In Debt Limit Fight, Republicans Won’t Say What Spending Cuts They Want
WASHINGTON — At a news conference this month to showcase how Republicans will handle their looming debt ceiling showdown with Democrats, Senator Ron Johnson of Wisconsin was asked to explain what specific spending cuts his party would support in exchange for lifting the borrowing cap.
“Exactly what those are, we’re not willing to lay out here today,” Mr. Johnson said, adding that plans would be determined in consultation with House Republicans.
The refrain has been familiar in recent weeks as Republicans have insisted that they want “structural” fiscal changes in exchange for voting to raise the borrowing cap, but they have so far declined to offer a cohesive plan outlining what programs they would cut. Internal divisions over how to reduce spending have been spilling into public view, underscoring the political challenge that Republicans face as they try to wield the specter of a default to extract concessions from President Biden and Democrats.
In the meantime, the United States technically has already exceeded the $31.4 trillion debt limit, and the Treasury Department has warned that its ability to delay a default by using its so-called extraordinary measures could be exhausted by early June.
On Wednesday, President Biden will meet with Speaker Kevin McCarthy at the White House to discuss the debt limit and budget priorities. Before that meeting, White House officials said that Mr. Biden would ask Mr. McCarthy to commit to the principle that the United States will never default on its financial obligations and press him about when House Republicans plan to release their budget.
“It is essential that Speaker McCarthy likewise commit to releasing a budget, so that the American people can see how House Republicans plan to reduce the deficit,” Brian Deese, the director of the White House’s National Economic Council, and Shalanda Young, the director of the White House budget office, wrote in a memo released on Tuesday.
Ahead of the meeting, the three primary negotiators who have to broker a deal jousted from afar.
At a fund-raiser in New York on Tuesday, Mr. Biden called Mr. McCarthy a “decent man” but lamented that he had to cater to the hard-liners in the Republican Party to become speaker by offering “off the wall” concessions.
“Look, this is not your father’s Republican Party,” Mr. Biden said. “No, I mean it, this is a different breed of cat.”
Separately on Tuesday, Mr. McCarthy accused Mr. Biden of being irresponsible by suggesting that he was unwilling to seek common ground over the debt ceiling and said that the White House’s refusal to bargain was “childish.”
Understand the U.S. Debt Ceiling
What is the debt ceiling? The debt ceiling, also called the debt limit, is a cap on the total amount of money that the federal government is authorized to borrow via U.S. Treasury securities, such as bills and savings bonds, to fulfill its financial obligations. Because the United States runs budget deficits, it must borrow huge sums of money to pay its bills.
The limit has been hit. What now? America hit its technical debt limit on Jan. 19. The Treasury Department will now begin using “extraordinary measures” to continue paying the government’s obligations. These measures are essentially fiscal accounting tools that curb certain government investments so that the bills continue to be paid. Those options could be exhausted by June.
What is at stake? Once the government exhausts its extraordinary measures and runs out of cash, it would be unable to issue new debt and pay its bills. The government could wind up defaulting on its debt if it is unable to make required payments to its bondholders. Such a scenario would be economically devastating and could plunge the globe into a financial crisis.
Can the government do anything to forestall disaster? There is no official playbook for what Washington can do. But options do exist. The Treasury could try to prioritize payments, such as paying bondholders first. If the United States does default on its debt, which would rattle the markets, the Federal Reserve could theoretically step in to buy some of those Treasury bonds.
Why is there a limit on U.S. borrowing? According to the Constitution, Congress must authorize borrowing. The debt limit was instituted in the early 20th century so that the Treasury would not need to ask for permission each time it had to issue debt to pay bills.
“Why would you put the economics of America in jeopardy?” Mr. McCarthy said to reporters. “Why would you play political games? I’m not.”
Senator Mitch McConnell, Republican of Kentucky and the minority leader, said on Tuesday that he would defer to Mr. McCarthy given that Republicans hold a majority in the House while Democrats control the Senate. He also noted that during a similar debt standoff in 2011, he ultimately cut a deal with Mr. Biden, then the vice president, that averted a default by imposing spending cuts. Mr. Biden is resisting such an approach today.
“It is not unprecedented to have a discussion about spending in connection with the debt ceiling,” Mr. McConnell said. “The president knows full well since he was my negotiating partner years ago that this has been done before.”
He added, “I think the deal has to be cut obviously between the House majority and the Democratic president in order to have a chance to survive over here.”
Reaching a deal will not be easy. The White House has said it will not negotiate over raising the debt limit, and Republicans have been struggling to find agreement among themselves over how to cut spending. Deficit reduction pledges are poised to collide with the reality that austerity measures tend to be unpleasant.
“The public doesn’t like debt and deficits, but it doesn’t like spending cuts or tax increases, either,” said William G. Gale, a senior fellow at the Brookings Institution and the author of “Fiscal Therapy: Curing America’s Debt Addiction and Investing in the Future.” “Against that backdrop, why would any politician fall on his sword to cut spending or raise taxes?”
After a $5 trillion spending spree to combat the coronavirus pandemic, the nation’s debt burden has become too enormous to chip away at without considerable pain. The Committee for a Responsible Federal Budget estimated this month that it would require $14.6 trillion in deficit reduction to balance the budget over the next decade. That feat would require all spending to be cut by roughly one-quarter.
Excluding the most politically crucial budget items — defense, veterans, Social Security and Medicare — would require an even bigger scalpel. With those areas off the table, spending on the remaining “discretionary” items would need to be slashed by 85 percent.
For months before the midterm elections in November, Mr. Biden warned voters that if Republicans won control of Congress, they would seek to slash funding for social safety net programs, threatening Social Security and Medicare. That has left Republicans on the defensive since taking control of the House this year, because making a dent in future deficits is practically impossible without touching those programs.
Many Republicans are mindful that they are facing something of a political live wire. Former President Donald J. Trump warned Republicans this month to steer clear of the retirement programs during the debt ceiling negotiations. “Under no circumstances should Republicans vote to cut a single penny from Medicare or Social Security,” he said in a video message.
Despite vague proposals to restructure the safety net programs, most Republicans insist that they merely want to cut waste from the programs to preserve them long term.
The White House and Republicans are expected to unveil detailed budget proposals over the next two months that will formally lay out spending priorities. The Biden administration’s budget will be released on March 9. Representative Steve Scalise of Louisiana, the majority leader, suggested on Tuesday that House Republicans would submit a budget in April.
“I hope the president meets his deadline, just like we’re going to work to meet our deadline,” Mr. Scalise said at a news conference.
The contours of that budget are starting to take shape, but differences within the Republican Party will not be easy to bridge.
Representative Chip Roy, a Texas Republican who initially withheld support from Mr. McCarthy in his run for House speaker, said Mr. McCarthy had committed to enacting the biggest discretionary spending cuts in history for the upcoming fiscal year. He said that a $130 billion reduction could be accomplished without cuts to military spending, Social Security or Medicare. Instead, he said on Twitter, money that goes to “woke & weaponized bureaucrats” would be scaled back.
But other influential Republicans contend that big changes to so-called entitlement programs must be considered.
Representative Matt Gaetz, Republican of Florida, said on Fox News last week that he was disappointed that some of his colleagues had given up on overhauling safety net programs such as Medicaid and the Supplemental Nutrition Assistance Program, which provides food stamps. He called for changes that would make fewer people eligible to receive the benefits.
“If we impose work requirements on SNAP and on Medicaid expansion for able-bodied adults, we would have the ability to save $1 trillion during the 10-year budget window,” Mr. Gaetz said.
Some Republicans, such as Senator Rand Paul of Kentucky and Representative Nancy Mace of South Carolina, have been calling for “penny plans” that would cut total spending across the board by a percentage to balance the budget in as little as five years.
Russell Vought, who was Mr. Trump’s director of the Office of Management and Budget, has produced the most detailed budget proposal thus far. He has been talking with House Republicans since late last year about how to balance the budget without cutting Social Security and Medicare.
The plan includes a $22 billion cut to the Department of Health and Human Services that would gut funding for the Centers for Disease Control and Prevention and chop $26 billion from the Department of Housing and Urban Development, including a phaseout of Section 8 grants that Mr. Vought says are “a magnet for crime and decreased property values.” It would also freeze Medicaid, eliminate the Affordable Care Act’s coverage expansions and reduce disability benefits for veterans.
To help balance the budget over a decade, Mr. Vought’s budget projects that the economy will achieve 3.1 percent growth next year and average about 2.8 percent for the remaining years. Those forecasts are far more optimistic than those of the International Monetary Fund, which projected this week that the U.S. economy would grow by a tepid 1.4 percent this year and 1 percent in 2024.
Mr. Vought acknowledged that it was unfortunate that more was not done to curtail spending during the Trump era, when Republicans and Democrats lifted the debt ceiling three times.
“I do wish we could have had other things attached to the debt ceiling increases,” Mr. Vought said. “The new House Republican majority was put into office to deal with these economic problems.”
Mr. Biden and his aides have increasingly called for House Republicans to make their debt limit demands clear, as proposals that would reduce funding for poor people and veterans could prove to be a political gift for the president.
However, the White House has held firm that Mr. Biden does not intend to cut a deal to raise the debt limit and warned that Republicans were being reckless by threatening the full faith and credit of the United States.
“Raising the debt ceiling is not a negotiation,” Mr. Deese and Ms. Young wrote in their memo on Tuesday. “It is an obligation of this country and its leaders to avoid economic chaos.”
Catie Edmondson, Jim Tankersley and Carl Hulse contributed reporting.
