McCarthy’s concessions spur fears of potential default, government shutdown

The concessions Speaker Kevin McCarthy (R-Calif.) agreed to in a bid to appease conservative rebels set up showdowns this year with Senate Democrats and President Biden on the debt limit and the annual spending bills — heightening the danger of a national default or a government shutdown, political strategists say.  

McCarthy’s promises all but guarantee a standoff with Senate Democrats and Biden later this year, particularly those to attach spending cuts to legislation to raise the debt limit and to cap discretionary spending at fiscal 2022 levels. 

Democrats have refused to negotiate adding spending cuts or other fiscal reforms to any debt limit legislation over the past decade.  

And they say McCarthy’s promise to cap discretionary spending at the levels set by the fiscal 2022 appropriations bills, which would require a big cut to the current federal budget baseline, is a nonstarter.  

One Senate Democratic aide predicted a stalemate in spending negotiations this year and forecast that Congress will only agree to passing yearlong continuing resolutions that would keep federal spending frozen.  

Further complicating the situation, McCarthy has pledged to pass the 12 annual appropriations bills individually, something Congress hasn’t done on time in decades.  

“I don’t think it’s realistic at all, and certainly even if it’s achievable, it’s not desirable,” said Scott Lilly, a former Democratic staff director of the House Appropriations Committee, of McCarthy’s promise to cap federal discretionary spending at fiscal 2022 levels.  

Lilly noted that high inflation, which measured at 7.1 percent on an annual basis in November, would increase the impact of the cuts under discussion among House Republicans.  

The omnibus Congress passed in December increased discretionary defense spending by 9.7 percent and nondefense, nonveterans-related spending by 5.5 percent.  

The prospect of capping spending at fiscal 2022 levels has already set off a new round of infighting between conservative budget hawks and national defense-minded Republicans in the House who don’t want to claw back new money approved for the Pentagon.  

“The Republican Conference is about to go to blows over the defense cuts,” Lilly said, predicting the turmoil over spending is likely to result in a government shutdown later this year.  

“I think it’s very likely,” he said. “Given the number of shutdowns we’ve had in the last 30 years and the consequences of each of them, you’d think someone would get the message that it’s not good policy and it’s not even good politics.”

“But I think you got a very select group of people in the House at this moment in time that don’t get that message,” he added.  

McCarthy will be under heavy pressure to deliver on his promises to cut federal spending because he also agreed to a new House rules package that would allow any member to call for a motion to vacate the Speaker’s chair.  

That means if any conservative in the House GOP conference feels angered or disappointed by whatever spending deal McCarthy brings to the floor, he or she could force a vote to oust him as Speaker.  

Ray Zaccaro, a Democratic strategist and former Senate aide, said McCarthy’s difficulty in getting elected Speaker shows he has little leverage over House conservatives who want to force showdowns over the debt limit and spending.     

“We don’t even know if we can even predict that there will be a Kevin McCarthy Speakership for very long,” he said. “That draws into question how the House is going to function.”

He added there is no desire among Democrats to help McCarthy deliver on his big promises to fiscal conservatives.  

“Nobody right now is going to agree to any of the very hyperbolic, frenzied agreements that Kevin McCarthy may have made to secure the gavel,” he said.  

“How long is it going to take before Kevin McCarthy is compelled to shut down the government for something?” he asked.  

If House Republicans agree to exempt the Defense Department from cuts, it would require cutting domestic discretionary spending by roughly 25 percent in real dollars to meet the goal of capping spending at fiscal 2022 levels, according to Shai Akabas, the director of economic policy at the Bipartisan Policy Center. 

Akabas estimates the cuts would be steeper if veterans programs and the Department of Homeland Security were also protected.  

Such deep cuts to nondefense programs have no chance of passing the Democratic-controlled Senate, say Democratic aides and strategists.  

“There’s already been a tiff up there about defense spending. I don’t believe you can get fiscal 2022 numbers through the system for fiscal 2024. I don’t believe you can do that. I don’t think the votes are even close to doing that,” said Jim Dyer, a senior adviser at Baker Donelson with 30 years of experience working on the House Appropriations Committee. 

Dyer, a longtime Republican aide, said, however, that the risk of Congress failing to pass debt limit legislation in time poses more danger to the national economy than a government shutdown.  

“I am far more worried about the debt-ceiling issue than I am a government shutdown,” he said. “Sometimes I wonder if the members have a great appreciation of what all is at stake here.”

“With the debt-ceiling issue, you’re talking about defaulting on the government’s full faith and credit. I don’t know how you can do any greater harm to this country that doing that,” he said. “In a divided government I think it will be challenging to come up with a level of [spending] reductions that offset what you would be trying to do when you’re adjusting the top line [debt number.]”

“I think it’s going to be difficult,” he added of the spending battles between the Senate and House.  

Brendan Buck, a former senior adviser to former Speaker John Boehner (Ohio), who led the House GOP majority during the 2011 standoff over the debt limit, thinks another showdown is likely this year.  

“I’m not saying it’s healthy to worry about the debt limit every day for the next nine months, but I am saying you probably should,” he tweeted Monday. 

The Treasury Department hasn’t said when exactly the nation will exhaust its borrowing authority but it is expected to happen sometime after July. 

Zach Moller, a former Senate Budget Committee aide who now directs the economic program at Third Way, a centrist Democratic think tank, warned that the negotiations over debt-limit legislation could very well run past the deadline set by Treasury.  

“The House Republicans really seem to want to drag their feet on the debt limit,” he said, adding that McCarthy made additional private concessions to conservative that were included in a secret three-page addendum included in the new House rules package.  

“I’m really worried that the unknown nature of the X-date, the default date, and how slow the House may move, we may find ourselves in a situation where we’re defaulting,” he added.  

Moller said he expects a government shutdown later this year because McCarthy will be under pressure to cater to conservatives who opposed his election to Speaker.  

“I do expect a little bit of a government shutdown this year because I feel like McCarthy is going to view it as a win, as red meat for a lot of the spending hawks in his caucus. How he gets himself out of a shutdown is a completely separate issue,” he said.  

Moller noted that the usual tactic for avoiding a shutdown, passing a stopgap spending measure that freezes federal spending, would fall short of his pledge to cap spending at fiscal-year 2022 levels.  

Conservative rebels last week pressed McCarthy to promise he would take a hardline stance on pairing major fiscal reforms to debt-ceiling legislation.  

Rep. Ralph Norman (R-S.C.) said conservatives who opposed McCarthy’s election to Speaker wanted to see “changes” in the GOP’s leadership approach to the debt limit. 

“Is he willing to shut the government down rather than raise the debt ceiling? That’s a non-negotiable item,” he told reporters.  

–Updated at 8:21 a.m.