Since they won a majority in the midterm elections, House Republicans have promised to use a debt-limit bill as leverage to achieve their policy priorities. But it was not until yesterday that they confirmed what those priorities are, passing legislation that they plan to use in debt-limit negotiations.
The House approved the bill in a close vote, 217-215, with no Democratic support. The legislation, championed by House Speaker Kevin McCarthy, would raise the limit on money the government can borrow through next year, reel back President Biden’s climate agenda and force sweeping, unspecified spending cuts. The bill is dead on arrival in the Senate, which Democrats control, and Biden has already said he would not sign it. But Republicans hope it will push Democrats to negotiate. “We lifted the debt limit; we’ve sent it to the Senate; we’ve done our job,” McCarthy said.
The stakes are high. If the U.S. breaches the debt limit, it could be forced to default on its debts. A default could set off global economic calamity because U.S. debt, which underpins much of the financial system, would collapse in value (as I’ve explained before). The U.S. hit the debt limit in January, but the Treasury Department has used so-called extraordinary measures to keep the government from defaulting. Those measures will run out in the coming months.
Republicans are leaning on the economic threat to try to force Democrats to negotiate. Today’s newsletter will look at why Republicans are pursuing this strategy and why Democrats see it as reckless.
What Republicans want
Republicans say the U.S. government has grown too large, that it spends too much and that its debt and deficits are unsustainable. More recently, Republicans have argued that spending cuts will ease inflation. Reducing spending would also give Republicans more leeway in the future to extend tax cuts passed under Donald Trump, which disproportionately benefited wealthy Americans.
But Republicans have failed to act on a smaller-government vision when they have been in power. When they controlled the House, Senate and White House in 2017 and 2018, they increased federal spending and deficits. Pointing to that history, some liberals have argued that House Republicans are simply trying to undercut Biden even at the cost of damaging the economy.
Republicans also face difficult politics. In the debt-limit showdown, they have promised to shield Social Security, Medicare and military spending from cuts. Those programs make up the bulk of federal spending. Without them, balancing the budget or even just reducing spending would require steep cuts to other policies, potentially including Medicaid, food stamps, border security and grants to local police departments.
Some of those programs are popular, and slashing them could upset constituents who rely on them to make ends meet.
The political reality has prompted Republicans to take smaller steps. Originally, McCarthy said he wanted to put the U.S. “on a path towards a balanced budget” within 10 years. His current proposal falls short of that goal. But it would cap some federal spending, reclaim unspent Covid relief funds, roll back the Biden administration’s efforts to boost clean energy, block student loan forgiveness and impose more stringent work requirements for food stamps and Medicaid.
Why Democrats refuse
Democrats have largely resisted negotiating over the debt limit. They have likened Republicans’ tactics to hostage taking, arguing that McCarthy and his allies are using the threat of economic catastrophe to force Biden to agree to draconian spending cuts. Democrats warn that negotiating would set a bad precedent — one that could ultimately hurt Republican administrations, too. Democrats could, for example, refuse to raise the debt limit to try to force a Republican president to agree to increase the minimum wage.
But there is already precedent. Barack Obama’s administration negotiated with Republicans during similar debt-limit showdowns. Some Democrats, including then-Senator Biden, also voted against increasing the debt limit in 2006 to protest the costs of the Iraq war and tax cuts.
Biden and his allies argue that it is time to break that cycle. They say they will negotiate with Republicans on spending after they increase the debt limit, but not before. This matches what other countries do. (Denmark is the only other country with a similar debt limit, but it raises its cap well in advance of reaching it.)
Democrats also object to Republicans’ proposed cuts, which they say would particularly hurt poor and middle-class Americans. They also point out that some proposals, like reducing funding for the I.R.S., would increase the deficit.
Still, Democrats may be forced to negotiate. As long as Republicans control the House, there may be no other way out of a potential economic crisis.
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ARTS AND IDEAS
A reason to dream
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