McCarthy Feeling the Heat From His Right

McCarthy Feeling the Heat From His Right

By Michael Rainey
Wednesday, July 5, 2023

Hope your holiday weekend was relaxing and you survived the festivities with all your fingers intact. Here’s what we’re watching on the fiscal front.

It Could Be a Difficult July for McCarthy

House Speaker Kevin McCarthy faces a daunting task when lawmakers return from their Independence Day recess next week: passing a dozen appropriations bills for 2024 with a small and fractious House majority, while under threat of yet another government shutdown at the end of September if he fails to do so.

Conservative House Republicans are pushing for McCarthy to take a harder line in the budget process. They want to see spending in 2024 rolled back to 2022 levels, as McCarthy originally sought during the negotiations over spending and the debt ceiling in the spring. As The Hill’s Mike Lillis, Mychael Schnell and Aris Folley report Wednesday, conservative hard-liners have made it clear that they are willing to use hardball tactics such as paralyzing the House floor to get what they want – and they don’t much care if the government shuts down this fall as part of the effort.

Rep. Clay Higgins, an extreme hardliner from Louisiana, told The Hill that is an “understatement” to say that McCarthy’s job will be difficult. “But difficult is not impossible,” he added, citing the potential for agreement among Republicans. “We’re more united than perhaps the mainstream media would give us credit for,” he said.

Still, conservatives say they want McCarthy to stand firm against compromises and to reject deals that achieve their goals in name only through budgetary gimmicks such as using recissions to top up spending, thereby avoiding the full force of cuts.

“We had an agreement on fiscal year 2022 discretionary spending levels,” Rep. Dan Bishop said. “I’m not persuaded by the notion that starting there and then buying those up with rescissions amounts to the performance of that objective.”

The bottom line: Lawmakers have a lot of budgetary work to do for 2024, and much depends on how much they can accomplish before the long summer break starts in August. It’s a fair bet that whatever the temperature in Washington, McCarthy will be feeling the heat as GOP hardliners push toward their goal of winning substantial spending cuts next year.

IRS Sets a Deadline for $1.5 Billion in Tax Refunds

The IRS is sitting on roughly $1.5 billion in unclaimed refunds for the 2019 tax year, but you’ll have to hurry if you’re one of the 1.5 million taxpayers owed money. The tax agency has set a deadline of July 17 to submit a 2019 tax return, The Hill reported Wednesday, after which any unclaimed money becomes the property of the U.S. Treasury.

"Time is running out for people owed a tax refund in 2019," IRS Commissioner Danny Werfel said in a statement. " The IRS continues to urge people who may have overlooked filing during the pandemic to act quickly before they lose their final chance to claim a potentially substantial refund."

The median refund being held by the IRS is $893. Workers eligible to claim the Earned Income Tax Credit could be owed as much as $6,557, depending on their incomes and the size of their households.

Fed Officials See More Interest Rate Hikes Ahead

Almost all members of the Federal Open Market Committee said they expect to raise interest rates again in the coming months, according to minutes of their most recent meeting released Wednesday.

The Fed left rates unchanged in a range between 5% and 5.25% at the June 13-14 meeting, halting a 15-month-long streak of rate increases intended to reduce inflation. The meeting notes make clear that some FOMC members wanted to press ahead with another rate hike at the time, and almost all are prepared to raise them again at future meetings.

The minutes summarize the thinking behind the halt in June. “The economy was facing headwinds from tighter credit conditions, including higher interest rates, for households and businesses, which would likely weigh on economic activity, hiring, and inflation, although the extent of these effect[s] remained uncertain,” the minutes said. “Against this backdrop, and in consideration of the significant cumulative tightening in the stance of monetary policy and the lags with which policy affects economic activity and inflation, almost all participants judged it appropriate or acceptable to maintain the target range for the federal funds rate at 5 to 5-1/4 percent at this meeting.”

At the same time, the labor market remains tight, and inflation remains well above the target rate of 2%. If those conditions remain, then additional rate hikes are likely in order, though at a slower pace than before.

Analysts expect the Fed to raise rates at its next meeting at the end of July, and the economic projections provided by the Fed suggest that there could be a total of two rate hikes in store.

Recession – or maybe not: The economic projections by Fed staff still lean toward a recession later this year, driven by tighter financial conditions for banks. But a soft landing is seen as a distinct possibility.  

“Given the continued strength in labor-market conditions and the resilience of consumer spending, … the staff saw the possibility of the economy continuing to grow slowly and avoiding a downturn as almost as likely as the mild-recession baseline,” the minutes said.

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