McCarthy Scrambles to Avoid an Embarrassing Defeat

McCarthy says the vote will happen this week.
Reuters
By Yuval Rosenberg

Happy Tuesday! President Joe Biden officially announced his reelection bid in a video released this morning. Legendary singer and activist Harry Belafonte died at age 96. And House Speaker Kevin McCarthy is still wrangling his members in support of his debt limit bill.

Here’s your fiscal update.

McCarthy Races to Win Over GOP Holdouts on Debt Limit Bill

The House Rules Committee on Tuesday afternoon began consideration of the Republican package to raise the debt limit and slash federal spending, but Speaker Kevin McCarthy (R-CA) and his leadership team are still scrambling to lock down the 218 votes they need to pass the legislation.

McCarthy reportedly had hoped to hold a vote as soon as Wednesday, but his members are still raising concerns about the plan, leaving the timing of any potential vote uncertain.

“Vote on it this week. Yes,” McCarthy said Tuesday, according to CNN. That leaves room for the vote to be delayed if McCarthy and his team can’t corral the holdouts sooner. Republicans can only afford to lose four votes from their own ranks, assuming that no Democrats will support the GOP bill. And the House is scheduled to be out until May 9 after this week, leaving McCarthy and his team little time.

Rank-and-file Republican resistance to the bill spans a number of issues, according to reports.

* Some members simply don’t want to vote for any debt limit increase.

* A Midwestern contingent reportedly opposes a provision repealing ethanol tax breaks enacted last year as part of Democrats’ Inflation Reduction Act.

* “Some conservatives have demanded McCarthy go further by repealing more of Democrats’ past spending bills,” Politico reports.

* And some conservatives continue to insist on even stricter work requirements for social programs and are pushing to have them start next year. “An essential element to get my vote for any increase in the debt limit would be enacting work requirements starting in fiscal year 2024 – NOT 2025 as the legislation is currently written,” Rep. Matt Gaetz (R-FL) tweeted Monday. “Otherwise, it’s a no vote from me.”

Party leaders reportedly say such changes would be unworkable — and have been opposed to opening up the bill to changes, likely fearing a new wave of demands if they did so.

“GOP leaders are warning their members that if they sink the bill, it would give President Joe Biden, who has thus far refused to engage in negotiations over raising the nation’s borrowing limit, the upper hand in the high-stakes fight,” CNN’s Manu Raju and Melanie Zanona reported.

The Biden administration on Tuesday threatened to veto the bill if it gets to his desk, which it won’t since it has no chance of clearing the Senate and its Democratic majority.

“The Administration strongly opposes the Limit, Save, Grow Act of 2023, which is a reckless attempt to extract extreme concessions as a condition for the United States simply paying the bills it has already incurred,” the White House said. “The President has been clear that he will not accept such attempts at hostage-taking. House Republicans must take default off the table and address the debt limit without demands and conditions, just as the Congress did three times during the prior Administration.”

The bottom line: Republican leaders continue to express confidence that they’ll get the necessary votes. “Speaker McCarthy’s been at the table. And he has offered to negotiate with the president. Now we’re going to put our terms on a piece of paper, get 218 Republicans, and we’re going to put the ball in their court,” Rep. Jodey Arrington (R-TX), chair of the House Budget Committee, said in an interview on Fox News. But party members are still threatening to sink the bill and embarrass McCarthy. One “senior GOP source” told Fox News that they were more optimistic yesterday than they are today.

GOP Bill Would Save $4.8 Trillion Over a Decade, but Cost 780,000 Jobs in First Year: Analyses

The Congressional Budget Office on Tuesday estimated that House Speaker Kevin McCarthy’s proposed Limit, Save, Grow Act would reduce federal budget deficits by $4.8 trillion over 10 years. Discretionary spending would be $3.2 trillion lower than the current baseline, while mandatory spending would be $0.7 trillion lower. And the U.S. would save about half a trillion dollars on interest payments on the public debt, CBO chief Phillip L. Swagel said.

At the same time, an independent economic analysis released Tuesday shows that the GOP bill would reduce employment and raise the unemployment rate, especially in the near term. In an analysis of the potential macroeconomic impact of the McCarthy bill, Moody’s economists Mark Zandi and Bernard Yaros conclude that the legislation’s deep spending cuts would reduce economic growth by 0.65 percentage points next year. The economists compared two scenarios, one in which Congress agrees to raise the debt limit in a “clean” bill that does not include any other policy changes, and another in which Republicans’ bill becomes law. They found that the former would be associated with a GDP growth rate of 2.25% in 2024, while the latter would help produce a growth rate of 1.6%.

Slower growth would hurt the labor market and the analysts found that if the Republican bill succeeds, the employment level in the U.S. economy would be lower by 780,000 at the end of 2024 compared to the “clean” debt ceiling scenario, while the unemployment rate would be 0.36 percentage points higher. “Indeed, under the legislation, GDP growth is so weak that employment declines in the first three quarters of 2024, and the unemployment rate rises by more than a percentage point to 4.6% by the fourth quarter of 2024,” the analysts wrote.

Over the 10-year period, the GOP plan would result in slightly lower GDP and employment levels and slightly higher unemployment. But the nation’s fiscal situation would be better under the GOP bill, with the debt-to-GDP ratio standing at an estimated 106% — higher than the 97% level recorded in 2022, but below the 116% level projected under the “clean” debt limit increase scenario.

Complicating the outlook is the fact that the GOP bill would raise the debt limit for only about one year, laying the groundwork for another potentially destructive showdown in 2024, an election year. “This is sure to weigh on investor, business and consumer confidence and thus economic activity,” Zandi and Yaros wrote.

Quote of the Day: A Credit Rating Warning

“The increasing use of debt limit standoffs to advance political agendas, combined with political polarisation, is a recipe for more, not less, confrontation around the US debt limit in the years ahead. Repeated near-default episodes brought on by debt limit debates could erode confidence that the US government’s repayment capacity is resilient to political dysfunction and may affect Fitch’s view of the sovereign credit profile.”

− A team of analysts at Fitch Ratings on Tuesday warning about the dangers inherent in using the federal debt ceiling as a political tool. Although the ratings agency expects lawmakers to act in time to avoid a default, the analysts spelled out what could be expected to happen if they do not: “If the limit were not raised or suspended in time to avoid a default, the US’s rating would be moved to ‘RD’ (Restricted Default). Affected Treasury securities would carry a ‘D’ rating until the default was cured. Prioritising debt payments to avoid an immediate default, if this were possible, might not be consistent with a ‘AAA’ rating.”

Opinion of the Day: Debt Limit Déjà Vu

The House GOP debt limit bill isn’t a serious plan, writes Washington Post Columnist Catherine Rampell. Why? Because it’s been tried before, in 2011, and it failed.

McCarthy’s plan calls for sizable — but unspecified — cuts. But the smaller spending restraints enacted in 2011 only ended up leading to more fiscal clashes, Rampell writes, and Congress couldn’t even stick to the budget deal it had made:

“Pretty quickly, Republicans gave up on even pretending to abide by the budget constraints they themselves had insisted upon… . In fact, nearly every year throughout the decade that funding caps were in place, Congress voted to exempt itself from the full cap.
“The size of the exemption — the amount by which lawmakers gave themselves permission to exceed their previously determined spending caps — began relatively small, and then exploded when Donald Trump took office.
“To put all this in context: Those broad, unspecified spending caps from 2011 were much more modest and less severe than the ones McCarthy is proposing now. And yet, Congress still couldn’t execute them.”

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