On Wednesday, the House passed the Limit, Save, Grow Act, H.R. 2811. The bill is House Republicans’ bill to address the debt limit, which would be increased by $1.5 trillion until March 2024. The bill also includes several other major policy goals of House Republicans.
First, let’s get to the basics. The debt limit could be reached in early June or as late as September. The Treasury has been operating under “extraordinary measures” for the past several months, and those measures will be exhausted in a matter of weeks. Either the debt limit is raised, or the United States begins to default on its debts. It’s really that simple.
What happens if we default? Considering that we’re supposedly on the cusp of a recession, that would almost certainly be a sure bet. The cost of borrowing once the issue is resolved would rise because of the Treasury notes would no longer be considered the safe investment that they once were.
Would see a depression? Who knows. There’s reason to believe that what may have been a minor recession would be much deeper if Congress allows default to happen. We’re already being challenged from an economic perspective by China on the world stage. While the Dollar is the world’s reserve currency, if it begins to destabilize because Congress defaults on the debt limit, one can assume that we’re going to experience a lot of economic pain.
Second, let’s look at the policies that House Republicans are proposing. Based on the text of the Limit, Save, Grow Act, there’s not really much that I have a problem with. There are deep cuts to discretionary spending. Where those cuts are coming from is an open question. The Limit, Save, Grow Act merely provides new budget authorities between FY 2024 and FY 2033, but it doesn’t outline the splits between defense and nondefense discretionary spending.
Discretionary spending is capped at $1.47 trillion in FY 2024 and growth is limited to 1 percent each fiscal year through FY 2033. The assumption is that the cuts will almost entirely come from nondefense discretionary spending.
Discretionary Spending Levels in H.R. 2811
|Fiscal Year||CBO Baseline||H.R. 2811|
|FY 2022 (Actual)||$1,661,654,000,000||$1,661,654,000,000|
There are stricter work requirements for Medicaid, the Supplemental Nutrition Assistance Program (SNAP, or food stamps), and Temporary Assistance for Needy Families (TANF). The bill also includes the Regulations from the Executive in Need of Scrutiny (REINS) Act. This amends the Congressional Review Act, through Congress can disapprove of a final rule from a regulatory agency, into an approval process, meaning that Congress has to approve, and the President has to sign, a joint resolution before the rule can take effect.
Again, on the spending side, I think deeper discretionary spending cuts are necessary. Not only that, House Republicans don’t touch Medicare or Social Security, the two programs that are the main drivers of deficits and desperately need reform. In all, Congress will run $16 trillion in deficits over the next years, relative to the baseline, rather than $20 trillion.
Finally, let’s look at the politics here. The Senate is controlled by Democrats. A Democrat is in the White House. Democrats want a clean debt limit increase. The Limit, Save, Grow Act obviously doesn’t do that. Interestingly, Speaker Kevin McCarthy (R-CA), according to Politico Playbook, has told House conservatives that “he would personally oppose and fight against any debt ceiling agreement that doesn’t include all of the red-meat provisions in the House bill.”
Someone of you may say, “Pye, you’re just being your pessimistic, cynical self here. McCarthy is just angling for a deal.” Congress did something similar in 2011 with the Budget Control Act. There were significant discretionary spending cuts—defense and nondefense—over ten years. Congress came down to the wire and passed that bill.
The political atmosphere is widely different today than it was 12 years ago. It’s far more toxic. Grifters dominate our politics, both inside and outside of Congress. Both parties speak to only their respective bases, which are increasingly disconnected from reality. The culture wars are all anyone seems to care about. It’s taxing.
As I wrote at my personal spot recently, the politics of today are wildly different. In the 2010 midterm election, Republicans picked up a net 63 seats in the House and six seats in the Senate. The had momentum. In the 2022 midterms, Republicans picked up only nine seats in the House, giving them a four-seat majority, and lost a Senate seat and remained in the minority. It should’ve been a red wave. It was little more than a ripple.
House Republicans have some leverage, but they risk severely overplaying their hand. If they do, the consequences for the economy could be very serious. Inflation may be the least of our worries.