again to the ACA. The Senate refused such a conference. The House has now resorted to legislating smaller funding bills, ostensibly to fund areas where there is broad agreement while leaving areas of difference to be resolved later. If successful, that strategy would essentially lead to the Tea Party’s being able to downsize government, limiting it to areas that it views as “constitutional.” Hence, were the Senate or President to go along, not only would the Tea Party faction be able to alleviate public pressure, it would also be able to achieve a reduction in government consistent with its ideology. Hence, it would stand to make big gains and would be in a position to assert that its tactics yield big benefits. Neither the Senate nor the President have accepted that outcome, tempting as it might be e.g., D.C. Delegate Eleanor Holmes Norton passionately argued for support of the D.C. funding piece. But if the public fails to understand the realities underlying the dispute, the public could begin to pressure the Senate and President for adoption of piecemeal funding bills.
What Next?
The Tea Party faction will likely resist accommodation as it relates to government funding and raising the debt ceiling. It will point to the House’s maneuvers as proof that the House, not Senate or President are acting unreasonably, omitting its linkage between the ACA and “must-pass” legislation. No matter what happens in that fight, some would very likely oppose raising the debt ceiling, as they believe the budget should be balanced immediately and that large parts of the government are unnecessary.
The best case would involve a rapid end to the current deadlock with the House’s being permitted by the Speaker to vote on the Senate’s continuing resolution and then raising the debt ceiling at or near the same time. The Tea Party faction’s ideological commitment to its ACA-related goal likely precludes that outcome.
Another possible scenario is that the shutdown and debt ceiling issues would converge. As the clock ticks toward the debt ceiling deadline (currently 10/17 but it could change by a few days based on tax revenue inflows and government expenditures), the issues of funding the government and raising the debt ceiling could merge into single issue. The Senate could facilitate that effort, by adding an unconditional increase in the debt ceiling to its clean continuing resolution.
It is unlikely that the Tea Party faction has the means to coerce rational Republicans into refusing to raise the debt ceiling. As that deadline approaches, market volatility will increase, public pressure will intensify, and the business community that traditionally supports Republicans could threaten to abandon the GOP. In that environment, rational Republicans will have the cover they need to join the Democrats in bringing an end to the deadlock. Under such pressure, the House Speaker could relent in allowing "clean" legislation to raise the debt ceiling and fund the government to reach the Floor for a vote. If necessary, the bipartisan group would have enough support to use parliamentary maneuvers e.g., a discharge petition, to break the Speaker’s hold on blocking such legislation. It would be uncertain whether John Boehner would remain Speaker in the aftermath of such an outcome, but the nation would avert a major self-inflicted fiscal and economic crisis.
A bad case, would entail a timely lifting of the debt ceiling (with at least some Tea Party opposition), but a lack of resolution of the government funding issue. That would be the trade-off the Tea Party faction makes with the rest of the GOP caucus in exchange for its not blocking a debt ceiling increase. It is plausible that Speaker Boehner might favor such an approach, as it would appease the Tea Party faction and accommodate the most urgent needs of the more pragmatic GOP representatives.
The worst case, and I believe odds of that are around 1-in-4, is that the Tea Party faction would prevent a timely increase in the debt ceiling, perhaps but not necessarily on account of the nation hitting the limit somewhat sooner than had been anticipated. The ensuing financial market chaos would then break the deadlock much as happened when TARP was initially rejected. Nevertheless, the nation would wind up suffering from an enduring increase in its risk premium.
My guess is that something between the best case (but less than it) and the first scenario (perhaps nearer to it) is probably more likely than each of the individual scenarios. Other possibilities also exist. In the wake of the outcome, there will be some adverse economic impact, some increase in the nation's risk premium, and damage to GOP competitiveness that will preclude the GOP from gaining control of the Senate and potentially cost the GOP its House majority.