Good Wednesday evening. Here’s what we’re watching while we wait for official word from the Treasury Department that it is beginning to employ “extraordinary measures” to avert a debt default.
$31.4 Trillion: The Debt Limit Fight Starts Now
The federal government is set to hit its borrowing limit of roughly $31.4 trillion on Thursday, setting the stage for what’s likely to be a months-long fight between House Republicans, the Biden White House and congressional Democrats.
The Treasury Department is set to start deploying “extraordinary measures” to avert a debt default, buying time, likely until June or later, for lawmakers to again raise the borrowing limit — or at least battle over the idea while financial markets sweat out the possibility of an economic calamity.
Where things stand: House Republicans led by Speaker Kevin McCarthy (CA) and a band of conservatives are demanding spending cuts in exchange for raising the limit and are pressing the White House to start negotiations now.
Of course, Republicans did not make such demands when it was necessary to raise the debt limit under former President Donald Trump. But some in the party see this as a rare opportunity to force cuts they have long pursued — and to make Democrats swallow some of the blame for moves that could well be politically unpopular. And some in the GOP are dead set on having a fight, convinced —despite past evidence —that they can win if only they hold strong. “There are two ways to [avert a default],” conservative Rep. Chip Roy (R-TX), told CNN recently. “Democrats and Republicans sit down and work honestly around the table to avert it, or brinkmanship, forcing the question by bringing it to the brink.”
For its part, the Biden administration refuses to engage, recalling the similar showdown under the Obama administration in 2011 that highlighted the nation’s growing political dysfunction and led to an unprecedented downgrading of the U.S. debt rating.
The White House has insisted that Congress should raise the ceiling without conditions. On Wednesday, it seized on a tweet by Rep. Andy Biggs (R-AZ) to warn that the GOP was playing with fire. “We cannot raise the debt ceiling,” Biggs tweeted Tuesday afternoon. “Democrats have carelessly spent our taxpayer money and devalued our currency. They've made their bed, so they must lie in it.” The White House responded by accusing Republicans of “unprecedented economic vandalism,” according to Bloomberg News.
“This is a stunning and unacceptable position that would lead to economic chaos, collapse, and catastrophe,” White House Spokesman Andrew Bates said of the Biggs tweet.
Not all Republicans are threatening to send the economy over that cliff, but it remains unclear what specifically the GOP would ask for in any potential talks — or whether the party can reach a consensus among its members.
The problem for right-wing Republicans, as others have noted, is that they are choosing to use the full faith and credit of the United States as their leverage —in effect, taking a hostage that they can’t shoot. Some, like Biggs, may be willing to shoot the hostage, consequences be damned, under the assumption that President Joe Biden and Democrat will get the blame, or at least a hefty share of it. House Republicans are reportedly preparing a contingency plan that would instruct the Treasury Department how to prioritize payments if a debt deal isn’t reached.
What’s at stake: The consequences of a debt default could be massive, inflicting widespread financial pain. Per Yahoo News: “Credit analysis firm Moody’s Analytics predicts that a four-month default would result in a 4% drop in the U.S. GDP, a 30% decline in stock prices, the erasure of $15 trillion in household wealth and cause companies to slash 6 million jobs.”
The bottom line: This will probably drag out for months. All signals right now point to a protracted fight with extremely high stakes for the global economy. And then, potentially, another fight over government spending and the federal budget, which could result in a government shutdown this fall.
The first step may be to ensure that everyone involved understands what’s at risk, and the difference between the two battles. The Washington Post’s Leigh Ann Caldwell said on CNN Wednesday: “There is an education campaign that is currently ongoing among House Republicans to teach House Republicans the difference between defaulting on the debt and a government shutdown and how these things don’t necessarily need to be linked so that people understand the parameters of the debate.”
Tweet of the Day
Number of the Day: 19.5%
The income tax rate for S&P 500 companies in the third quarter of 2022 was 19.50%, according to calculations by Howard Silverblatt of S&P Dow Jones Indices. That was a bit lower than the 20.05% rate recorded the quarter before, but higher than the 16.97% recorded a year earlier.
The data show just how powerful the Tax Cuts and Jobs Act of 2017, passed by a Republican Congress and signed into law by former President Donald Trump, has been when it comes to corporate tax rates. According to Silverblatt, the average tax rate for S&P 500 companies just before the tax cut bill was passed was 25.45%, while the average quarterly tax rate from 2018 to 2022 was 18.02%.
An even starker comparison can be seen going back 25 years. In the third quarter of 1997, the tax rate for S&P 500 companies was 36.42% — nearly twice the level seen today.
The CDC Is in ‘Peril:’ Report
Still reeling from its widely criticized performance during the Covid-19 pandemic, the Centers for Disease Control and Prevention is in danger of losing its ability to function properly, according to a new report from the Center for Strategic and International Studies, a bipartisan think tank that focuses on national security issues.
“Today, the U.S. Centers for Disease Control and Prevention (CDC) has entered a moment of peril,” the report, written by the CSIS Commission on Strengthening America’s Health Security, says. “CDC, a long-heralded national public health asset, has suffered a sharp decline in popular trust and confidence, a signal of widespread concern over its performance in preventing and responding to dangerous outbreaks, at home and abroad.”
The commission says the problems at the CDC are both wide and deep, and include “its culture, data management, budget structure, talent base, communications, partnerships with state and local authorities, weak Washington presence, and global health security mission.”
While the CDC recently announced that it is planning an organizational “reset” to address its internal problems, CSIS argues that change will have to come from outside the organization: “The power to make major changes lies largely outside of CDC itself—at the White House, with the Secretary of the U.S. Department of Health and Human Services (HHS), and among key Senate and House leaders, of both parties. That is where the future of CDC will be decided.”
Some of the major changes called for by CSIS include moving key staff to Washington from Atlanta, where roughly three-quarters of CDC employees currently work; more clearly defining the agency’s mission and global role; working with congressional leaders to plot the CDC’s future; streamlining the hiring process to allow the agency to respond more quickly to new health problems; strengthening data collection capabilities and speed; and providing more flexibility with the agency’s budget.
“These measures can deliver results,” the report says. “If, however, they are not enacted, CDC will likely see further erosion of its standing and capacities, U.S. global leadership will falter, and Americans will remain unnecessarily vulnerable to dangerous biological threats. Such an outcome is antithetical to U.S. national interests.”
Why 2.6 Million Workers Are Still Sitting on the Sidelines
Millions of people stopped working during the Covid-19 pandemic, and the data show that 2.6 million workers are still missing from the labor market. According to Harvard University economist Raj Chetty, the gap is most noticeable among low-wage workers, especially those who performed service work for wealthier Americans. As the pandemic shut down the economy, many high earners stopped spending or moved to remote locations, causing havoc for urban restaurants and shops — a dynamic that is still affecting patterns of consumption.
“It is clear there are large swaths of the population who are still not employed, and these are low-wage workers who lost their jobs in precisely the places where high-income people cut back on spending so sharply a couple years ago,” Chetty told Bloomberg News.
Now, a significant number of those who dropped out of the workforce in 2020 due to a lack of demand are remaining on the sidelines, perhaps permanently, with older workers seeing the biggest losses. Policymakers may need to address the problem directly, since it could serve as a drag on the economy for years to come.
- White House Accuses GOP of ‘Economic Vandalism’ Over Debt Limit – Bloomberg
- What Is the Debt Ceiling, and What Happens if the U.S. Hits It? – Washington Post
- How ‘Extraordinary Measures’ Can Postpone a Debt Limit Disaster – New York Times
- White House Memo Urges Dems to Take on the ‘House Republican MAGA Economic Plan’ – Semafor
- Republicans Worry a National Sales Tax Bill Would Be a ‘Political Gift’ for Democrats – Semafor
- Fed’s Beige Book Says US Price Growth Seen Moderating in 2023 – Politico
- U.S. Prepping Major Military Package for Ukraine – Politico
- 10-Year Treasury Yield Tumbles Below 3.44% After Producer Prices Decline by More Than Expected – CNBC
- Over 200 Millionaires Urge Davos Elite to Up Taxes on the Ultra-Rich – CNBC
- California Joins Other States in Suing Companies Over Insulin Prices – New York Times
Views and Analysis
- 4 Ways Around a Debt Ceiling Crisis — And Why They Might Not Work – Danielle Kurtzleben, NPR
- Five Ways a Debt Limit Crisis Could Derail the US Economy – Sylvan Lane and Aris Folley, The Hill
- This Debt-Ceiling Fight Will Be Different – Ross Douthat, Liam Donovan and Haley Byrd Wilt, New York Times
- What Extraordinary Measures Can Treasury Take to Prevent US From Default? – Stephen Neukam, The Hill
- ‘You Don’t Negotiate With These Kinds of People’ – Thomas B. Edsall, New York Times
- Why Big Business Must Confront Congress Over the Debt Ceiling Crisis – John Rizzo, Yahoo Finance
- States Must Act to Preserve Medicaid Coverage as End of Continuous Coverage Requirement Nears – Farah Erzouki, Center on Budget and Policy Priorities
- States Should Protect or Raise Revenue as Uncertainty Looms – Wesley Tharpe, Center on Budget and Policy Priorities
- An Infrastructure Bank Could Be the Issue That Unites a Divided Congress – Sadek Wahba, The Hill
- Nurses Are Burned Out and Fed Up. For Good Reason – Lydia Polgreen, New York Times
- Wealth Tax Proposals Are Back as States Take Aim at Investment – Jared Walsh, Tax Foundation