But the fate of the plan is unclear since Republicans have vowed to withhold support for raising the debt ceiling, which is needed to fund spending already approved by lawmakers, including the massive rescue packages rolled out during the Covid-19 pandemic.
"The American people expect our Republican colleagues to live up to their responsibilities and make good on the debts they proudly helped incur," Democratic Senate Majority Leader Chuck Schumer and House Speaker Nancy Pelosi said in a joint statement.
They warned that "a reckless Republican-forced default could plunge the country into a recession."
Democrats have the majority in both houses of Congress, but the slim margin in the Senate means they will need some Republican support to push it through, since a single Senator can block any legislation that has less than 60 votes.
The measure would suspend the debt limit through December 2022 -- after the midterm congressional elections.
It also would keep the government running through the end of the year while legislators continue to debate two massive spending bills -- an eight-year, $1.2 trillion infrastructure package and a 10-year, $3.5 trillion package with a host of social programs, largely paid for by rolling back tax cuts.
Schumer and Pelosi said the measure unveiled Monday would avoid "an unnecessary government shutdown," and called it "must-pass legislation."
It will also include funds for disaster relief and Afghan evacuee resettlement, with the White House asking for $20 billion for hurricane and wildfire aid and $6 billion for tens of thousands of Afghan refugees.
"We look forward to passing this crucial legislation with bipartisan support through both chambers and sending to the president's desk in the coming weeks," they said.
But Republican Senate leader Mitch McConnell once again said Democrats should go it alone.
"They just want bipartisan cover so they can pivot as fast as possible to ramming through an historically reckless taxing and spending spree on a pure party-line vote," he said on Twitter.
That is a stark contrast from his position in 2019, when Republican Donald Trump was president and McConnell argued that failing to raise the borrowing cap "would be a disaster."
'Shame, Shame'
Schumer called McConnell's current stance "crass, craven."
"Shame, shame on the Republican Leader," he said in comments on the Senate floor. After pushing for tax cuts, pandemic spending and previous increases in the debt ceiling "what Republicans are doing is nothing short of a dine-and-dash of historic proportions."
Treasury Secretary Janet Yellen has warned that without an increase the government will run out of cash to fund operations and pay its debts sometime in October.
Failing to raise the debt limit "would produce widespread economic catastrophe" and "compound the damage of the continuing public health emergency," she said in a column Monday in The Wall Street Journal.
The debt ceiling has been raised about 80 times since the 1960s, but the issue has frequently been a political football in polarized Washington, with Republicans engaging in brinksmanship multiple times during the administration of Democrat Barack Obama.
In the aftermath of that conflict in 2011, the United States lost its coveted "AAA" debt rating from Standard and Poor's. That sent shock waves through the markets.
But under Trump, Democrats supported Republican efforts to suspend the debt limit for two years.
The ceiling was reinstated on August 1 with debt at $28.4 trillion, and the Treasury is already shuffling government funds around to continuing paying the bills.
Extraordinary Measures
Yellen, who had a phone call with McConnell last week, said even waiting until the last minute could cause a cascade of financial disasters including rising borrowing rates and 50 million seniors missing their government payments.
The Brookings Institution said the 2011 debt limit showdown raised Treasury borrowing costs by $1.3 billion, and in the 2013 impasse -- when Congress waited until the last minute to raise the debt ceiling -- investors dumped Treasury securities, and "those effects ripple throughout financial markets."
Treasury already has begun taking what it calls extraordinary measures to keep from breaching the cap on borrowing, but the steps will become increasingly stringent as the drop dead date approaches.
These include not investing in savings plans and retirement funds for government employees.
