Republicans threaten to hold debt ceiling hostage to force spending cuts
It’s that time again — time for political jockeying over whether America will pay its bills.
House Minority Leader Kevin McCarthy told Punchbowl News that, should Republicans win the House next month, the party will refuse to raise the debt ceiling unless Democrats agree to spending cuts to domestic programs like Social Security and Medicare.
“You can’t just continue down the path to keep spending and adding to the debt,” McCarthy said. “And if people want to make a debt ceiling [for a longer period of time], just like anything else, there comes a point in time where, okay, we’ll provide you more money, but you got to change your current behavior. We’re not just going to keep lifting your credit card limit, right? And we should seriously sit together and [figure out] where can we eliminate some waste? Where can we make the economy grow stronger?”
The debt limit is a ceiling imposed by Congress on the amount of debt that the U.S. Federal government can have outstanding. It does not constrain federal spending or the amount we need to borrow; it simply restricts the Treasury Department’s ability to honor financial commitments previously made by Congress and the President. Currently, the debt ceiling is slightly below $31.4 trillion and is expected to cover federal borrowing needs until mid-2023.
- Need more explanation? Watch “The Debt Limit Explained” by CGP Grey.
According to the Department of the Treasury, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit since 1960. It was never controversial, until recently, because lawmakers of both parties understood the damage that defaulting on our debt would cause.
Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations – an unprecedented event in American history. That would precipitate another financial crisis and threaten the jobs and savings of everyday Americans – putting the United States right back in a deep economic hole, just as the country is recovering from the recent recession.
Back to Rep. McCarthy’s promise to use the debt ceiling as a hostage to cut so-called entitlement programs. You may remember, Republicans used this exact tactic under President Barack Obama, bringing the U.S. so close to defaulting that the credit-rating agency Standard & Poor’s downgraded the government’s credit rating for the first time in the country’s history. Under Trump, however, the GOP raised no debt limit concerns. Just the opposite, the party ran up $7.8 trillion in national debt, in part by reducing the corporate tax rate from 35% to 21%.
It’s not just potential future-Speaker McCarthy planning to hold the debt ceiling hostage. The four Republicans vying to head the House Budget Committee, should they win control of the chamber, have also said that they intend to use it as a tool to reach their goals.
“The debt limit is clearly one of those tools that Republicans — that a Republican-controlled Congress — will use to make sure that we do everything we can to make this economy strong,” said Rep. Jason Smith (R-Mo.) , the ranking member of the House Budget Committee. He’s seeking the top GOP spot on the tax-writing Ways and Means Committee but said if he doesn’t get it, he’ll remain in his Budget Committee position.
Reps. Jodey Arrington (R-Texas), Buddy Carter (R-Ga.), and Lloyd Smucker (R-Pa.) are seeking the top spot on the Budget Committee if Smith gets the Ways and Means role. Those three agreed Republicans must use the debt-limit deadline to enact fiscally conservative legislation. Rep. Kevin Hern (R-Okla.), head of the Republican Study Committee’s Budget and Spending Task Force, also said the upcoming debt-limit deadline is “obviously a leverage point.”
Trump tax cuts
In addition to cuts to Social Security and Medicare, Republicans are also setting their sights on extending the Trump tax cuts.
Many economists say the GOP’s plans to expand the tax cuts flies against their promises to fight inflation and reduce the federal deficit, which have emerged as central themes of their 2022 midterm campaign rhetoric. Tax cuts boost inflation just like new spending, because they increase economic demand and throw it out of balance with supply. But Republicans say they believe these efforts would put Biden in a political bind, requiring him to choose between vetoing the tax cuts — giving the GOP an attack line in the 2024 presidential election — or allowing Republicans to win on one of their central legislative agenda items.
Newt Gingrich, who served as the speaker of the House in the 1990s and is in communication with senior Republican leaders, said a similar strategy was successful at forcing both Bill Clinton and Barack Obama to enact tax cuts that they would not have otherwise supported, after both of those Democratic presidents lost control of Congress.
Biden is likely to find himself in a similar position, Gingrich said.
“The trick is to put the president in a position of either getting defeated in 2024 or signing your stuff into law,” Gingrich said. “Republicans will make it a priority to continue the Trump tax cuts, because it puts the Democrats in a position of being for tax increases and against economic growth.”
Extending the three corporate tax breaks central to Trump’s tax cuts would add roughly $600 billion to the federal deficit over 10 years.