President Biden has not Budged, Demands a Clean Bill Followed by Spending Negotiations
On Wednesday, April 26, Speaker of the House Kevin McCarthy successfully advanced the House GOP’s proposal to raise the debt limit in exchange for significant future discretionary spending cuts and repeal of several IRA provisions related to climate and renewable energy. Passing the “Limit, Save, Grow Act of 2023” package on a vote of 217-215, McCarthy and the House GOP have ramped up the pressure on President Biden and Congressional Democrats to engage in negotiations immediately with an eye toward a deal.
Although McCarthy had resisted changes to the proposal released last week, he responded to concerns by Midwest GOP Members who withheld support until the repeal of IRA provisions that support ethanol use were removed from the package. Further, McCarthy accelerated the schedule for work requirements added for SNAP and Medicaid benefits to 2024, in response to concerns by Members including Rep. Matt Gaetz (R-FL). Though that helped forge the way to securing sufficient Republican support for passage, Rep. Gaetz was among the 4 Republicans voting no on the measure. No House Democrats voted for the package.
In response to House passage, on Tuesday the Office of Management and Budget issued a veto threat, and President Biden held firm in indicating willingness to negotiate – but only once the threat of default is taken off the table through a so-called “clean” debt limit increase. On Thursday, Senate Majority Leader Chuck Schumer (D-NY) said that the vote made default more likely by locking the House into an untenable position, and echoed Biden’s call for a clean increase in the debt limit. This seemed to be validated by the comments of some House GOP Members immediately after passage that reinforced that they would support only this plan and no other.
Senate GOP Leader Mitch McConnell (R-KY) continued to defer to the House, applauding passage of the measure and calling on President Biden and House Republicans to enter direct negotiations – without including Senate Republicans in such talks. In the narrowly divided Senate, Sen. Joe Manchin (D-WV) urged negotiations on the House GOP package, citing it as the only legislative vehicle currently in play to raise the debt limit and avoid default.
It appears that there is some time before the debt limit must be increased to avoid default. While the Treasury Department is the authority under law, analysts at Goldman Sachs have advised that higher than expected tax revenue puts the debt limit’s “X date” in July. At the same time, market volatility will be something that the House, Senate, and White House watch closely, understanding that chaos in the markets – even over an “X date” months away – could force negotiations to accelerate. Similarly, in the face of the release of economic data that suggest a slowing economy, and with a recession on the horizon, all those involved in these high-stakes negotiations may recognize what is at risk as any date for default nears.
For perspective, during the last time that the House GOP used the debt limit and the danger of default as leverage to force spending cuts in 2011, a deal was not reached until 72 hours before the time that Treasury said borrowing authority would be exhausted. We may be gearing up for a similar experience, 12 years later – though with greater polarization between the parties and fewer centrists on either side of the aisle serving in the House and Senate.
