The struggle for the debt ceiling

House Republicans put economy at risk to push for spending cuts.

Since winning a majority in the midterm elections, House Republicans have promised to use a debt limitation bill as leverage to achieve their political priorities. But only yesterday did they confirm what those priorities are, passing legislation they plan to use in the debt limit negotiations.

The House approved the bill in a narrow vote, 217-215, with no Democratic support. The legislation, championed by House Speaker Kevin McCarthy, would increase the limit on the money the government can borrow until next year, roll back President Biden's climate agenda and impose sweeping spending cuts and not specified. The bill died when it arrived in the Senate, which Democrats control, and Biden has already said he won't sign it. But Republicans hope that will push Democrats to negotiate. “We lifted the debt ceiling; we sent it to the Senate; we did our job,” McCarthy said.

The stakes are high. If the United States breaches the debt limit, it could be forced to default on its debts. A default could trigger a global economic calamity as US debt, which underpins much of the financial system, would plummet in value (as I've explained before). The United States hit the debt ceiling in January, but the Treasury Department used so-called extraordinary measures to prevent the government from defaulting. These measures will expire in the coming months.

Republicans are relying on the economic threat to try to force the Democrats to negotiate. Today's newsletter will examine why Republicans are pursuing this strategy and why Democrats consider it reckless.

Republicans say the US government has become too big, that it is spending too much and that its debt and its deficits are unsustainable. More recently, Republicans argued that spending cuts would reduce inflation. Spending cuts would also give Republicans more leeway in the future to extend tax cuts enacted under Donald Trump, which have disproportionately benefited wealthy Americans.

Republicans also face to a difficult policy. In the debt limit showdown, they promised to protect Social Security, Medicare and military spending from cuts. These programs represent the bulk of federal spending. Without them, balancing the budget or even just cutting spending would require deep cuts in other policies, potentially including Medicaid, food stamps, border security, and grants to local police departments.

Some of these programs are popular, and cutting them could upset voters who rely on them to make ends meet.

Reality politics prompted Republicans to take smaller steps. Originally, McCarthy said he wanted to put the United States "on a path to a balanced budget" within 10 years. Its current proposal does not achieve this objective. But it would cap some federal spending, claw back unspent Covid relief funds, undo Biden administration efforts to boost clean energy, block student loan forgiveness and impose tougher work requirements for food stamps. and Medicaid.

Democrats have largely resisted debt ceiling negotiations. They likened the Republicans' tactic to taking hostages, arguing that McCarthy and his allies are using the threat of economic disaster to force Biden...