House Speaker Kevin McCarthy jump-started the game of chicken over whether the United States will default on its debt when he announced the introduction of the Limit, Save, Grow Act, which is the current Republican plan to raise the debt limit.
The legislation, which is expected to receive a vote next week, is a 320-page House Republican wish list that has no chance of becoming law, given that Democrats control the Senate and White House. It would raise the debt ceiling until March 2024 while tying that to a host of conservative priorities, including slashing government spending to 2022 levels, capping further spending, and repealing much of the Inflation Reduction Act, President Joe Biden’s landmark social spending bill.
The House GOP bill comes as a potential default could happen sometime over the summer. Democrats have long insisted that they will only support a “clean” debt ceiling increase, without any preconditions or spending cuts, while Republicans have long viewed the debt ceiling as the best leverage to pressure the Biden administration into making broader concessions.
Speaking on the House floor Wednesday, McCarthy insisted that both President Biden and Senate Majority Leader Chuck Schumer now need to come to the table: “They need to sit down, negotiate, and address the crisis, now that we’ve introduced a clear plan for debt limit increase.” The Republican proposal targets a number of longtime GOP bugaboos including Biden’s executive action on student loan forgiveness, tax credits for green energy investments, and increased funding for the Internal Revenue Service.
During the Obama administration, when Republicans also controlled the House, debt limit showdowns led to the downgrade of the United States’s credit rating for the first time in history, though a default was eventually avoided. In 2011, Democrats agreed to mandatory spending cuts. In 2013, Republicans yielded when the debt ceiling showdown was yoked to actually funding the government, and eventually a compromise was reached after a 16-day government shutdown.
After the 2011 debt ceiling crisis, Senate Minority Leader Mitch McConnell described the threat of a default as a “hostage that’s worth ransoming.” The question is whether Republicans can successfully extract a toll from Democrats in this round of negotiations. Speaking on Wednesday afternoon in suburban Maryland, Biden derided “MAGA Republicans” for threatening to default on the debt unless he agreed to their proposal, which he dubbed “wacko notions.”
McCarthy’s proposal still has a difficult path to even passing the House. Republicans have a narrow majority and five defections from McCarthy’s fractious conference would doom the legislation and weaken his negotiating stance. Further, some Republicans have already expressed skepticism about supporting any increase in the debt ceiling regardless of the circumstances. Already, a bipartisan group of moderates has proposed a compromise effort to suspend the debt ceiling in the short term, with the potential to extend the federal government’s ability to spend money into 2025 if certain fiscal reforms are passed by Congress.
In the meantime, a new report from Goldman Sachs issued Tuesday warned lawmakers that the government may breach the debt limit as early as June if action isn’t taken to avoid default.