Fears rising over US debt limit hike
Concessions from McCarthy causing worry, experts say
WASHINGTON — Rep. Kevin McCarthy of California finally secured the House speakership in a dramatic vote ending early Saturday.
But the dysfunction in his party and the deal he struck to win over holdout Republicans also raised the risks of persistent political gridlock that could destabilize the American financial system.
Economists, Wall Street analysts and political observers are warning that the concessions he made to fiscal conservatives could make it very difficult for McCarthy to muster the votes to raise the debt limit — or even put such a measure to a vote. That could prevent Congress from doing the basic tasks of keeping the government open, paying the country’s bills and avoiding default on America’s trillions of dollars in debt.
The speakership battle that spanned more than four days and 15 rounds of votes suggested that President Joe Biden and Congress could be on track later this year for the most perilous debt limit debate since 2011, when President Barack Obama and a new Republican majority in the House nearly defaulted on the nation’s debt before cutting an 11th-hour deal.
“If everything we’re seeing is a symptom of a totally splintered House Republican conference that is going to be unable to come together with 218 votes on virtually any issue, it tells you that the odds of getting to the 11th hour or the last minute or whatever are very high,” Alec Phillips, the chief political economist for Goldman Sachs Research, said Friday.
The federal government spends far more money each year than it receives in revenues, producing a budget deficit that is projected to average in excess of $1 trillion a year for the next decade. Those deficits will add to a national debt that topped $31 trillion last year.
Federal law puts a limit on how much the government can borrow but does not require it to balance its budget. That means lawmakers must periodically pass laws to raise the borrowing limit to avoid a situation in which the government is unable to pay all of its bills, jeopardizing payments including military salaries, Social Security benefits and debts to holders of government bonds. Goldman Sachs researchers estimate Congress will likely need to raise the debt limit sometime around August to stave off such a scenario.
Raising the limit was once routine but has become difficult over the past few decades, with Republicans using the cap as a cudgel to
force spending reductions. Their leverage stems from the potential damage to the economy if the limit is not increased. Lifting the debt limit just allows the United States to finance existing obligations.
The exception to the debt limit drama was the four years of Donald Trump’s presidency, when Republicans largely abandoned their push to tie increases in the limit to cuts in federal spending.
In 2021, Senate Republicans clashed with Biden as the deadline for raising the limit approached, but those lawmakers ultimately helped Democrats pass a law increasing the cap.
Some Democrats pushed to avoid this scenario last year, when it became clear that their party would likely lose at least one chamber of Congress. They hoped to raise the limit again in the lame-duck session of Congress after the November elections that delivered House control to Republicans,
to avoid any chance of a default before the 2024 presidential election. But the effort never gained traction.
The next round of debt limit brinkmanship could be the most fraught on record — as evidenced by the battle over the speakership. Conservative Republicans have already made clear that they would not pass a debt limit increase without significant spending curbs, likely including cuts to both spending on the military and on domestic issues not related to national defense.
Their power stems from the fact that Republicans hold a more narrow majority than they did following the 2010 midterms, which empowered the conservative holdouts who opposed McCarthy.
Among that group’s demands were a push for steep cuts in federal spending and a balancing of the federal budget within a decade without raising taxes.
“Is he willing to shut the
government down rather than raise the debt ceiling?” Rep. Ralph Norman of South Carolina, who was one of 20 Republicans to initially vote against McCarthy on the House floor, recently told reporters. “That’s a nonnegotiable item.”
McCarthy appeared to agree to those demands, pledging to allow open debate on spending bills and to not raise the debt limit without major cuts — including efforts to reduce spending on so-called mandatory programs, which include Social Security and Medicare — in a deal that brought many holdouts, including Norman, into his camp.
If the speaker violated that deal, he could risk being overthrown by his caucus — one lawmaker could force a vote to oust McCarthy, under the terms of the agreement. But Biden and his party’s leaders in the Democratic-controlled Senate have vowed to fight those cuts, particularly to social safety net programs.
Staunch budget hawks in Washington have long argued that the United States needs to stop spending — and borrowing — so much money and that the nation cannot afford its long-term debt. They have pushed for a variety of ways to reduce the growth in long-term spending, including cuts to health care for the poor and for older Americans. And many have called for ending some tax breaks while ensuring that the wealthiest and corporations pay more.
Yet many of those fiscal hawks have called the Republican spending demands reckless and likely to produce stalemates on key fiscal issues.
“Their specific ask of balancing the budget in 10 years is just totally unrealistic. It would take $11 trillion in savings,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget in Washington, which has long pushed lawmakers to reduce future deficits through spending cuts and tax increases.
“I want to save more money than a lot of people,” MacGuineas said. “But what they’re demanding is just not achievable.”
Administration officials have given no indication that they would negotiate with Republicans over a debt limit increase at all — nor that they were preparing to act unilaterally to bypass the debt ceiling, as some progressives have pushed for, in the event of a House speaker refusing to put a debt limit increase to a vote without steep spending cuts.
White House press secretary Karine Jean-Pierre told reporters Friday that Biden expected Congress to raise the debt limit again with no strings attached.
“We have said that we should not be using the debt ceiling as a matter of political brinkmanship,” she said.