The Hard Reality of a Debt-Ceiling Showdown – WSJ
Do House Republicans have a strategy that will keep them unified when the political clamor about default looms?
The Wall Street Journal, Jan. 16, 2023 – Excerpts:
The U.S. will reach its $31.4 trillion limit on gross federal debt on Thursday, and Treasury is resorting to special measures that on present revenue trend can delay default into the spring. Speaker Kevin McCarthy has promised his Members he won’t move to raise the limit without spending concessions from President Biden. But Mr. Biden says he won’t negotiate at all over the debt limit.
Something or someone has to give because the debt limit has to be raised. The U.S. has already borrowed and spent the money, and debt held by the public is a contract. Nobody sane in Washington wants to be blamed for triggering a default, and the bond market ructions it would cause, which means it almost certainly won’t happen.
Republicans are right to want to stop the reckless spending trends of the last four years. U.S. debt held by the public is now about 100% of GDP, up from 39.2% as recently as 2008 and 77.6% in 2018. The cost of financing that debt is rising fast along with interest rates, and interest on the debt will take up an increasingly large share of federal revenue. Priorities like national defense will be squeezed.
…….All of Wall Street, bond investors, the credit-rating agencies and the financial world will be warning of debt-limit doom. The press will side as usual with the Democrats. Maintaining GOP unity as the political pressure builds will make the vote for Speaker look easy.
Republicans used the debt limit as leverage to negotiate a spending limit on non-entitlement spending in 2011 with Barack Obama. Annual caps and the threat of automatic cuts caused outlays to fall as a share of GDP for several years. But the cost was high because defense and domestic social-welfare spending were both capped. Entitlements were exempt as the two sides agreed to negotiate reforms. But Mr. Obama had no real intention of doing so, and neither does Mr. Biden, whose transparent strategy is to portray the House GOP as MAGA radicals.
One emerging GOP strategy would be to pass a bill that guarantees against default by prioritizing tax revenue for debt repayment. It would also protect Medicare and Social Security payments and some vital federal services. That would leave other domestic accounts and perhaps non-essential defense spending to be unfunded until a debt deal is reached. This beats taking debt default as a hostage, but it still carries political risks as Democrats highlight what isn’t funded.
All of which means Republicans will have to pick their spending targets carefully, explain their goals in reasonable terms so they don’t look like they want a default, and then sell this to the public as a united team. The worst result would be for Republicans to talk tough for months, only to splinter in a rout at the end, and be forced to turn the House floor over to Democrats to raise the debt limit with nothing to show for it. Opportunists on the right would then cry “sellout,” even if they had insisted on demands that were unachievable.
This is what Democrats expect to happen, which is why they don’t think they need to negotiate. If Republicans want to use the debt limit as leverage, they need a strategy for how this showdown ends, not merely how it begins.
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Washington Republicans are going to end up with another ‘politics as usual’ budget agreement that will do nothing to solve America’s growing debt crisis and restore long-term financial security for the families of hard-working, tax-paying U.S. citizens – the backbone of America.
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