House passes budget plan in debt ceiling challenge
What happened
The House this week passed a GOP debt limit bill, intensifying a high-stakes fight that threatens a national debt default. The “Limit, Save, Grow Act,” unveiled last week, proposes $130 billion in discretionary spending cuts and freezing spending at 2022 levels in exchange for a $1.5 trillion hike of the $31 trillion debt ceiling, which was breached in January. The bill names few specific cuts but proposes to recover unused Covid aid, tighten work requirements for Medicaid and food stamps, block student debt cancellation, and halt spending on climate programs and Internal Revenue Service upgrades. The White House rejected what it characterized as Republicans’ attempt at “hostage taking” to force steep, unpopular cuts, and urged the House of Representatives to pass a “clean” debtceiling hike without budget concessions.
Designed to satisfy demands from the hard-right House Freedom Caucus, the bill will not get through a Democrat-controlled Senate. However, Republican unity on the proposal could increase pressure on Biden to start negotiating on the debt limit. Biden can “stop playing partisan political games,” said McCarthy, “or cover his ears, refuse to negotiate, and risk bumbling his way into the first default in our nation’s history.”
What the columnists said
Forget the “sanitized budgetary gobbledygook,” said E.J. Dionne in The Washington Post. This “unconscionable” bill’s spending cap would require slashing over one-fifth of all non-defense discretionary spending, which could, by government estimates, deny hundreds of thousands of low-income Americans access to health care, Head Start, and early-childhood nutrition. The bill’s vagueness means Republicans can hide these potential consequences. But even their plan to rescind IRS funding would “actually increase the deficit” by letting tax cheats prosper.
“Unfortunately,” it usually takes brushes with the debt ceiling for “lawmakers to take deficit reduction seriously,” said the Washington Examiner in an editorial. And with Biden frittering away trillions and yearly interest on the federal debt doubling to $700 billion, they need to. McCarthy’s bill “isn’t perfect,” but it gives congressional Republicans’ crucial “leverage over Democrats” to consider cuts.
Biden knows past debt-ceiling stunts have “boomeranged on the Republicans politically,” said John Authers in Bloomberg. But with neither side inclined to compromise, markets are already bracing for the “dreaded X-Day” when the Treasury Department exhausts all “extraordinary measures” to pay the country’s bills. Last week, Goldman Sachs estimated the Treasury’s 2023 tax haul was 29 percent lower than last year’s, which limits its ability to move money around and raises the chance of a default as early as June. Bond investors have signaled worries “that something bad might happen” within next three months. A default with globally catastrophic consequences could be “closer than the U.S. realizes.”