Political Calculus, Debt-Ceiling Edition

House Speaker Kevin McCarthy and GOP leaders unveiled a bill that, in theory, temporarily solves the debt-ceiling crisis that’s brewing. In practice, the path ahead is probably no less complicated and risky than it’s been in recent months.

What has changed is that Republicans, at least for now, have mustered the ability to speak with one voice and present a plan to sidestep the potential for reaching the X-date, when the Treasury Department runs out of money to pay the government’s bills. Estimates for that date vary, but it’s widely recognized that the jig will be up sometime in the summer without a political compromise between Congress and the White House.

The bad news is that even in the unlikely event that McCarthy’s bill becomes law, it would only postpone the X-date into early next year, when the politics of the presidential election will be in full swing. At the point, new negotiations would be required and, presumably, be that much tougher as both parties go into political overdrive ahead of the November election.

The limits of the bill, however, will almost certainly remain academic since the White House and leading Democrats rejected McCarthy’s legislation.

The stalemate in Washington over the debt-ceiling limit, in other words, hasn’t been solved, but it has evolved. The Republican plan seems to be one of trying to shift the onus to Democrats by offering a temporary solution. It’s a tactical move that appears to be calculated on the assumption that the Dems will be hard pressed to accept the bill because rejecting it brings the government closer to a possible default this summer. Indeed, the Speaker said as much yesterday, insisting “They have no more excuse to refuse to negotiate.”

It’s hard to imagine the Democrats taking the bait, however, since the legislation proposes substantial cuts in programs that the White House and its allies strongly support. Among the particulars the proposal cancels is unspent Covid-19 relief money while rolling out new work requirements for government benefits, reversing Biden’s plan to forgive certain student loans, and killing clean-energy subsidies from 2022’s Inflation Reduction Act. It seems that the GOP has crafted a bill that’s intentionally toxic to Democrats.

McCarthy’s bill may be a clever politics, but it’s a thinly veiled way to get around the tortured internal politics of the GOP by offering a temporary and limited stop-gap in lieu of a budget. In contrast with the White House, which recently released a full, detailed budget plan, internal Republican divisions in the House have kept the party from publishing the equivalent. Part of the reason is that McCarthy has made a series of conflicting promises to his conference to become Speaker and bridging this divide in a formal budget plan, for now, appears challenging.

Regardless of the bill’s details, the immediate question is whether it will be approved in the House. That’s a high bar because the GOP’s majority is razor thin. Assuming all the Democrats oppose the bill, McCarthy can afford to lose only a handful of Republican votes.

If the legislation fails to pass, a distinct possibility, the setback will be a major embarrassment for the GOP and raise questions about its ability to remain disciplined in the weeks and months ahead. In turn, a failure would embolden Democrats to maintain their position that the debt ceiling should be raised without stipulations and that negotiations over the budget should be separate and distinct. The uncertainty is how the Republicans would react if the bill dies.

Alternatively, if McCarthy prevails the Democrat-led Senate will come under pressure to approve the bill, probably with modifications. Unlikely, but if it does pass and make it to Biden’s desk it’s almost certainly headed for a veto.

But we’re getting ahead of ourselves. The first step is the upcoming House vote on McCarthy’s bill. I give it slightly skewed odds of passing. Whatever happens, it will be time to reassess the outlook on the other side of the vote.

Meantime, this much remains clear: the risk of debt-ceiling crisis remains elevated, and that’s not likely to change in the immediate future regardless of what happens in the House.

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2 thoughts on “Political Calculus, Debt-Ceiling Edition

  1. Forest Felvey

    Overt bias on a financial and macro data analysis website.

    CS: The Republican bill is “bait” which tries to “shift the onus” onto Democrats. According to CS, the Republicans are tricksters and blame shifters.

    A balanced take would be that the bait was part of a negotiation and the onus is on the Democrats to counter.

    So far, Democrats have refused to compromise at all. Right?

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