House GOP Stops Short of Specific Spending-Cut Demands for Debt Limit

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House GOP Stops Short of Specific Spending-Cut Demands for Debt Limit
Credit: © Reuters.

(Bloomberg) -- House Republicans are refraining from making any particular demands for federal spending cuts in exchange for raising the debt ceiling, offering a hint of flexibility that could allow Congress to avoid a US payment default later this year. 

The agreement that Speaker Kevin McCarthy struck last week with ultraconservatives from his party doesn’t require a specific level of cuts to be attached to a debt-ceiling increase, lawmakers said Wednesday. 

House Majority Leader Steve Scalise stopped short in remarks on Tuesday from laying out anything other than a vague outline for what Republicans will seek in exchange for boosting the debt ceiling. Democrats, who control the Senate, are set to oppose spending reductions for key federal programs, setting the stage for tense talks.

“When that comes up, at the same time you are dealing with the debt limit, you ought to put mechanisms in place that make sure you don’t keep maxing it out,” Scalise said Tuesday. Likening the debt ceiling to a family’s credit-card limit, he said the need is to “start figuring out how to control the spending.”

Fiscal conservative Tom McClintock said the agreement is to use the debt ceiling as a “speed bump” to slow down and have discussion on spending. He said his hope is to put restraints on mandatory entitlement programs outside the discretionary appropriations budget.

The Treasury Department is expected to require an increase in the federal ceiling sometime in the third quarter. Defaulting on US obligations would cause global financial chaos, Secretary Janet Yellen has repeatedly warned.

When pressed on whether he’d help ensure the US wouldn’t default, Scalise declined to offer any guarantee.

“This has been going on way to long and we are going to confront this,” he said of the increase in government borrowing.

Republicans say they will work on specific proposals for spending cuts as part of the regular budget and appropriations process, which has deadlines beginning in April. 

‘Material Changes’

“The wording is that we are going to have material changes to how we address spending,” said Texas Republican Chip Roy, who helped negotiate the agreement with McCarthy. He said that one option is to pass a budget that balances in 10 years. 

Nancy Mace, a moderate South Carolina Republican, said that a vote on a balanced-budget resolution would be a “marker” in negotiations for the debt ceiling later.

“We certainly, as a conference, want to operate that if you are going to raise the debt ceiling you are going to be responsible on spending,” she said. “For me personally — I am just one person — I have made a commitment that we are not going to raise the debt ceiling if we don’t have a plan to cut spending or balance the budget.”

“That’s not going to be an easy fight. You have got the Senate to deal with,” she said.

Starting Point

A lawmaker involved in crafting the proposed resolution emphasized that balancing the budget in 10 years is a start to the process, not necessarily where the debt ceiling talks end up.

The $31.4 trillion debt limit is expected to be hit in the coming weeks, after which the Treasury can deploy extraordinary measures to stave off a payments default until sometime this summer, by most estimates.

In 2011, Republicans came up with a specific “Cut, Cap and Balance” proposal that sought to get then-President Barack Obama to agree to a balanced budget as a price of raising the debt ceiling. That hardline posture led to a market-rattling standoff, with S&P Global (NYSE: SPGI ) Ratings downgrading the US sovereign rating. A deal was ultimately worked out to impose 10 years of budget caps, most of which were later waived by subsequent Congresses and administrations. 

This time, GOP leaders have agreed to seek a $130 billion cut to the discretionary top-line for fiscal 2024 as part of the regular spending bill process — but that’s not firmly linked to the looming debt-ceiling fight.

Difficult Decisions

Attempting to cut 8% from federal spending on discretionary items — those outside of entitle programs — could lead to a government shutdown or a stopgap continuing resolution, but could spare the US credit rating as long as that fight is conducted separately from the debt ceiling.

How Republicans attempt to make the spending cuts is also a work in progress. One area that may be spared is defense. House Appropriations Chair Kay Granger told reporters she wouldn’t support a big cut to defense.

Scalise said that the GOP hasn’t talked about defense cuts, but that it will look to end waste, fraud and abuse.

Top Democrats predicted Republicans will lose the debt-ceiling fight, as they have in recent years. Under former President Donald Trump, the limit was raised or suspended three times without spending cuts.

Democrats ‘United’

“We are firmly united on this,” said the top Democrat on the House Budget Committee, Brendan Boyle. “They will lose again in 2023.”

House Democratic Caucus Chair Pete Aguilar signaled his party could consider using a special discharge petition to force a vote on an unencumbered debt-ceiling increase. If a petition in the chamber gets 218 signatures, then the GOP leadership would be forced to hold an up-or-down vote.

“We are interested in governing, that’s what we are interested in doing and we will do everything we can to help govern,” Aguilar said. 

©2023 Bloomberg L.P.


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