Congress squabble over debt ceiling as risk of default inches closer
As hundreds of millions of Americans faced a deadline on Tuesday to file their annual tax returns, Congress continued to squabble over paying its own bills.
Tax day came and went this week without lawmakers reaching an agreement on lifting the debt ceiling, the US government’s borrowing limit to cover all of its financial obligations. Experts have warned that failure to lift or suspend the debt ceiling could have catastrophic consequences for the US economy, which would be felt in every American household.
After months of stalled negotiations, the Republican House speaker, Kevin McCarthy, attempted to kickstart talks with the White House on Wednesday by outlining his proposal to raise the debt ceiling in exchange for government spending cuts that would curtail implementation of Joe Biden’s landmark climate and healthcare legislation.
But that proposal may not be able to pass the House, given Republicans’ narrow majority. Even if the bill does make it through the House, the proposal has already been rejected by Joe Biden and Chuck Schumer, the Democratic Senate majority leader.
With the calendar inching closer to June, when a default could occur, the path forward on raising the debt ceiling remains deeply unclear.
McCarthy’s 320-page debt ceiling bill proposed lifting the government’s borrowing limit into 2024 in exchange for a number of rightwing policy concessions. If the bill were adopted, the federal government’s budget would be rolled back to fiscal year 2022 levels and limited to 1% annual growth for the next decade. McCarthy has also called for repealing portions of the Inflation Reduction Act, the signature bill Biden-signed last year, and blocking the president’s plan to cancel up to $20,000 in student debt, which is currently tangled up in the courts.
In a speech delivered at the New York Stock Exchange on Monday, McCarthy previewed his bill and called for fiscal restraint, lamenting the federal government’s ballooning debt.
“Without exaggeration, America’s debt is a ticking time bomb that will detonate unless we take serious, responsible action,” McCarthy said. “Yet rather than working with Republicans to find a reasonable agreement to tame inflation and provide certainty to the economy, President Biden is demanding that Congress make room for new debt without a single, sensible change to how government spends your hard-earned money.”
Biden responded to McCarthy’s proposal with a scoff, dismissing Republicans’ debt limit bill as a set of “wacko notions” that would harm working Americans.
“It’s not about fiscal discipline. It’s about cutting benefits for folks that … they don’t seem to care much about,” Biden said on Wednesday at a union hall in Maryland. “It’s about finding ways to squeeze out more of America’s middle class.”
Jean Ross, a senior fellow on inclusive economy at the liberal thinktank Center for American Progress, described McCarthy’s bill as “a radical wishlist of Republican demands in exchange for what would be an 11-month, at most, increase in the debt ceiling”.
The proposed spending caps “would be incredibly deep and touch every element of government from air traffic control, food and water safety, childcare”, Ross said. “It’s easy to talk in these sort of abstract, top-line numbers about a budget cap, but when it really comes down to what does that mean, this isn’t a serious proposal.”
Gordon Gray, director of fiscal policy at the center-right thinktank American Action Forum, framed McCarthy’s proposal as an “opening bid” to ignite negotiations.
“Of course Democrats aren’t going to buy all of what Kevin McCarthy’s selling, but it’s an opening bid,” Gray said. “You have to have an opening bid to get follow on bids. So it’s good to get the ball rolling.”
So far, Democrats have shown no interest in negotiating over the debt ceiling. As Biden denounced Republicans’ proposal on Wednesday, he reiterated his call for a “clean” debt ceiling bill, meaning one that increased the government’s borrowing limit without any strings attached. In a Senate floor speech on Tuesday, Schumer argued this was not the appropriate time or forum to argue over government spending.
Noting that Democrats and Republicans worked in a bipartisan fashion to repeatedly address the debt ceiling during Donald Trump’s presidency, Schumer drew a clear distinction between covering bills already accrued by the government and changing spending habits moving forward.
“Nobody is saying that there cannot be a conversation about what kind of cuts Republicans want, but it doesn’t belong in this debate – plain and simple,” Schumer said. “It belongs in discussions over the budget that Congress has every year, and not as a precondition to avoiding default.”
But McCarthy has already ruled out the possibility of supporting a clean debt ceiling bill. With Republicans in control of the House, they have the power to block a clean bill from moving forward.
“I think it is worthwhile for the White House to hear and understand that their preferred outcome doesn’t have the votes,” Gray said. “It may be inconvenient. The White House may resent the hell out of the fact that Republicans hold the House. I get it, but it’s a reality.”
However, it remains unclear whether McCarthy even has the votes in the House to pass his bill. Some hardline conservatives have voiced skepticism of the proposal, calling for more stringent Medicaid work requirements and even questioning whether the debt limit needs to be raised at all.
“My position is that you don’t have to raise the debt ceiling if you bring your spending under control,” congressman Andy Biggs, a far-right Republican from Arizona, told HuffPost on Tuesday.
McCarthy can only afford to lose four Republican votes and still pass his bill, assuming all Democrats oppose the legislation. Biden may be counting on division within the House Republican conference to sink McCarthy’s bill and force the speaker’s hand on supporting a clean debt ceiling increase.
“I don’t think that’s an unreasonable perceived advantage from elected Democrats right now,” Gray said. “That is a very precarious bet though because the stakes are so high.”
If the country does default on its debt, experts warn that the catastrophic consequences would touch every corner of the American economy.
“Financial markets would crash. Unemployment could more than double. Interest rates would go up,” Ross said. “It would have long-term costs for the federal government, but it also has long-term costs for anybody who wants to buy a house, a car, or has credit card debt.
“We still are in a very tenuous economic situation coming out of the pandemic, with the war in Ukraine. It’s almost unfathomable that we would risk all of that over the question of, are we going to pay the bills that our government owes?”