McCarthy Cracks the Whip

Plus: The anxious view from Wall Street ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ [The Fisc](   By Yuval Rosenberg and Michael Rainey Happy Monday! This is a big week for House Speaker Kevin McCarthy (R-CA). We’ve got more on the debt-limit showdown below, but we’re going to take just a second to congratulate the New York Jets on finally trading for Aaron Rodgers. Also, congrats to the Sixers on closing out their series and to the Knicks for bringing some life back to the Garden. Now back to business… McCarthy says his bill will pass (Reuters) McCarthy’s Massive Debt Limit Bet House Speaker Kevin McCarthy and his leadership team are pushing toward a vote this week on their “Limit, Save, Grow Act,” which would raise the debt limit into early next year while saving $4.5 trillion, mostly through cuts to discretionary spending. McCarthy may well be putting his speakership on the line — and the outlook for a Biden re-election bid and for the U.S. economy could potentially be at stake as well. Here’s a roundup of key updates and opinions. McCarthy’s whip team worked through the weekend: House Republican leaders reportedly spent the last few days trying to secure the 218 votes needed to pass the GOP plan and were confident they could reach their goal. “We will hold a vote this week, and we will pass it, and we will send it to the Senate,” McCarthy told Fox News on Sunday. But as of Monday morning, some stumbling blocks had yet to be cleared as conservatives push for additional work requirements on social programs. The GOP whip says there won’t be changes to the bill: House Majority Whip Tom Emmer (R-MN) reportedly said that the bill won’t be changed to satisfy the demands of GOP members. But Politico reports that “a handful” of Republican lawmakers have said they are still insisting on changes and will lean toward voting “no” if they don’t get what they want. McCarthy can afford to lose only four votes. The spending caps in the bill are needed: “Even after the $130 billion cut that would be necessary to bring federal spending back to last year's levels, the bill would set 2023's budgetary authority at levels that are [40 percent higher]( than they were in 2017,” Eric Boehm [writes]( at libertarian site Reason. “That's a giant increase in government spending over just seven years and a nice illustration of the wildly unsustainable course that the federal budget has been following. … Budget deficits are on an unsustainable course, and the debt ceiling is a major issue. It's time for Congress and the White House to impose new spending caps.” Actually, the cuts would be severe and painful: “Cutting a broad swath of public services — from schools, child care, and public health to environmental protection and college aid — and making it harder for people to afford the basics while permitting more tax cheating and cutting taxes for the wealthy is failed trickle-down economics at its worst,” analysts at the liberal Center on Budget and Policy Priorities say in a new [report](. “This agenda would narrow opportunity, deepen inequality, and increase hardship.” See more details below. So much for regular order: “House Republicans, after months of pledging to devolve power to legislative committees conducting business out in the open, have reverted to the tradition of working behind closed doors,” The Washington Post’s Paul Kane [notes](. “Republicans, even the most conservative antagonists who decried this type of legislating, learned to like backroom dealmaking despite their demands in early January,” when they won a promise from McCarthy to open up the legislative process. But this bill still has no chance of becoming law: The McCarthy plan has no chance of passing the Senate or getting President Joe Biden’s signature, so this is all just an effort to pressure the president into negotiating and to convince the public that blame for the debt limit standoff and any potential default should be laid at Biden’s feet. McCarthy’s job may be at stake: If McCarthy can’t get the votes he needs to pass his plan, it would be an embarrassing defeat — and would leave the path to the necessary debt-ceiling increase highly uncertain. The speaker “would likely pay with his job if he were forced to use Democratic votes to raise the debt ceiling – currently at over $31 trillion,” [writes]( CNN’s Stephen Collinson. “This could set up a direct clash between McCarthy’s personal ambition and the national interest.” Would McCarthy be willing to anger his most conservative members, and risk his speakership, to prevent a calamitous debt default? Biden has a lot at stake here, too: The president is expected to officially announce his bid for another term as early as Tuesday. A debt limit crisis could damage him in voters’ minds. “The debt ceiling showdown is important to Biden as he seeks to protect the legislative achievements of his term so far and to portray an image of strength and purpose,” writes Collinson. “He’s been building toward a reelection pitch partly by portraying House Republicans as the epitome of the chaos and disruption of ex-President Donald Trump, who is leading polls of the GOP primary.” The White House has insisted that Congress should pass a debt limit increase with no strings attached. The GOP vote this week could add pressure on the president to show he has a plan of his own to avoid a crisis. Is there room for compromise? “At the end of the day, McCarthy wants three things in a final bill: spending reductions, [energy] permitting reform and some work requirements for social programs,” Punchbowl News [reports](. But the White House has insisted that any discussion of spending cuts should be part of budget talks, not the debt limit. And some Republicans on the far right have indicated that their bill isn’t just an opening offer subject to further negotiations. Even moderates might balk at a debt limit increase without some concessions. “At this point, there is no indication whatsoever that moderate Republicans would agree to lift the debt limit with no reforms from the administration,” the Manhattan Institute’s Brian Riedl [told]( The Washington Post.“ They would be crucified within their own caucus.” Still, McCarthy needs an endgame, [writes]( conservative Washington Post columnist Henry Olsen, who suggests that Congress fall back to a familiar solution: “Create a bipartisan budget commission that would develop a serious comprehensive plan — which Congress would be compelled to vote on.” There’s a larger principle in question here: The House could pass a clean debt ceiling increase if just a handful of Republicans joined with Democrats to do it, but McCarthy isn’t letting that happen, [says]( New York columnist Jonathan Chait. Instead, the speaker is creating a crisis just to be able to get something in return for raising the limit. “So what McCarthy is fighting for, specifically, is to uphold debt-ceiling extortion on principle.” That’s why Biden should hold firm: “The ideal outcome would be for McCarthy’s bill to go down,” Washington Post liberal columnist E.J. Dionne Jr. [writes](. “But even if it passes, don’t look for Biden to rush to the negotiating table.” Jason Furman, who chaired the Council of Economic Advisers under President Obama told Dionne that “there’s nothing good that President Biden thinks could possibly come out of this.” Quote of the Day: Debt Ceiling Jitters “There is this view in D.C. that the market isn’t freaking out enough, and that may be true to an extent. But I’ve been dealing almost exclusively with this issue the last few weeks, and there is actually more concern now than even in 2011. It’s just that nobody knows when it’s going to happen or what to do about it.” — Alec Phillips, chief political economist at Goldman Sachs, talking to Politico about the standoff over raising the federal debt limit. In 2011, a major showdown between a Republican-controlled House and a Democratic president over the debt ceiling prompted Standard & Poor’s to downgrade U.S. debt for the first time. Politico’s Ben White, Sam Sutton and Eleanor Mueller [report]( that concerns are growing among investors about the potential for disaster if lawmakers are unable to make a deal to raise the limit, but some bankers are worried about speaking up for fear of their words being dismissed by conservatives lawmakers as “special pleading by rich Wall Streeters.” Democrats and their allies are hopeful that Republicans will feel the heat from investors if the showdown goes on too long, and act accordingly. “If we do actually start to get close to the drop dead date, and you can’t pay the bills, I’m sure we’ll see a reaction in financial markets and people will put pressure on Republicans for trying to wreck the economy,” economist Dean Baker of the Center for Economic Policy Research [told]( The Washington Post. “If we get to that point, you’ll see them backing down.” Chart of the Day: The GOP's Cuts The package of spending cuts House Republicans are hoping to pass would slash the budget for discretionary programs by $3.6 trillion over a decade. Although they haven’t specified where the cuts would fall, it’s a safe bet that programs involved in areas such as child care, public health, food and drug safety and education, among many others, would be hit hard, especially if lawmakers stick to their pledge to leave defense and perhaps veterans health care untouched. An [analysis]( by the liberal-leaning Center on Budget and Policy Priorities finds that if defense and veterans care are shielded from spending cuts, average discretionary spending for everything would be 33% smaller in 2024 than currently projected by the Congressional Budget Office. By 2033, spending would be 59% lower. “McCarthy bill’s new caps are extremely austere and would lead to a hollowing out of a host of basic services,” [says CBPP’s David Reich](. “They would slash funding for a wide range of federal functions and services — potentially cutting domestic programs by more than half on an inflation-adjusted basis by the end of the ten-year period.” News - [Biden, McCarthy Locked in Debt Standoff With New Deadline on Tap]( – Bloomberg - [Debt-Limit Plan Won’t Be Changed, House GOP Leaders Tell Holdouts]( – Politico - [‘We Will Pass It': McCarthy Whipping Debt Limit Bill]( – Politico - [House GOP Budget Chief Moves Forward After McCarthy Beef]( – Politico - [Truckers and Lawmakers Pitch Tax Repeal to Meet Emission Goals]( – Roll Call - [Return to Pandemic Hunger Levels Could Signal Economic Fragility]( – Reuters - [Weight-Loss Drugmakers Lobby for Medicare Coverage]( – Wall Street Journal - [California Democrats Press for Disaster Recovery Package to Help Agricultural Communities]( – The Hill - [Biden Threatens Veto on Measure to Restore Solar Tariffs]( – Roll Call - [More Eyes on All That IRS Money]( – Politico Views and Analysis - [The House GOP Debt Ceiling Plan Would Restore Spending Caps. Good]( – Eric Boehm, Reason - [Republicans’ ‘Best’ Issue on the Debt Is Still Horrible]( – Jennifer Rubin, Washington Post - [Republicans Are Playing Into the Hands of Putin and Xi]( – Hillary Clinton, New York Times - [McCarthy’s Debt Plan Needs an Endgame. Here’s What It Could Look Like]( – Henry Olsen, Washington Post - [Kevin McCarthy’s Main Debt-Ceiling Argument Is a Lie]( – Jonathan Chait, New York - [Kevin McCarthy's Clown Car Is Headed Right Into a Debt Ceiling Crisis]( – James Downie, MSNBC - [Will the GOP Sign Onto Kevin McCarthy’s Debt Ceiling Hostage Note?]( – Steve Benen, MSNBC - [McCarthy’s Prescription for Debt Ceiling Is Bad Medicine for Older Americans]( – Max Richtman, The Hill - [The Debt Ceiling Is the Least of Our Nation’s Fiscal Concerns]( – Sheldon H. Jacobson, The Hill - [Amid the Debt Ceiling Madness, a Lonely Voice of Sanity Emerges]( – Steven Pearlstein, Washington Post Copyright © 2023 The Fiscal Times, All rights reserved. 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