Opinion: In debt battle, right-wing GOP House members 'might actually sacrifice the hostage'

Concerned about a default on the national debt? You’re not alone.

The prospects for a budget resolution, the need for a debt limit increase, and whether any tax legislation might get passed was discussed on the Concord Coalition’s Facing the Future blog.

The challenge will be particularly hard for newly elected House Speaker Kevin McCarthy, who can afford to lose only four votes from his Republican caucus to pass any legislation without the help of at least a few Democrats.

McCarthy’s preference “would be to unite the caucus, lose no more than four votes, to pass legislation even if that legislation ultimately isn't going to be passed by the Senate in the form sent by the House,” said Rohit Kumar, co-leader of Washington National Tax Services at PricewaterhouseCoopers. “You have a Democratic Senate. You have a Democrat in the White House. So obviously anything that passed the House with just 218 Republican votes is not going to become law as written,” Kumar said. “But it does open up a negotiation.”

He cautioned, however, that “as we have seen over the course of the last week or so, uniting 218 of 222 can be a challenge and a rather significant one.”

Kumar knows what he’s talking about: He is a former senior advisor to Senate Republican Leader Mitch McConnell, and was often in the room during intense negotiations on spending, tax, and debt limit legislation.

Kumar observed that one of the conditions McCarthy apparently accepted in negotiations with Republican holdouts against his bid to become Speaker – opening up the appropriations process to give rank and file members greater opportunity to offer amendments on the House floor – might actually lead to more moderate, bipartisan policy-making.

That’s because “a closed or very structured House rule (setting the terms for floor debate) that blocks moderates out and blocks out the middle,” more often leads to extreme outcomes.

“A more open amendment process should, if they are willing to do it, empower moderate members of both parties to come together to fashion an agreement that is likely to be unpalatable to the 20 or so holdouts,” Kumar said.

Another unexpected result could come from a different concession to the initial holdouts – McCarthy’s pledge to put a Republican budget on the House floor that balances within 10 years.

Kumar expects that McCarthy will put such a budget on the floor (satisfying the promise) but he warned that it might not pass because it would require massive spending cuts that might be toxic to many of the moderate House Republicans, particularly those from districts that lean Democrat.

“Here we’re not talking about making law or making a framework. We’re talking about making a point,” Kumar said. “This is not a real thing. Senate Democrats are never going to take up the House-passed budget resolution and agree to all the spending cuts that they would have to build in to reach balance by the 10th year. So this becomes a really interesting vote for moderate House Republicans. It is entirely possible that this thing fails on the House floor because moderate Republicans look at it and say ‘I don’t actually support these policies and I think it is politically unwise for me to support them; it would be inconsistent with my desire to get reelected in 2024.’”

Losing a budget resolution vote on the House floor might actually be a “useful teaching moment for the broader caucus,” Kumar said, by demonstrating that “you’ve got to be a little more nuanced in your policymaking and in your drafting if you want to be able to unite the House Republican caucus behind a series of proposals. What they will see is that a united House Republican caucus really strengthens the negotiating position of Republicans generally across the board.”

Passing routine legislation is likely to be difficult this year, but passing a necessary debt limit increase could prove to be far more difficult with far greater consequences of failure.

The statutory debt limit ($31.4 trillion) was expected be reached on Thursday, Jan. 19. House Republicans are intent on demanding deep spending cuts in exchange for a debt limit increase, whereas Democrats insist that the nation’s creditworthiness should not be held hostage to any particular policy agenda. The ensuing standoff could ultimately result in a default on at least a portion of the federal government’s obligations.

“There is some history here,” Kumar said of debt limit showdowns, “but there was always a sense in the olden days that was, ‘yeah, we know we’re going to get there,’ whereas now it feels a little more like ‘no, I think they might actually sacrifice the hostage’ and that makes me very nervous.”

Kumar is not the only one who’s nervous. Financial markets are nervous as well (so is The Concord Coalition for that matter).

“The reason markets get justifiably freaked out about what happens if Congress fails to raise the debt limit and the U.S. defaults on its debt, which is the natural consequence of failing to raise the debt limit, is that it undermines one of the bedrock principles of the global financial community — the unassailability of Treasury bills, of the dollar, as a safe haven investment; The U.S will always make good on its debts,” Kumar said.

He painted a dire but depressingly plausible picture of what might happen if the U.S. defaults. Having looked at various simulations, all of which show bad results, Kumar told us that “the least bad version of it is that interest rates spike on Treasury bills, credit cards, car loans, mortgages … everything goes through the roof; the market takes a huge decline, a recession follows in the U.S. and probably triggers a recession globally.”

That sounds like something to avoid. Stay tuned.

(The Concord Coalition is a bipartisan organization that advocates for ending deficit spending and promotes a balanced federal budget)