Topline
The House could vote Wednesday to raise the federal government’s borrowing limit, but a group of Republican holdouts could block the legislation—another sign debt ceiling negotiations are in limbo, heightening concerns on Wall Street.
Speaker of the House Kevin McCarthy speaks during an event at the New York Stock Exchange in New … [+]
Key Facts
It’s unclear if House Speaker Kevin McCarthy (R-Calif.) has the 218 Republican votes needed to pass the “Limit, Save, Grow Act” in the House.
Regardless, it seems doomed even if it passes, with a Democratic-controlled Senate standing in its way and President Joe Biden saying Tuesday he would veto it.
Biden’s declaration, which came hours after he announced his re-election bid, comes as little surprise, since he has repeatedly said he will not negotiate on any other spending issues in order to raise the debt ceiling.
Biden has instead urged Republicans to negotiate their desired spending cuts through the ongoing fiscal year 2024 budget talks.
A group of right-wing lawmakers wanted to enact stricter work requirements for welfare recipients than initially proposed, while a coalition of Midwestern Republicans were against rolling back clean-energy tax credits that aided ethanol producers in their districts.
The stalemate has prompted concerns on Wall Street the U.S. could actually default on its debt for the first time in history, a scenario that could trigger another recession, the Washington Post reported Tuesday.
Key Background
McCarthy unveiled his proposal to raise the federal government’s $31.4 trillion borrowing limit last week, prompting strong criticism from Biden, who described the legislation as “whacko.” The bill would raise the borrowing limit by $1.5 trillion through March of next year, cut federal funding by $130 billion in fiscal year 2024, reverse spending to fiscal year 2022 levels and limit future budget growth to 1% per year. The legislation would also repeal money included in the Inflation Reduction Act to fund the Internal Revenue Service—which has become a target for Republicans who claim (without evidence) the agency will use the funds to hire new tax agents to police average Americans for tax violations. The White House on Tuesday called the concessions GOP lawmakers are seeking “extreme” and said Biden “will not accept such attempts at hostage-taking.”
Tangent
After months of relative indifference to the debt ceiling battle, Wall Street recently began to show signs of concern. The cost of insuring the U.S. debt against a default rose to more than 100 basis points last week, exceeding levels in 2011, during the last debt ceiling standoff, when the U.S. government’s credit score was downgraded for the first time ever, Reuters reported.
What We Don’t Know
When the U.S. will reach its $31.4 trillion borrowing threshold. The Treasury Department implemented a series of accounting maneuvers to stave off a default in January. The Congressional Budget Office initially forecasted that those measures would expire as early as July, but Goldman Sachs warned last week the so-called “X-Date” could come as soon as June, citing weaker than expected April tax collections.
Further Reading
McCarthy Unveils Bill To Increase Debt Limit Through 2024—While Biden Blasts Long-Shot Proposal As ‘Whacko’ (Forbes)
Debt Ceiling Battle: Bipartisan Negotiators Propose Tying Debt Limit To GDP As White House Prepares To Meet With McCarthy (Forbes)
Federal Government Officially Reaches Debt Limit, Triggering ‘Extraordinary Measures’ To Prevent A Default—Here’s What That Means (Forbes)
Source: https://www.forbes.com/sites/saradorn/2023/04/26/gop-debt-limit-bill-could-come-up-for-vote-but-republicans-could-sink-it/