Speaker drama raises fears on debt limit
WASHINGTON — Rep. Kevin McCarthy of California finally secured the House speakership in a dramatic vote ending around 12:30 a.m. 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 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 eleventh-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 eleventh hour or the last minute or whatever are very high,” Alec Phillips, the chief political economist for Goldman Sachs Research, said in an interview 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 it does not require the government 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 increasingly 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 does not authorize any new spending; it 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.
As a result, 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.
“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 — a single 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. That could mean a standoff that goes on until the government runs out of money to pay its bills.
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 in a briefing 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. “We’ve been very clear. If you look at what Republicans in Congress did three times — three times during the Trump administration — is that they were able to deal with it in a way that was responsible, right? They voted three times, again, to lift the debt ceiling. And so Congress must once again be responsible.”