WASHINGTON — California Representative Kevin McCarthy finally secured the House speakership in a dramatic vote that ended around 12:30 p.m. Saturday, but dysfunction in his party and the deal he made to win over die-hard Republicans also increased the risk of a continuing political stalemate that could destabilize the US financial system.
Economists, Wall Street analysts and political observers warn that the concessions he made to fiscal conservatives could make it very difficult for Mr McCarthy to rally the vote to raise the debt limit — or even put such a measure to a vote. to bring. That could prevent Congress from doing its basic tasks: keeping the government open, paying the country’s bills, and avoiding default on America’s trillions of dollars in debt.
The battle for the speakership that spanned more than four days and 15 rounds of voting suggested President Biden and Congress could be on track later this year for the most dangerous debate over debt limits since 2011, when former President Barack Obama and a new Republican majority in the House nearly defaulted on the nation’s debt for slashing an 11th-hour deal.
“If all we’re seeing is a symptom of a totally splintered House Republican conference that won’t be able to convene with 218 votes on virtually any issue, then it tells you that the odds of getting to the 11th hour or the last minute or whatever is very high,” Alec Phillips, Goldman Sachs Research’s chief political economist, said in an interview Friday.
The federal government spends far more money each year than it receives in revenue, resulting in a budget deficit that is expected to average more than $1 trillion per year for the next decade. Those deficits will add to a national debt that exceeded $31 trillion last year.
Federal law places a limit on how much the government can borrow. But it does not require the government to balance its budget. That means legislators must periodically pass laws to raise the borrowing limit to avoid a situation where the government is unable to pay all of its bills, causing payments, including military salaries, Social Security benefits, and debts to government bondholders, to fall short. endanger. Goldman Sachs researchers estimate that Congress will likely have to raise the debt limit around August to avoid such a scenario.
Understand the US debt ceiling
What is the debt ceiling? The debt ceiling, also known as the debt limit, is a limit on the total amount of money the federal government can borrow through U.S. Treasury bills, such as bills and savings bonds, to meet its financial obligations. Because the US runs budget deficits, it has to borrow huge sums of money to pay its bills.
Raising the limit was once routine but has become increasingly difficult in recent decades, with Republicans using the limit as a bludgeon to force cuts. Their leverage stems from the potential damage to the economy if the limit is not raised. Lifting the debt limit does not authorize new spending; it simply allows the United States to fund existing liabilities. If that limit is not lifted, the government would not be able to pay all of its bills, including salaries for military members and Social Security payments.
The exception to the debt-limit drama was the four years of Donald J. Trump’s presidency, when Republicans largely abandoned their push to tie increases in the limit to cuts in federal spending. In 2021, Senate Republicans clashed with Mr. Biden as the deadline for raising the limit approached, but those lawmakers ultimately helped Democrats pass a law that raised the limit.
Some Democrats pushed to avoid this scenario last year when it became clear their party was likely to lose at least one chamber of Congress. They hoped to raise the cap again in the slack session of Congress after the November election that handed control of the House to the Republicans, to avoid any chance of default before the 2024 presidential election. But the effort never gained traction.
As a result, the next round of debt cuts could be the most fraught ever, as the battle for the speakership shows. Conservative Republicans have already made it clear that they would not pass a debt limit increase without significant spending cuts, likely including cuts to both military spending and domestic issues not related to national defense.
Their power stems from the fact that Republicans have a smaller majority than they did after the 2010 midterm elections, which strengthened conservative holdouts opposed to Mr. McCarthy. One of the group’s demands was a push for major cuts in federal spending and for the federal budget to be balanced within ten years without tax increases.
“Is he willing to shut down the government instead of raising the debt ceiling?” Representative Ralph Norman of South Carolina, who was one of 20 Republicans who initially voted against Mr. McCarthy on the House floor, recently told reporters. “That’s a non-negotiable item.”
Mr. McCarthy seemed to agree with those demands, promising to allow open debate on spending bills and not raise the debt limit without major cuts — including efforts to reduce spending on so-called mandatory programs, including Social Security and Medicare. deal that brought many holdouts, including Mr. Norman, into his camp.
If the speaker violated that deal, he could risk being overthrown by his caucus — a single lawmaker could force a vote to oust Mr. McCarthy, under the terms of the agreement. But Mr. Biden and his party’s leaders in the Democrat-controlled Senate have vowed to fight those cuts, particularly on social safety net programs. That could mean a stalemate that will continue until the government runs out of money to pay its bills.
Washington’s staunch budget hawks have long argued that the United States should stop spending – and borrowing – so much money and that the country cannot pay its long-term debt. They have pushed for a variety of ways to reduce the growth of long-term spending, including health care cuts for the poor and for older Americans. And many have called for some tax breaks to end and for the wealthiest and corporations to pay more.
Yet many of those fiscal hawks have called Republican spending demands reckless and likely to cause deadlocks on key fiscal issues.
“Their specific demand to balance the budget in 10 years is just totally unrealistic. It would cost $11 trillion in savings,” said Maya MacGuineas, chair of Washington’s committee on a responsible federal budget, which has long urged lawmakers to reduce future deficits through spending cuts and tax increases.
“I want to save more money than many people,” Ms MacGuineas said. “But what they are demanding is just not feasible.”
Rushing to a deadline for raising the debt limit would create chaos in financial markets, including for equities and government bonds, Mr Phillips said. If Congress fails to raise the debt limit and the government becomes unable to borrow more money, Mr. Phillips said, America would face a sudden fall in federal spending equivalent to a staggering tenth of all daily economic activity.
“This doesn’t feel like a false alarm,” he said.
In 2011, Republicans and Mr. Obama agreed on a deal to raise the debt limit, which also placed future limits on domestic spending increases. Ms MacGuineas, Mr Phillips and other analysts were skeptical that negotiations between Mr Biden and House Republicans would produce the same result this time, in part because the faction that had blocked Mr McCarthy’s ascent seemed unwilling to compromise. close to considerably more modest concessions from Democrats.
Administration officials have given no indication that they would negotiate with Republicans to increase the debt limit — nor that they were preparing to act unilaterally to circumvent the debt ceiling, as some progressives have insisted, in the event of a House speaker refuses to vote on a debt limit increase without major cuts.
Karine Jean-Pierre, the White House press secretary, told reporters in a briefing on Friday that Biden expected Congress to raise the debt limit again without commitment.
“We have said that we should not use the debt ceiling as a matter of political shortcoming,” she said. “We have been very clear. If you look at what the Republicans in Congress did three times — three times during the Trump administration — they were able to handle it responsibly, right? They again voted three times to lift the debt ceiling. And so Congress must once again be held accountable.”
Moderate lawmakers have already begun to float options for how the House could raise the cap. A long-running idea: a so-called discharge petition signed by a majority of the House to force a vote on a bill. Such a move would presumably rely almost entirely on Democratic voting with a few Republicans participating. But that outcome is far from guaranteed; it would require extensive coordination from both sides and expose defecting Republicans to punishment and primary challenges.
Still, Pennsylvania Republican Representative Brian Fitzpatrick embraced the possibility of such a compromise in an interview with CNN last week. “There are a number of options for bypassing leadership,” he said. “There isn’t a ton. But there are options at our disposal.”
