McCarthy Releases Bill to Raise Debt Limit, Slash Spending

Speaker Kevin McCathy
Reuters
By Yuval Rosenberg

Happy Wednesday! The debt limit battle is heating up. Here’s what’s happening.

McCarthy Releases GOP Bill to Raise Debt Limit, Slash Spending. Can He Get 218 Votes?

House Speaker Kevin McCarthy (R-CA) on Wednesday announced a bill that he said would raise the debt limit into next year and cut some $4.5 trillion in spending. The bill has no chance of passing the Senate, but Republicans hope that it can draw President Joe Biden to the negotiating table. For now, though, the two sides are trading barbs more than offers. With a deadline looming potentially as soon as June, the two sides have thus far made no progress toward avoiding a debt default that could have devastating economic consequences.

The new Republican plan would raise the debt limit by $1.5 trillion or until the end of March 2024, whichever comes first. That timeframe would potentially set up another debt fight in the run-up to the presidential election.

In a speech on the House floor, McCarthy said that the legislation would return discretionary spending to 2022 levels and limit growth to 1% a year. It would also claw back unspent Covid-19 funding, prohibit Biden’s student loan forgiveness plan, reverse the green energy tax breaks enacted last year as part of Democrats’ Inflation Reduction Act and rescind some $70 billion in additional IRS funding from that law. The GOP package would also add work requirements for Medicaid and food stamps and include Republicans’ energy bill, H.R. 1, as well as a regulatory reform plan.

The 320-page bill is titled the “Limit, Save, Grow Act of 2023,” using the three buzzwords McCarthy has chosen to describe the Republican fiscal agenda — limit federal spending, save taxpayer money and grow the economy.

That title doesn’t exactly roll off the tongue and certainly won’t win any marketing awards, but Republicans hope it does something more important: demonstrate that they are unified as they try to exert some leverage to force Biden to make concessions on spending in exchange for a debt limit increase.

“President Biden and Senator Schumer have no right to play politics with the debt calling,” McCarthy said Wednesday. “Their extreme positions risk provoking the very crisis they claim to want to avoid, they need to sit down, negotiate and address this crisis. Now that we’ve introduced a clear plan for a debt limit increase, they have no more excuse and refuse to negotiate.”

The president wants Congress to pass a debt limit increase with no strings attached and has indicated that there’s little point in negotiating before Republicans put forth their own proposal. On Wednesday, he sought to compare his agenda with the new GOP plan, which he labeled “the same old trickle-down dressed up in MAGA clothing.”

Biden gave his speech at a union hall in Accokeek, Maryland, pointedly contrasting the location with McCarthy’s speech Monday at the New York Stock Exchange.

“Massive cuts in programs you count on,” Biden said of the GOP plan, later adding, “That’s the MAGA economic agenda: spending cuts for working and middle class folks. It’s not about fiscal discipline, it’s about cutting benefits for folks that they don’t seem to care much about.”

McCarthy included a prebuttal of sorts in his own speech. “President Biden is skipping town to deliver a speech in Maryland rather than sitting down to address the debt ceiling,” he said. “In fact, he’s been avoiding the issue for 77 straight days and counting.”

What’s next: The Republican bill is expected to get a House floor vote next week before lawmakers leave for a week-long recess. McCarthy can only afford to lose four of his members, making this gambit the biggest test yet of his grip on his fractious conference. But Biden spoke to Schumer and House Minority Leader Hakeem Jeffries earlier this week and said again that there will be no negotiation on the debt limit. “President Biden, Leader Schumer, and Leader Jeffries agree that we won’t negotiate over default and Republicans should pass a clean bill like they did three times in the previous administration,” the White House said.

So McCarthy’s bill might not result in any progress.

The bottom line: “McCarthy holds a pretty bad hand here,” Punchbowl News suggested this morning. “The debt limit battlefield isn’t a good one for Republicans. Plus, he’s dealing with a conference that’s unusually interested in picking ideological fights they can’t win.”

But McCarthy and Republicans picked this fight. If they can’t pass their own bill next week, GOP lawmakers may have to scramble for a way out of it.

House Centrists Offer Backup Plan on Debt Ceiling

With Speaker McCarthy and President Biden barreling toward each other in a high-risk game of chicken over the debt ceiling, a bipartisan group of self-styled centrists in the House on Wednesday floated a fallback plan to use if party leaders can’t make a deal to avoid a potentially disastrous default on U.S. obligations.

Split roughly equally between Democrats and Republicans, the 64-member House Problem Solvers Caucus released a proposal aimed at avoiding a default and creating a workable budget. “The debt ceiling and debt crisis demand a two-party solution,” caucus co-chair Brian Fitzpatrick (R-PA) said. “We must never allow our nation to default on our debt, we must never put our nation’s full faith and credit at risk, and we must insist on responsible budget reform measures.”

The “proposed debt ceiling framework” would suspend the debt limit until December 31, in order “to remove immediate pressure of defaulting on our national debt.” This would give lawmakers enough time to finish a budget for fiscal year 2024, and to create an external commission tasked with recommending a package of measures that would stabilize deficits and debt over time. The commission would have a reporting deadline of December 31, 2024, with a vote required on its recommendations by February 28, 2025. The group also calls for the adaptation of “interim deficit stabilization controls” — which are not defined — for use in the 2024 budget process.

If lawmakers are able to establish the commission and satisfy certain requirements, including the use of regular order for budgeting and appropriations, by the end of this year, then the debt ceiling suspension would automatically convert to a debt ceiling increase lasting until February 2025 — “the amount of which will be guided by the established interim deficit stabilization controls.”

Rep. Josh Gottheimer, the New Jersey Democrat who co-chairs the Problem Solvers Caucus, said the proposal addresses two major issues at the same time. “We can both suspend the debt ceiling and help prevent our nation’s economy from driving off a fiscal cliff — and address our nation’s longer-term fiscal health,” he said. “Nobody should use the full faith and credit of the United States as a bargaining chip and I look forward to continuing our bipartisan work to prevent a debt crisis. We can protect Americans’ savings and our standing in the world.”

Uncertain future: As Bloomberg’s Erik Wasson notes, the Problem Solvers’ proposal cannot move forward without McCarthy’s approval. That means the plan is going nowhere for now, as McCarthy pursues his own effort to pass a bill that forces the White House to negotiate with him over spending cuts in exchange for raising the debt ceiling. But if McCarthy’s effort fails, the bipartisan centrist plan may serve as the basis for an emergency alternative in the event that a debt crisis suddenly appears perilously close.

Cowen analyst Chris Krueger says that the centrists’ plan could help resolve a potential deadlock over how to proceed on the debt ceiling. “This is the classic kick the can, which we believe will be a feature of any final bill that raises/suspends the debt,” he said in a note late Wednesday.

The Problem Solvers touted their plan as a more realistic way forward. “How else are we going to get 60 votes in the Senate and navigate the four-vote GOP margin?” Fitzpatrick said. “It’s going to have to be a two-party solution. So why don’t we just start on that now?”

Number of the Day: $108 Billion

The Treasury Department’s cash balance rose by $108.47 billion on April 18, the official due date for tax payments in the U.S. this year, according to data published Wednesday. The department now has $252.55 billion in cash, which could be enough to see it through a potential crisis point in early June.

However, Bloomberg’s Alex Harris says the cash haul on tax day was somewhat “lackluster,” and one analyst said it could be a close call on whether the Treasury has enough money on hand to meet all of its obligations over the next few weeks.

“A key question is whether revenues prove big enough to get the Treasury through until an anticipated influx of tax money on June 15 — when some payers have installments due,” Harris writes. “If so, then it’s also likely to bridge the gap to the next available extraordinary measures on June 30 and stave off default until later in the summer. Conversely, if they end up being insufficient for that, then the government might not even make it to June 15.”x

Quote of the Day

“Trump figured out in 2016 that an older, more working class, more populist party would become increasingly against fixing Social Security and Medicare, and he was right. … It’s clearly good politics to recast yourself as the defender of Social Security and Medicare. It’s just bad for the country.”

– Brian Riedl, a senior fellow at the conservative Manhattan Institute, in a New York Times article looking at how Republican politics have shifted to the point that the party’s leading White House contenders, former President Donald Trump and Florida Gov. Ron DeSantis, have shown little interest in joining fiscal fights and have instead positioned themselves, in the words of Times correspondent Jonathan Weisman, as “guardians of the Democratic Party’s most precious policy legacies: Social Security and Medicare.”

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