US Republicans voted Wednesday to raise the national borrowing limit, but only in conjunction with drastic cuts, as they sought a showdown with President Joe Biden over “excessive” spending with a potentially ruinous credit default looming.
The government is expecting to hit the debt ceiling within weeks, raising the possibility of the world’s largest economy defaulting on repayments and igniting a firestorm in global markets.
The Limit, Save, Grow Act advanced from the House of Representatives by a narrow margin of 217-215 but has no chance of becoming law as it is opposed by Democrats controlling the Senate and White House.
Republicans were determined to muscle it through the lower chamber of Congress to strengthen their position in negotiations with Biden, who has resolutely refused to agree to any spending cuts to get the debt cap raised.
House Speaker Kevin McCarthy, who had spent much of the week locked in frantic talks as he struggled to win over a handful of Republican holdouts, celebrated a vote that would put America “back on track.”
“House Republicans just delivered a plan that will address the country’s debt crisis,” he said.
“Our conference came together to pass the only plan in Washington that will tackle the debt ceiling, stop excessive federal spending and inflation, and put our country back on track for sustained economic growth.”
The high-stakes standoff was seen as a test of McCarthy’s leadership after he secured the speaker’s gavel in January by pledging to his party’s hard-right wing that he would slash federal spending.
– ‘Not an option’ –
The United States is almost $32 trillion in debt — a figure that has been accumulated under both parties over decades.
The 320-page Republican bill would raise the ceiling through March 2024 — paving the way for another debt limit fight in the middle of the presidential election campaign — or until the debt grows to $32.9 trillion.
But it dramatically cuts federal spending and rolls back major portions of Biden’s agenda, such as his push to cancel student debt and mitigate climate change.
The independent Congressional Budget Office said the bill would save $4.8 trillion over a decade, although ratings agency Moody’s Analytics estimated that it could stunt 2024 growth by 0.6 percentage points and kill 780,000 jobs.
Biden has refused to entertain any debt limit increase involving spending cuts and McCarthy and his deputies hope the successful passage of the bill through the lower chamber of Congress will force the president to the table.
“Today’s vote… sends a clear message to President Biden: continuing to ignore the problem is not an option,” McCarthy said.
Biden had earlier told reporters at the White House he was “happy to meet with McCarthy but not on whether or not the debt limit gets extended.”
The outcome looked to be on a knife edge for much of the week, with McCarthy only able to shed four Republicans to get the package through, and in the end he lost exactly that number.
– Marathon meetings –
To win over other rebels among his ranks, the speaker was forced to make several changes to the legislation after marathon meetings that stretched into the early hours.
The tweaks included a u-turn on repealing Democratic-passed tax breaks for the ethanol industry — a proposal that had irked Republicans from the so-called “corn belt” in the Midwest — and accelerated implementation of tough work requirements for social welfare programs such as food stamps.
US Treasury debt is considered the world’s benchmark safe asset and its interest rates are the basis for the pricing of financial products and transactions across the planet.
Economists argue that failure to honor repayment obligations could panic investors, supercharge borrowing costs and torch millions of jobs.
The Treasury has been using “extraordinary measures” — essentially moving money around and drawing on certain accounting tools — for months to keep paying creditors who own government bonds.
Washington has taken in less tax revenue than expected, however, raising concerns that the federal government could run out of cash as early as June.
