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Debt limit battle set to dominate 2023 fiscal agenda

First big test in spring when House Republicans write budget blueprint

Arkansas GOP Rep. Steve Womack, left, talks with Speaker Kevin McCarthy, right, during votes to elect a speaker on Jan. 6. Also pictured is Rep. Tim Burchett, R-Tenn.
Arkansas GOP Rep. Steve Womack, left, talks with Speaker Kevin McCarthy, right, during votes to elect a speaker on Jan. 6. Also pictured is Rep. Tim Burchett, R-Tenn. (Tom Williams/CQ Roll Call)

Lifting the statutory debt ceiling is set to dominate this year’s budget agenda. Republicans first need to agree among themselves on what to ask for in exchange.

Any day now, the Treasury Department is expected to announce it is technically running up against its $31.4 trillion borrowing cap — as of Wednesday, it was just $78 billion away — and needs to dip into its tool chest of “extraordinary measures” to stay under the limit.

Estimates vary, but most analysts say Congress has until roughly August to act before Treasury is truly in danger of running out of borrowing room. If lawmakers don’t move by then, it could cause creditors around the world to lose faith in Treasury’s ability to repay U.S. debt and jeopardize government payments ranging from Social Security checks to military salaries.

So far, House Republicans are leaving themselves substantial wiggle room. A slide GOP leaders showed conference members at a closed-door meeting this week pledges only to resist a debt limit increase absent a “budget agreement or commensurate fiscal reforms.”

What that means at this point is open to interpretation. To some of the House Freedom Caucus and other lawmakers who ultimately agreed to back Speaker Kevin McCarthy, R-Calif., it mainly translates into spending cuts. But there’s little agreement on which programs to cut, and other demands have been discussed such as beefed-up border controls and looser restrictions on domestic energy production.

McCarthy told reporters Thursday he’s ready to work with Democrats on a solution, saying he told President Joe Biden “I’d like to sit down with him early and work through these challenges.”

But Democrats, whose votes will be needed in the Senate, are pledging not to negotiate. In fact, no major cuts or other concessions have been granted in debt limit bills since 2011, when a divided Congress and the Obama administration negotiated the pact that led to 10-year appropriations caps and automatic cuts in Medicare and other mandatory benefit programs.

Some are already floating the prospect of a discharge petition to force a “clean” debt limit bill to the floor, which would require six Republicans to join all 212 Democrats. There’s precedent for such a move, including the 2002 campaign finance overhaul and 2015 Export-Import Bank reauthorization, but it’s a rare and time-consuming process.

The most likely outcome may be that Senate Majority Leader Charles E. Schumer, D-N.Y., and Senate Minority Leader Mitch McConnell, R-Ky., broker a deal that can pass in the House with Democratic and some Republican support. Even then, it would be up to House GOP leaders whether to allow a vote on the measure.

Budget resolution

The first big test will come in early spring when House Republicans and their new Budget chairman, Jodey C. Arrington of Texas, write a budget blueprint expected to lay out a path back to surpluses within 10 years.

[Rep. Arrington gets Steering Committee nod for House Budget gavel]

Budget resolutions are nonbinding and don’t have to specify any particular program cuts. It’s unclear whether Senate Democrats and their incoming Budget chair, Sheldon Whitehouse of Rhode Island, will even attempt to write a budget.

And the numbers in the House blueprint will be stark — probably $10 trillion to $11 trillion in spending reductions over a decade, assuming room is left for extending former President Donald Trump’s tax cuts — depending on the Congressional Budget Office baseline expected next month.

That alone could make centrist Republicans queasy, especially if the document has no chance in the Democrat-controlled Senate. And defense hawks within the GOP are already threatening to withhold votes on spending bills over the prospect of any Pentagon cuts needed to make the math add up.

“I don’t know very many that honestly want to cut defense spending. I think a lot of members don’t understand that it’s over half the discretionary budget,” Rep. Tom Cole, R-Okla., a senior appropriator, said Wednesday. “And nobody I know wants to cut veterans spending. You start adding these things in, it gets a lot tougher than most people think.”

Arrington’s blueprint may skirt the question of how defense vs. nondefense discretionary spending is allocated, leaving that up to Appropriations Chairwoman Kay Granger, R-Texas — herself a defense hawk.

But the level of spending cuts required for a balanced budget typically leads to conversations about Social Security and Medicare, which combined make up about one-third of all federal spending. That’s exactly what Democratic leaders and the White House have latched on to, repeatedly taking aim at Republicans’ alleged desire to cut seniors’ benefits.

“The ten-year plan would force them to slash Social Security and Medicare,” Schumer tweeted this week in response to House GOP deliberations. “Democrats will stand up for working families.”

The GOP of old, embodied by former Speaker Paul D. Ryan, R-Wis., used to make no bones about a desire to overhaul Social Security and Medicare, among other entitlement benefits.

Since former President Donald Trump exploded onto the political scene, a more populist strain has been ascendant, seeking to avoid cuts to Social Security or Medicare benefits viewed as earned from decades of work rather than government handouts.

“What we have been very clear about is, we’re not going to touch the benefits that are going to people relying on the benefits under Social Security and Medicare,” Rep. Chip Roy, R-Texas, a Freedom Caucus member and one of the key negotiators with McCarthy last week, said Sunday on CNN.

“We will always protect Medicare and Social Security,” McCarthy said Thursday.

Roy and his allies point to the draft fiscal blueprint proposed by Trump’s former budget director, Russ Vought, dubbed “A Commitment to End Woke and Weaponized Government.”

Vought’s plan has no cuts to Social Security benefits now or in the future, and claims the same for Medicare benefits although it would slice $1 trillion from payments to health providers who serve Medicare patients.

Vought, who now runs a think tank populated by former Trump officials, says other spending must first be targeted before the American people will agree to scale back the benefits they’ve worked for. He decries the traditional view that has dominated in budget hawk circles, that the largest entitlement programs are where policymakers ought to look first.

“When families decide to get on a budget, they do not target the largest and immovable items of their spending, like their mortgage, first. They aim to restrain discretionary spending — they eat out less, shop less, and find cheaper ways of entertaining themselves,” Vought writes in the preamble to his 104-page document.

“Politically, a similar approach is the only way the American people will ever accept major changes to mandatory spending,” Vought continues. “They are simply not going to buy the notion that their earned entitlements must be tweaked while the federal government is funding Bob Dylan statues in Mozambique or gay pride parades in Prague.”

In a separate Sunday tweetstorm, Roy reiterated that the McCarthy-Freedom Caucus agreement does not envision Social Security or Medicare cuts. He used Vought’s language in saying the deal instead would focus on cutting funds for “the woke & weaponized bureaucrats that received massive increases under the $1.7 trillion omnibus.”

‘Intellectually dishonest’

Vought’s budget would cut $3.5 trillion from nondefense discretionary programs over a decade and has other tough medicine such as more than $2 trillion in Medicaid cuts and repeal of the 2010 health care law’s insurance subsidies, along with cuts to other mandatory programs ranging from food stamps to student loans.

Defense wouldn’t be fully spared, with some $500 billion in projected cuts from the current baseline, though Roy maintains that defense cuts weren’t part of any deal cut with McCarthy.

But there’s little chance such proposals could be enacted, and it’s not even clear a more basic budget blueprint with many details left out could secure enough House GOP votes.

Arkansas Rep. Steve Womack, a senior appropriator and former Budget chairman, talks more like a Ryan Republican when he says discretionary programs aren’t where the real money is.

“This whole notion that we’re going to fix the fiscal trajectory of this country with food fights on discretionary budgets is intellectually dishonest, because that’s not where the problem is. The problem is on the mandatory side, it’s in entitlements,” he said. “We are wasting a lot of time and effort if we are just going to focus on discretionary spending.”

Rep. Earl L. “Buddy” Carter, R-Ga., who competed for the Budget chairmanship before losing to Arrington, agrees that “you could take everything that you have in discretionary, do away with it and you still don’t balance the budget.”

He said mandatory spending has to be addressed, but in a way that doesn’t cut benefits for current retirees or those retiring in the near future.

“The Dems are gonna . . . eat our lunch. They’re gonna run commercials saying we’re trying to cut Social Security,” Carter said. “No, we’re trying to save it. We’re trying to stabilize it.”

Arrington in the past has talked of a combined approach, capping the growth of discretionary spending while considering tweaks to benefit programs such as raising the eligibility age.

For now, he’s not suggesting any particular plan for the debt ceiling talks, only that some kind of action-forcing mechanism may be needed to address rising deficits and debt.

“If the public believes that this is potentially as bad as I’m suggesting it is, and that a debt crisis would be as disastrous and ugly as I believe it would be, then you know, I think the public is going to be very generous in saying you guys need to … work this out,” Arrington said.

Living ‘hand-to-mouth’?

It’s not clear there’s time over the next six to eight months to resolve major structural spending and debt challenges, sparking fears that the immediate crisis will simply be about failure to act on the debt ceiling.

Lou Crandall, chief economist for Wrightson ICAP, an investment advisory firm that follows the Treasury debt market closely, wrote this week that based on the 15 rounds of balloting it took McCarthy to become speaker, raising the debt limit could be a long and tumultuous process.

“The third quarter is when the final chapter of this year’s debt ceiling saga will begin, but not necessarily when it will end,” Crandall wrote Jan. 9. He wrote that a “dysfunctional Congress could force the Treasury to live hand-to-mouth through a series of interim debt ceiling increases for weeks or even months.”

In one particularly frightening scenario Crandall outlines, lawmakers might pass a temporary debt limit boost lasting through Sept. 30, when a partial government shutdown would ensue if no spending bill is enacted. Some lawmakers, Crandall wrote, “might see an advantage in aligning the two different deadlines in order to produce maximum leverage.”

Lindsey McPherson, Aidan Quigley, David Lerman and Caroline Coudriet contributed to this report.

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