Millions of Americans could face significant repercussions if Speaker Kevin McCarthy doesn't find a way out of a debt situation he has created for President Joe Biden, which now threatens to ensnare his own Republican colleagues in the House. On Monday, McCarthy, a Republican from California, went to Wall Street to issue a stern warning: the GOP majority in the House will not agree to raise the government's borrowing limit unless Biden consents to spending cuts that would undermine his domestic policies and diminish his presidential legacy.
Despite this, McCarthy assured financial traders that he would not allow the U.S. government to default on its debts—a scenario that could disrupt Social Security payments, lead to a recession, and cause job losses if the debt ceiling isn't increased.
The challenge for Americans lies in McCarthy's ability to manage this situation. As a relatively new speaker with a slim majority and a party filled with hardliners, achieving any resolution seems daunting. Unlike most countries, the U.S. requires legislative approval to increase its borrowing limit, turning a routine task into a political battleground in these polarized times. The government spends more than it earns, necessitating borrowing to cover its debts and fund previously approved expenditures. Historically, the U.S. has maintained a strong credit rating, despite a past downgrade due to default threats.
McCarthy urged his party in a private meeting to support a bill that would raise the debt ceiling for a year in exchange for spending cuts from Biden. He presented this as a strategy to bring Biden to the negotiating table, though the bill is unlikely to pass in the Democrat-controlled Senate. Internal disagreements within the GOP about the bill's specifics, including demands for deeper cuts, highlight the difficulty McCarthy faces in uniting his party.
Rep. Scott Perry, leader of the conservative House Freedom Caucus, expressed frustration over the lack of detail in the proposal, while others, like Rep. Tim Burchett, remain undecided. It's common for different factions within a majority to negotiate details before finalizing a package. House Financial Services Chair Patrick McHenry, an ally of McCarthy, expressed confidence that the plan would pass the House, questioning how the White House would respond once it did.
McHenry's comments reveal a flaw in the GOP's approach, which assumes Biden will be compelled to negotiate. The White House has maintained that the House should pass a straightforward bill to raise the borrowing limit. McCarthy's leadership is being tested, as there's no certainty he can pass the measure with a narrow majority and a divided party. Even if it passes the House, it would likely be a Republican-centric proposal that Biden and the Senate would reject. Any compromise could fracture GOP support.
Despite these challenges, McCarthy confidently predicted he would secure enough votes for his initial bill. However, his previous optimistic forecasts, such as his bid for the speakership, resulted in a protracted process requiring significant concessions to his party's radicals.
The stakes are high, with the potential impact on Americans' livelihoods and the global economy. Republicans are struggling to negotiate among themselves, let alone with Biden. Rep. Dusty Johnson of South Dakota, involved in shaping the GOP's stance, acknowledged the difficulty in narrowing down numerous conservative policy goals to a feasible number.
Some Republicans have vowed never to vote for raising the debt ceiling, complicating McCarthy's efforts. In a stronger majority, such dissenters might be ignored, but in McCarthy's narrow majority, they wield considerable influence. Democrats have little reason to assist McCarthy, as they would likely oppose the spending cuts in any GOP bill. Moreover, McCarthy risks his position if he relies on Democratic votes, due to a rule allowing any member to call for his removal.
The looming debt ceiling confrontation could define the relationship between Biden and McCarthy over the next two years. Both leaders have much at stake, and the outcome will shape their legacies. While Republicans have the right to leverage their electoral gains to push for reduced public spending, the risk to jobs and the economy raises questions about their strategy.
Republicans face accusations of hypocrisy, having previously raised the debt ceiling under President Trump without issue. McCarthy must shift the political narrative to blame Biden for any default and its economic fallout. He attempted this by claiming the real threat is the growing national debt, not a default.
Historically, fiscal standoffs have often backfired on Republicans, with Democratic presidents like Clinton and Obama portraying them as reckless. McCarthy aims to reverse this by depicting Biden as unyielding. The two haven't met in over two months, with the White House insisting that budget discussions, not debt ceiling negotiations, are the appropriate venue for talks.
McCarthy is in a difficult position. Congress, not the president, controls the borrowing limit, yet he demands concessions from Biden for a task only Congress can perform. A default would harm everyone, especially a president facing reelection. It's unclear how McCarthy can emerge victorious without triggering an economic crisis.
The White House emphasized the need for a straightforward resolution to the debt ceiling issue, criticizing any brinkmanship. Senate Republicans have largely stayed out of the fray, though Senate Republican leader Mitch McConnell offered some support to McCarthy, urging Biden to negotiate.
McCarthy's recent speech reinforced the sense that a political crisis over the debt ceiling is nearing a critical point. Senate Democratic Majority Leader Chuck Schumer warned that McCarthy's current approach could lead to default.