The Future of the US Economy May Rely on McCarthy Uniting His Far-right Republican Faction

The Future of the US Economy May Rely on McCarthy Uniting His Far-right Republican Faction



UJ
 — 

A significant crisis looms for millions of Americans, hinging on whether Speaker Kevin McCarthy can extricate himself from a debt predicament he has created for President Joe Biden, which is now endangering his own House GOP members.

During a visit to Wall Street on Monday, the California Republican issued a stark warning that the House GOP would not agree to lift the debt ceiling unless Biden consents to spending reductions that might effectively sabotage his domestic priorities and legacy.

McCarthy reassured investors that he would prevent any default of the US government, a catastrophic scenario that could disrupt Social Security payments, initiate a recession, and lead to widespread job losses by fall if the debt ceiling remains unaddressed.

This introduces substantial risk for Americans. It seems unlikely that a novice speaker with such a slim majority, surrounded by many hardliners, can successfully achieve either goal.

Unlike most countries, the US legislature must authorize increases to the government borrowing limit. This unusual requirement has turned what used to be a standard procedure into a target for political maneuvering in a polarized climate. Given that government expenditures consistently exceed revenues, the need for borrowing to manage debt and fund legislated spending is constant. The US continues to find lenders willing to provide credit, thanks to its solid financial reputation, despite a historical downgrade threat from potential defaults.

This system has functioned effectively until now.

On Tuesday, McCarthy called on his conference to back a proposal that would raise the debt limit for one year while demanding substantial budget cuts from Biden. He presented this proposal as a strategic move to bring the president into negotiations. However, this bill is merely a tactic, with no chance of passing in the Democrat-controlled Senate.

The speaker’s attempt to execute this plan faces significant hurdles, as visible splits among GOP members regarding the contents of the proposal have emerged.

Rep. Scott Perry, head of the conservative House Freedom Caucus, expressed dissatisfaction with the vague details of the proposal and called for deeper cuts.

“I can’t fully assess what’s in the package. That’s the core problem,” Perry told reporters. Some members appear hesitant to commit at this stage. Conservative Rep. Tim Burchett remarked to UJ’s Manu Raju, “I’m considering it but I’m still a ‘no’ vote.”

It is common for factions within a congressional majority to negotiate details before a final agreement is reached. However, House Financial Services Chair Patrick McHenry, an ally of McCarthy, was confident that the House would approve the plan. “The question is what will the White House do once we pass this bill? We’ve made it clear that no clean debt ceiling will pass the House,” he stated. “This will be our opening offer, and we’ll find out if the president is willing to negotiate like previous presidents have.”

However, McHenry’s remarks revealed a significant flaw in the GOP strategy, as it is predicated on McCarthy’s assumption that Biden will have no option but to engage in dialogue. The White House maintains that the House must fulfill its responsibilities and pass a straightforward bill that merely raises the borrowing limit.

Effectively, McCarthy has created a challenging test of his leadership as there is no assurance he can pass the bill in a House where he can afford only four defections and where rifts within the fractious GOP display disagreement on what programs should be cut and by how much. Even if the measure manages to pass the House in the weeks ahead, it will likely be a version that fails to garner Biden’s support or that of the Democratic Senate. Any later proposal that arises would almost certainly require compromises that could divide Republican support.

Nonetheless, the speaker remained optimistic when he predicted on Monday that he would secure enough votes to advance his initial bill.

“I believe we have 218 votes to raise the debt ceiling,” McCarthy told UJ. “There’s substantial consensus within the conference, and we will collaborate to work it out.”

However, his assurances may not inspire confidence given that his earlier declarations of having the necessary votes to secure the speakership in January led to a chaotic sequence of events, culminating in 15 ballots and significant concessions made to the most radical members of his party before he finally achieved his desired position.

However, concerning the debt ceiling, it will be the livelihoods of Americans and the global economy at stake rather than McCarthy’s short-term political ambitions.

Republicans Face Challenges in Reaching Consensus on Demands

Currently, Republicans appear to be struggling to negotiate their stance, let alone find common ground with Biden. Rep. Dusty Johnson from South Dakota, who is assisting in formulating the GOP approach, stated that while the intention is to have the initial bill passed by next week, there are still obstacles.

“The most challenging aspect is that there are countless conservative policy goals that we all want to see included,” Johnson told UJ’s Manu Raju. “However, in any negotiation, complete satisfaction is rarely attainable. Our primary challenge is condensing these numerous desires into a feasible and credible set of requests.”

Another complication arises with members of the Republican conference stating they will never support raising the debt ceiling on principle, regardless of circumstances. In a strong Republican majority, such dissenters could be disregarded. However, in McCarthy’s narrow majority—gained after a midterm election that did not meet GOP expectations—they hold significant influence. Moreover, Democrats are unlikely to assist McCarthy in the event of GOP dissenters since that would require them to endorse cuts that Biden has been against in any Republican bill. The speaker may not want to risk relying on Democratic votes, particularly after agreeing to a rule enabling any single member to prompt a vote on his ousting.

The impending confrontation over the debt ceiling could become a pivotal moment during the two-year term of uneasy coexistence between the Democratic president and the Republican speaker. Neither Biden nor McCarthy can afford to back down, and the outcome will significantly influence their respective legacies.

It is reasonable for Republicans to leverage their electoral victory to pursue policies aimed at cutting public spending. Some GOP members genuinely express concern over the national debt and deficits, even when their party controls the government. Numerous economists express worry over the continually rising national debt, which has surpassed $31 trillion. Additionally, Biden’s extensive spending on Covid relief, infrastructure, climate initiatives, and healthcare has ignited discussions about whether his actions contributed to the inflation crisis.

However, is the Republican Party choosing the right battleground, while the jobs, pension plans tied to the markets, and economic stability of countless individuals are at risk? McCarthy’s rigid stance seems to ignore the existing power dynamics. With Democrats in control of the White House and Senate, voters might have desired compromise rather than conflict when they narrowly awarded Republicans control of the House.

Republicans also risk accusations of hypocrisy, given their willingness to raise the debt limit during Donald Trump’s presidency, a time when he showed little concern for large expenditures. Furthermore, Trump has been recorded stating that using the debt ceiling as a “negotiation tool” was unbelievable. Republicans often adopt a fiscally conservative stance when Democrats are in control but tend to overlook similar concerns when their own party holds the presidency.

For McCarthy to succeed in this struggle, he needs to shift the political narrative, placing the blame for any potential default and the ensuing economic ramifications on Biden, which could begin before the country faces a fiscal crisis.

On Monday, he attempted to assert that the primary economic threat was not a default, but the escalating national debt.

“To say that American debt isn’t a ticking time bomb that will explode without serious and responsible measures is an understatement. What has President Biden done about this? Nothing. In my view—and I believe most of America would agree—it is irresponsible,” he stated.

Historical fiscal confrontations between Republican-controlled Congresses and Democratic presidents have often had negative repercussions for Republicans. Figures such as Presidents Bill Clinton and Barack Obama have characterized their opponents in the House as economic arsonists, obtaining political leverage as a result.

Achieving this reversal is essential for McCarthy, which is why he’s striving to depict Biden as obstinate in refusing to negotiate concessions regarding the debt ceiling. The two leaders have not met in the last 75 days, and the White House insists that negotiations should occur over a budget—the area House Republicans have yet to address—not with the fundamental integrity of the US government at stake and the country’s status as a secure financial entity in jeopardy.

McCarthy finds himself in a precarious situation. While Congress, not the president, holds the authority to raise the borrowing limit, the speaker is seeking concessions from Biden regarding a responsibility that only he and his fellow legislators can fulfill. A default would bring no benefit to anyone, especially not to a president likely running for reelection. However, it seems challenging for McCarthy to emerge triumphant from this dilemma if he precipitates an economic disaster.

The White House underscored this point on Monday.

“There is one responsible way to address the debt ceiling: dealing with it swiftly, without brinkmanship or coercion—as Republicans managed on three occasions during the last administration and as Presidents Trump and Reagan advocated while in office,” stated spokesman Andrew Bates.

Republicans in the Senate have so far attempted to sidestep the controversy. Nonetheless, Senate Republican leader Mitch McConnell did offer some moral support to his House colleague on Monday upon returning to the Capitol after recovering from a fall.

“President Biden cannot simply ignore the issue and decline to listen, communicate, or negotiate. The American public is aware of this. The White House should cease wasting time and begin discussions with the Speaker,” McConnell stated, though he notably did not offer to involve himself in the negotiations.

McCarthy’s address on Monday heightened concerns that a politically damaging crisis regarding the debt ceiling is, after prolonged tension, nearing a boiling point.

In the words of Senate Democratic Majority Leader Chuck Schumer of New York, “He traveled all the way to Wall Street but provided no additional details, facts, or new insights. I’ll be blunt: If Speaker McCarthy continues on this trajectory, we will face default.”