Business Times
https://www.businesstimes.com.sg/opinion-features/republicans-will-lose-fight-over-debt-ceiling
Republicans will lose in a fight over the debt ceiling
Leon Hadar
US PRESIDENT Joe Biden and the Republican Speaker of the House of Representatives, Kevin McCarthy, met last week at the White House to try to avoid a shattering default on the federal government’s debt and perhaps reach a solution to avert such a catastrophe. The negotiations between the White House and the Republicans over the issue is expected to continue in the coming weeks.
Much of the attention has been on which side would “win” a potential fight over the issue as the United States is getting close to a dangerous deadline, expected to come in June, when the US debt reaches the US$31.4 trillion limit. At that point the Treasury Department cannot continue borrowing and therefore cannot pay the government’s bills.
The Republicans insist that they wouldn’t support raising the debt limit unless the Biden administration agrees to make major spending cuts.
“A responsible debt limit increase that begins to eliminate wasteful Washington spending and puts us on a path to a balanced budget is not only the right place to start, it’s the only place to start,” Speaker McCarthy said in an address on Monday (Feb 6).
At the same time, the White House has said that the debt ceiling should be raised without any conditions, to pay for spending that has already been approved and to avoid a disastrous default. Hence President Biden has asked Congress for a “clean” debt ceiling increase, with no spending cuts attached.
Speaker McCarthy has pledged that he would allow the government to pay debts only if President Biden agreed to cut spending. That pledge was part of a deal with hardliner Republican lawmakers in exchange for agreeing to elect him for the Speakership. If he fails to adhere to that commitment, he could in theory be ousted from his leadership position by the Republican
But then, the Republicans have a slim majority of nine seats in the House, which leaves Speaker McCarthy with very little room to manoeuvre if he decides to play “chicken” with the White House on the debt ceiling.
It’s true that President Biden is not very popular among most Americans, with 62 per cent of Americans saying that he has accomplished “not very much” or “little or nothing” during his time in office, according to a recent Washington Post-ABC News opinion poll.
But according to the same poll, Speaker McCarthy is even less popular than President Biden, with 71 per cent of Americans saying they have little or no confidence in the Republican leader to make the right decisions for the country.
But what should be of more immediate concern to Speaker McCarthy and his Republican colleagues in the House is the rejection by 65 per cent of Americans of the proposed Republican plan to place conditions on approval of the debt ceiling. According to the poll, Americans say that debt payment and federal spending should be handled separately. That means that the ability of the Republicans to use the debt ceiling to force the Biden administration to cut spending is very limited.
Imagine that, in response to a possible default, the administration decides, following the June deadline, to meet its interest payments, but then facing Republican refusal to approve government spending, the Treasury moves to cut all other spending by 25 per cent to 50 per cent.
Under this scenario, the federal government would shut down, and hundreds of thousands of Americans – including retirees, military veterans, and public school teachers – would go unpaid. Many public services, such as education and healthcare, would be devastated and the country would go into an economic recession.
In the ensuing blame-game, it will be the Republicans who would suffer a political blowback as the White House would contend that it is their irresponsible conduct over the debt ceiling that produced an economic catastrophe.
Indeed, the Republicans have been the losers in previous debt ceiling fights in 1996, 2013 and 2019, when the GOP refused to approve any Democratic administration’s spending proposals, which led in turn to the shutdown of the federal government and an ensuing public outcry.
The annual gap between federal spending and federal revenue was around US$1.4 trillion last year, and most analysts agree that balancing the government budget would require a cut in government spending of more than 25 per cent.
Speaker McCarthy’s demand to negotiate with the Biden administration major cuts in spending therefore makes a lot of sense. What doesn’t make sense is to conduct these negotiations under the threat of allowing the US to default on its debt and shatter the American and global economies.