Frustrated McCarthy Drops F-Bombs — and a Dare

McCarthy spoke with reporters after his closed-door meeting.
SIPA USA
By Yuval Rosenberg

Happy Thursday! House Speaker Kevin McCarthy acknowledged today that this week hasn’t quite gone as he’d planned, and he took out some of his frustrations on his fellow Republicans. We’ve got details.

A Frustrated McCarthy Drops F-Bombs — and a Dare

The growing frustrations of Speaker Kevin McCarthy and House Republicans have reached the point where the f-bombs start flying.

With intraparty tensions escalating ahead of a September 30 deadline to avoid a government shutdown, McCarthy on Thursday morning dared hardliners in his conference to try to oust him.

“You guys think I’m scared of a motion to vacate. Go f---ing ahead and do it. I’m not scared,” McCarthy reportedly told the House GOP conference during a closed-door meeting that was convened to discuss the impeachment inquiry into President Joe Biden.

McCarthy reportedly called on members to go ahead and file “the f---ing motion” to vacate the speaker’s job, the formal process by which he could be removed.

Republicans have been struggling to settle on a path forward as various factions make demands in the current fight over spending levels. “The leverage point we have is this spending fight right now — it’s the only leverage point we have for the next year,” Rep. Chip Roy of Texas, a leader of the ultraconservative House Freedom Caucus said on a radio talk show, according to The Wall Street Journal.

Far-right Republicans have pushed for more details about McCarthy’s plans to approve a stopgap measure to fund the government and pass some security-related appropriations bills. Hardliners in McCarthy’s conference have demanded policy concessions and expressed concerns over spending levels, border security and Ukraine funding. They insist that fiscal 2024 spending must be set to 2022 levels.

At the same time, the Republican Study Committee — a group that includes almost 80% of House Republicans — is now calling for any short-term spending bill to include border security measures as well as spending cuts. The group conducted a survey of its members and the results “indicate that a sizable number of Republicans won't accept temporary funding without significant wins for conservatives,” Axios reports.

Any plan with such significant wins for conservatives would be unlikely to pass the Senate, though, meaning that a government shutdown could be in the offing — a politically perilous result for McCarthy and Republicans.

The speaker reportedly still has the support of the majority of House Republicans and received a standing ovation at Thursday morning’s meeting, but under the terms of the deal he struck in January as he sought to win the speaker’s gavel any one lawmaker can seek his ouster. Most notably, Republican Rep. Matt Gaetz of Florida has threatened that he would seek to have McCarthy removed if the speaker brings up a short-term funding patch.

Gaetz charged this week that McCarthy has violated an agreement to bring up votes on term limits and balancing the budget. He reportedly shot back at McCarthy Thursday by saying the speaker should “move the f---ing spending bills.”

“Instead of emotionally cursing, maybe the speaker should just keep his word from January on balanced budgets, term limits and single-subject spending bills,” Gaetz told The Hill.

McCarthy acknowledged to reporters after Thursday’s meeting that he had “showed frustration” with his fellow Republicans because he was “frustrated with some people in the conference.” Asked to share the precise language he had used if he did not mind, he laughed and said, “I mind sharing with you.”

McCarthy did say, though, that he told his members that after they return next week they will have to stay in session until they get the spending bills settled. “We’re going to get this done,” he said. “Nobody wins in a government shutdown.” He later added that he would continue to try to do what’s right for the American public. “You know what, if it takes a fight, I’ll have a fight,” he said.

Why it matters: House Republicans, riven by internal conflicts and possessing a slim 222-212 majority, are failing at the basic tasks of governance. They have passed only one of the 12 annual appropriations bills. They had to put off a procedural vote Wednesday on a bill funding the Defense Department — which Republicans are typically happy to support — because they lacked the votes to advance it. And McCarthy this week ordered the Biden impeachment inquiry without holding a vote on the House floor, contrary to his initial stance on the issue, because some of his moderate members have been hesitant about launching the probe.

The bottom line: Congress has 16 days to prevent a partial shutdown, but some GOP lawmakers reportedly now see a shutdown as highly likely or even inevitable. “The big challenge here for McCarthy,” Punchbowl News said this morning, “is that he’s dealing with a group of legislative nihilists — lawmakers who don’t much care about a government shutdown and are in no rush to find a solution to the looming funding crisis.”

An Unusual Budget Surplus in August: Treasury

The cancelation of President Joe Biden’s student loan forgiveness plan produced a rare budget surplus in August, the Treasury Department reported Wednesday. According to the Monthly Treasury Statement, the U.S. recorded an $89 billion budget surplus in August 2023 — a marked contrast with the $220 billion deficit recorded in August 2022.

In June the Supreme Court struck down the Biden plan, which would have forgiven up to $20,000 in student loan debts for millions of Americans, at a cost of roughly $400 billion over 10 years. A substantial portion of that cost was added to the budget figures in August 2022; the plan’s cancelation generated a roughly similar credit that was applied to the budget in August 2023, helping to produce a surplus for the month — even though the program was canceled before it took effect.

“This month’s budget outlays include impacts from the $319 billion Debt Relief Reversal downward modification to the Department of Education Federal Direct Student Loans program, resulting in a surplus of $89 billion for August 2023,” the Treasury said. “August typically reflects a budget deficit (68 times out of 69 fiscal years) as there are no major tax due dates.”

Even with the unusual surplus recorded in August, the budget deficit is on track to grow substantially in 2023 on a year-over-year basis. The deficit in the first 11 months of the 2023 fiscal year, which started in October 2022, was $1.52 trillion — a 61% increase from the $946 billion cumulative deficit in August 2022. Leaving aside the distortions created by the accounting for the student loan forgiveness plan, both this year and last, the budget deficit will roughly double in 2023 relative to 2022.

One of the reasons for the growing deficit is the increase in debt-servicing costs. The Treasury spent $630 billion on net interest in the first 11 months of 2023, a 33% increase from the year before.

Note: We reported similar numbers earlier this week based on initial estimates from the Congressional Budget Office, though we erred in reporting the $90 billion estimated surplus as a deficit.

IRS Freezes Pandemic-Era Tax Credit

Amid growing concerns about fraud, the Internal Revenue Service announced on Thursday a moratorium on new claims for the Employee Retention Credit, a refundable tax credit created by Congress in 2020 to encourage businesses to keep employees on the job during the Covid-19 pandemic.

New claims for the credit, which is worth as much as $26,000 per employee for eligible organizations, will not be processed until next year at the earliest as the tax agency takes time to examine the 600,000 claims currently in the queue. The IRS said it will allow businesses to withdraw their claims or to repay any refunds they received if they now believe their original claims were improper.

The IRS said it was reacting to a “flood” of questionable claims, driven in large part by a growing number of dodgy consulting firms that seek to convince business owners to file for what they say is free and easy money.

“The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in,” said IRS Commissioner Danny Werfel. “The further we get from the pandemic, the further we see the good intentions of this important program abused. The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system.”

The IRS has received about 3.6 million claims for the tax credit, which covers only part of 2020 and all of 2021, though employers have until 2025 to apply for it. The number of applications has been rising recently, with 50,000 claims coming in per week as a result of aggressive marketing by consulting firms that collect a percentage of any refunds paid.

The IRS has now paid out about $230 billion for the tax credit – about three times the original estimated cost. At the current rate, the tax credit “will cost the government more this fiscal year than the mortgage interest deduction and charitable deduction combined,” The Wall Street Journal’s Richard Rubin said.

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