Republicans Revolt Against McCarthy’s Deal

McCarthy said the deal would pass.
USA Today Network
By Yuval Rosenberg

Happy Tuesday! We hope you had a restful and meaningful Memorial Day holiday. Now that HBO’s “Succession” is over, we’re back to watching the drama unfolding on Capitol Hill. Here’s the latest.

As always, send your feedback to yrosenberg@thefiscaltimes.com.

Debt Limit Deal Set to Pass Its First Test Despite GOP Backlash

The debt limit deal struck by President Joe Biden and Speaker Kevin McCarthy appears set to survive its first legislative test on Tuesday evening, clearing a procedural hurdle despite a growing revolt by Republicans.

The Rules Committee, comprised of nine Republicans and four Democrats, is poised to advance the 99-page bill to the full House, where it is expected to be brought to a vote Wednesday. (See below for more details about the deal.)

Two ultraconservative Republicans, Reps. Ralph Norman of South Carolina and Chip Roy of Texas, have announced their opposition to the bill, but Rep. Thomas Massie of Kentucky, another member of the far-right Freedom Caucus, indicated Tuesday that he will vote for it. Massie said that, while he opposed some parts of the deal, he would support the overall package, in particular because it includes a mechanism he helped write that is meant to push Congress to complete all 12 annual appropriations bills by automatically cutting spending by 1% if those bills are not passed on time.

Massie’s announcement means Republicans will likely have the seven votes they need to approve the bill without help from Democrats.

Treasury Secretary Janet Yellen told lawmakers last week that the deadline for raising the nation’s debt limit and avoiding an economically perilous default is June 5, meaning that time is running short for Congress to act.

“This bipartisan bill is not perfect. In fact, I’ve yet to meet one person who loves it,” Rep. Brendan Boyle of Pennsylvania, the top Democrat on the House Budget Committee, said. “Perhaps that is a sign that it is a fair compromise between a narrowly Republican House and a narrowly Democratic Senate — and, of course, a Democratic White House.”

McCarthy faces a drumbeat of dissatisfaction from Republicans that is growing ever louder. Some on the Republican right are incensed over the deal and insist that McCarthy should have demanded far more from Biden. The spending cuts in the bill are not as deep as Republicans had wanted and well shy of the trillions of dollars they had slashed in their Limit, Save, Grow Act.

The Washington Post reports that roughly 30 Republicans had pledged to vote against the bill by late Tuesday.

Earlier in the day, members of the House Freedom Caucus lambasted the legislation at a news conference. “Not one Republican should vote for this deal. It is a bad deal,” Roy said. “No one sent us here to borrow an additional $4 trillion to get absolutely nothing in return, but at best — if I’m being really generous — a spending freeze for a couple of years.”

Roy had previously labeled the bill a “turd-sandwich.”

Republican Rep. Dan Bishop of North Carolina told reporters he is considering a motion to oust McCarthy from his job as speaker. The “motion to vacate has to be done,” he said.

And Rep. Matt Gaetz said much would depend on how this week’s votes go. “If a majority of Republicans are against a piece of legislation and you use Democrats to pass it, that would immediately be a black-letter violation of the deal we had with McCarthy,” Gaetz told Newsmax, according to Politico. “And it would likely trigger an immediate motion to vacate.”

The Republican opposition to the deal also extends beyond the Freedom Caucus. Republicans including Reps. Kat Cammack of Florida, Wesley Hunt of Texas and Nancy Mace of South Carolina have all come out against the bill, signaling a breadth of opposition within the GOP — and the possibility that McCarthy may not be able to deliver the roughly 150 votes he reportedly had promised Democrats.

“The backlash to the plan from the right appeared to be fueled in part by mounting public opposition from conservative advocacy groups with strong ties to Republican lawmakers, including the Heritage Foundation, the Club for Growth and FreedomWorks,” The New York Times reported. “The groups were promising to include the vote in their ratings of lawmakers, effectively threatening to downgrade any lawmaker who supported it.”

McCarthy on Tuesday called the bill “the most conservative deal we ever had.” He and his allies have been making the case to Republican members and in the media that Democrats did not get a single thing they wanted in the deal. “That is kind of the amazing part. There were no wins for Democrats,” Republican Rep. Dusty Johnson of South Dakota told CNN on Sunday. “There is nothing after the passage of this bill that will be more liberal or more progressive than it is today. It’s a remarkable conservative accomplishment.”

What’s next: If the bill is passed by the House on Wednesday evening, it will then head to the Senate, where a number of Republicans have already voiced opposition and could slow its passage. A final vote could be delayed until the weekend.

What’s in the Fiscal Responsibility Act of 2023

Here are some of the key elements of the budget and debt-ceiling agreement reached between the Biden administration and Republicans in the House:

Debt limit suspended until January 1, 2025: The Fiscal Responsibility Act of 2023 would suspend the current $31.4 trillion federal limit until the first day of 2025. On January 2, 2025, the debt limit would increase automatically to whatever level of debt had been accrued up to that point.

Analysts at Goldman Sachs estimate that the increase will come to about $4 trillion, pushing the total federal debt level past $35 trillion. Once the new debt ceiling takes effect, the Treasury would once again be forced to take “extraordinary measures” to continue to make payments, laying the groundwork for another debt limit deal (or potential crisis) later in the year, with Goldman analysts guessing that the deadline would occur in the second quarter of 2025.

Defense spending increases: The bill would raise defense spending to $886 billion in fiscal year 2024, an increase of 3.3%, and raise it again to $895 billion in 2025. The increase next year matches Biden’s budget request, but Republican hawks say it isn’t enough given inflation. “The Biden defense budget was a joke before, and if we adopt it as Republicans, we will be doing a big disservice to the party of Ronald Reagan,” Sen. Lindsey Graham told Fox News over the weekend. “I like Kevin [McCarthy] a lot, but don’t tell me that the Biden defense budget fully funds the military.”

Veterans get more, too: Spending on veterans’ medical care would rise, as well, to $121 billion in 2024, up from $119 billion in 2023. The bill would also put $20 billion in the Toxic Exposures Fund, which the Department of Veterans Affairs created last year to pay benefits provided by the Honoring our Promise to Address Comprehensive Toxics (PACT) Act, which is dedicated to veterans exposed to environmental hazards.

Non-defense discretionary spending is capped: Although there is still some squabbling over how the bill ultimately treats non-defense discretionary spending, most analysts conclude that it would be held roughly flat in 2024, and then grow by 1% in 2025. Brian Riedl, a tax and budget specialist at the conservative Manhattan Institute, says the bill would technically impose an 0.8% cut on non-defense, non-veterans discretionary spending in 2024, with 1% annual increases thereafter until 2029, but “many caveats and asterisks may render these figures mostly meaningless.”

The uncertainty stems from the way the bill claws back money from sources including the IRS and unspent Covid-19 funds and uses that money to make up for potential losses at other agencies. According to The Wall Street Journal, non-defense discretionary spending would total $704 billion in 2024 – “higher than the House GOP’s demand for a return to fiscal 2022 levels ($689 billion), though it’s a significant cut from the projected 2024 baseline of $757 billion.” Excluding veterans’ benefits, non-defense discretionary spending would total $637 billion. Real total spending, however, could be higher overall as funds appropriated in 2023 continue to be spent, Goldman Sachs analysts noted.

IRS budget: Although Republicans set out to reclaim most of the $80 billion provided to the IRS over 10 years by the Inflation Reduction Act, the bill would rescind just $1.4 billion for now. In 2024 and 2025, the bill would redirect $10 billion each year from the IRS to other budgetary uses. The White House says the budgetary reductions will have little effect on IRS plans and operations in the near term, with the cuts coming out of spending in later years, assuming the funds aren’t restored at some point.

Pandemic-era funding clawbacks: The bill would reclaim about $30 billion in funding already provided for programs related to Covid-19 and, more broadly, public health. Most if not all of the funds would be redirected to other uses.

Work requirements: Republicans pushed hard for stricter eligibility rules in the Supplemental Nutrition Assistance Program, and the bill would expand the age range of those who must satisfy work requirements in order to receive food stamps. Currently, those aged 18 to 49 must work, be in school or volunteer to remain in good standing in the program, but the bill would raise the top age to 54. At the same time, the bill would expand exemptions for veterans and those who are homeless, potentially increasing the number of people in the program. Work requirements for those in the Temporary Assistance for Needy Families program would also be tightened.

Energy project permitting reform – plus a pipeline for Joe Manchin: The agreement would provide rapid approval of the Mountain Valley Pipeline, a natural gas pipeline in West Virginia, home to Sen. Joe Manchin, a key Democratic vote in the Senate. More broadly, the bill would make it easier for companies to build energy infrastructure by weakening environmental review requirements and speeding the review process.

Student loan repayment to restart: About 45 million Americans with student loans have not been making payments on their educational debts, following a suspension enacted by President Donald Trump at the start of the Covid-19 pandemic. While payments were widely expected to restart later this year, the bill forbids Biden from extending the payment suspension and requires debtors to begin making payments again no later than August 30.

Administrative “pay-go”: The bill would require the White House to “pay for” regulatory changes that incur costs of more than $100 million. In other words, the costs created by substantial rule changes imposed by the executive must be offset. However, the budget director would have some leeway in exempting rule changes from the pay-as-you-go requirement.

Heading off a government shutdown? The bill includes provisions that push lawmakers to complete the 12 spending bills that make up the annual budget – a process that is never easy and could now be even more difficult given the proposed spending restraints. If Congress fails in the task, the spending caps would become more severe, with the nondefense budget automatically shrinking by 1% from 2023 levels. The same reduction would apply to defense and veterans spending, producing far larger cuts relative to the baseline. As the New York Times Jim Tankersley and Allan Rappeport note, “Democrats see the looming military cuts as a particularly strong incentive for Republicans to strike a deal to pass appropriations bills by the end of the year.”

How much will deficits be cut? The spending caps in the legislation will be enforced for two years and then are nonbinding for another four years, so much will depend on what the budgets for those latter years actually look like.

A New York Times analysis suggests the deal would cut spending by about $55 billion next year relative to Congressional Budget Office forecasts, and by another $81 billion in 2025.

The White House reportedly estimates that the deal will produce $1 trillion in savings over a decade. And analysts at Goldman Sachs, meanwhile, wrote that they expect the caps will be scored as reducing discretionary spending by $1.5 trillion over 10 years and cutting interest expense by about $170 billion over that time. That would trim projected deficits over the next decade by an average of 0.4-0.5% of GDP, they said. But, they warned, “the actual spending cut is likely to be much smaller.” They cited two reasons: the caps are only enforceable for two years and other elements of the bill will counteract the cuts, with unused Covid aid and $20 billion in IRS funding shifted to cover other programs.

What it means for the economy: This deal “is less restrictive than the one President Barack Obama and Speaker John Boehner cut in 2011,” writes Jim Tankersley of The New York Times. Also, the economy now is stronger than it was then. “As a result, economists say the agreement is unlikely to inflict the sort of lasting damage to the recovery that was caused by the 2011 debt ceiling deal — and, paradoxically, the newfound spending restraint might even help it,” Tankersley says.

Economist Mark Zandi of Moody’s Analytics estimated that, as a result of the deal, the economy would have about 120,000 fewer jobs by the end of 2024 than it would otherwise and the unemployment rate would be 0.1 percentage points higher.

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