GOP Hostage Takers? Disarm Them... Permanently, Part II

Which side poses the greatest threat to Social Security & Medicare?

Friday night boxed-in Speaker-in-name-only Kevin McCarthy tweeted “President Biden: I accept your invitation to sit down and discuss a responsible debt ceiling increase to address irresponsible government spending. I look forward to our meeting.” Soon after, Axios ran a post by Andrew Solender confirming that Biden and McCarthy plan to meet. He reported that when White House press secretary Karine Jean-Pierre was asked if the two would sit down to negotiate, she said Biden is “looking forward to meeting with Speaker McCarthy… about a range of issues,” but that no date had been set. Later she said that “the debt limit ‘is not a negotiation… Congress has always done it, and the President expects them to do their duty once again.’ Biden, she said, ‘looks forward to learning more about those plans, as well as to telling them about his plan to cut the deficit... strengthen retirement programs, invest in key priorities, and fund it all by making the wealthy and big corporations pay their fair share. We are going to have a clear debate on two different visions for the country... and the President is happy to discuss that with the Speaker.’”

Solender wrote that “The GOP hardliners who denied McCarthy the speaker's gavel for nearly a week— and now have a nuclear button in their back pocket in the form of a motion to vacate the chair— told Axios last night they expect him to hold firm on his commitments to force spending cuts. ‘We expect the agreement to be performed. We sure do... I think he's going to perform,’ said Rep. Dan Bishop (R-NC). Rep Ralph Norman (R-SC) said he believes McCarthy will follow through because a 10-year plan to balance the budget was key to flipping his vote for speaker. ‘I think he will, because that was the whole thing that I got involved with. We had to have that,’ Norman said.”

This morning Jeff Stein and Theodoric Meyer dug a little deeper into what’s going on, noting that “Shortly after last year’s midterm elections, a senior congressional Democrat called White House Chief of Staff Ron Klain and asked how the administration planned to prevent the new Republican House majority from using the debt ceiling— and the threat of a default that could wreck the economy— to force spending cuts. Klain said the White House’s plan was straightforward, according to the lawmaker: Refuse to entertain any concessions, and launch a barrage of attacks highlighting the GOP position that would force Speaker Kevin McCarthy (R-CA) to fold. ‘This debate is simple: We want to do the responsible thing, and they want to take the entire American economy hostage to cut Social Security and Medicare,’ said the member of Congress, speaking on the condition of anonymity to reflect private conversations. Klain told the lawmaker that the fight could result in substantial political benefits for the Democratic Party. ‘The point he was making was clear: You can’t negotiate with people who take hostages.’ But the question remains what the administration will do if Republicans won’t raise the debt limit without negotiations.”

House Republicans have increasingly signaled that they will force a showdown with the administration over the nation’s debt ceiling, which sets a statutory limit on how much the federal government can borrow. The Treasury Department said Thursday that the government has hit the current $31.4 trillion limit, and it’s now undertaking complex financial maneuvers so that federal agencies can operate— and bills can be paid— without borrowing more. That will work until sometime this summer, but at some point, Congress will need to raise or suspend the debt ceiling, or the United States will default on its obligations for the first time, undermining the full faith and credit of the U.S. government and potentially causing a global economic shock.

Many GOP lawmakers have said that they will not approve a debt ceiling increase without cuts to spending programs that the Biden administration has vowed to protect, creating an impasse with no clear resolution.

…The Biden administration is focused on pressing the GOP to unveil a debt limit plan that includes spending cuts, with the hope that such a proposal will prove so divisive among Republicans that they are forced to abandon brinkmanship. This strategy stems in part from the belief among White House officials that it would be enormously risky either to negotiate policy with the GOP on the debt limit or try to solve it via executive order— and they appear willing to put that premise to the test.

…“If the administration wants to take it to the brink, that will be their decision, but I think that that’s going to be on their hands,” said Rep. Scott Perry (R-PA), the chairman of the House Freedom Caucus and one of the 20 hard-liners who forced concessions from McCarthy last month in exchange for the votes to make him speaker. “Certainly it’s not going to be on mine.”

Further complicating the White House’s plan is that, so far, even moderate House Republicans have backed the GOP’s approach to demanding spending cuts. A rarely used congressional procedure known as a discharge petition that could force a vote on the House floor could take months to materialize, and McCarthy might still be able to block it.

“The idea that they’re saying, ‘We’re not going to negotiate,’ is laughable,” said Rep. Michael Lawler (R-NY), a freshman who is among the moderates whose support Democrats would probably need for a discharge petition. His moderate Republican colleagues feel the same way, he added.

Sens. Joe Manchin (D-WV) and Mitt Romney (R-UT) have floated creating a set of committees that would make nonbinding recommendations on how to shore up the Social Security, Medicare and highway trust funds as part of a deal to raise the debt limit, but conservative lawmakers are already ruling out those suggestions.

The problem with this kind of “bipartisan” approach from conservatives like Manchin, Sinema, the 2 from Delaware, the 2 from New Hampshire, Tester (MT) and Warner (VA) and Romney (and House Blue Dogs) is that it will certainly lead to cuts in Social Security and Medicare, including a gradual increase in the retirement age. It’s what the bipartisan conservative establishment hopes to get out of the impasse. And it’s exactly what progressives need to prevent.

Ted Lieu, southern California's most prominent member of Congress, was very clear on where he stands. This morning he told me that "Here is my response to any Senators or Representatives floating any concessions in exchange for following the Constitution and raising the debt ceiling: NO." Let's hope he can keep the rest of the House Democratic leadership team on the same page.

Stein and Meyer also reported that “Other GOP lawmakers have discussed using the debt limit to insist on major cuts to domestic spending outside of Medicare and Social Security, trying to secure additional funding for border security, or forcing the administration to rescind covid policies. All of these, though, would require the Biden administration to reward GOP demands with policy concessions, which White House aides have said they won’t do.”

Still, circumventing congressional Republicans altogether also appears to be a nonstarter. As they did during a debt limit standoff in 2021, White House officials have in recent weeks discussed the feasibility of minting a so-called $1 trillion coin to circumvent the debt limit, or invoking the 14th Amendment of the Constitution to declare the debt ceiling unconstitutional. Dean Baker, a White House ally and liberal economist, said he has also pitched administration officials on a plan to have the Treasury buy back previously issued government bonds that are now trading at a discount because interest rates have increased. That could give the administration more time to avoid hitting the borrowing limit, because the amount of outstanding debt will be reduced at a cheaper rate than its official value.

Yet there are major concerns with these unilateral options as well. Congressional Republicans would almost certainly immediately denounce any executive action to resolve the standoff as unconstitutional, and litigation would probably ensue, which could in turn wreak havoc on the Treasury Department’s ability to auction U.S. government debt on the market, administration officials fear. Uncertainty around whether new bonds are legal could lead purchasers to demand much higher interest rates, leading to hundreds of billions in additional federal costs, according to one Democratic adviser, who spoke on the condition of anonymity to cite conversations with senior White House staff. The Supreme Court’s conservative majority could also strike down any unilateral action such as the coin, forcing the administration back to the negotiating table with the GOP in a potentially weaker position.

“What does a Treasury auction look like when one party claims the debt being issued is invalid? What happens to that auction?” asked David Kamin, a law professor at New York University who previously served as deputy director of the National Economic Council in the Biden White House, but stressed that he was not speaking on behalf of the administration. “If the president gets forced to pick between bad options, he’ll have to do something. But we can’t pretend there aren’t really significant downsides to the actions on the other side of the X Date.”

Rohan Grey, a professor at Willamette University College of Law and public finance expert, said that if the Supreme Court rules against unilateral White House action, Biden could respond by declaring its decision inconsistent with the president’s constitutional duties and ignoring the judiciary, citing similar moves by Abraham Lincoln during the Civil War. Grey and Nathan Tankus, another expert in public finance, said it would be unlikely to come to that because the administration would be on safe legal ground in minting the coin, with Tankus pointing to the obligation of the central bank to manage stress in the market for government treasuries.

“An option that involves the Treasury being able to make payments without holding auctions and does not involve any defaulted securities should be far easier to manage than liquidity strains from risking default or even outright defaulting,” Tankus said.

Sen. Chris Van Hollen (D-MD) was part of a small group of lawmakers and Obama administration officials that Biden convened in 2011 while he was vice president to try to strike a deal with Republicans to raise the debt limit. Van Hollen said he and Biden took away the same lesson: Never negotiate over the debt limit again.

“The internal thinking in the White House reflects the public statements, which is: We’re not going to negotiate with those who take our economy hostage to try to implement their extremist agenda,” Van Hollen said in an interview.

“Getting closer to the cliff may clarify the issue for some House Republicans who aren’t willing to consider doing this the responsible way from the get-go,” he said.

For many Democrats, a debt limit standoff could bring political benefits because they believe the public will not side with Republican attempts to extract concessions at the risk of default. The lawmaker who spoke with Klain about the debt limit shortly after last year’s elections, for instance, put it this way: “If we can’t win on that, we can’t win on anything.”

Yesterday, Washington Free Beacon’s Matthew Continetti expressed the very dangerous perspective from the far right fringe: “Republicans enter the debt ceiling fight with no leader, no strategy, and no specific proposal. They face a president who refuses to negotiate, a Democratic Senate, and a hostile media. When the Treasury Department's "extraordinary measures" to avoid default come to an end this spring, markets are sure to tremble, and business and investors will pressure Congress for a quick fix. If the crisis isn't handled properly, outcomes include a government shutdown, economic contagion, downgraded U.S. debt, and renewed GOP infighting. Oh, yes— in the worst-case scenario, federal spending would remain uncontrolled.”

This is how the crackpots in the Freedom Caucus and Republican Study Committee see the problem. And they’re not without their strategies. Continetti wrote that “The way out of this briar patch is tricky but navigable. It involves drawing correct lessons from history, settling on a realistic objective in advance, neutralizing inevitable attacks, and taking the long view. That's a tall order, but not a reason to abandon the cause… One piece of legislation that could be paired with a debt ceiling increase is the TRUST Act, sponsored by Sens. Mitt Romney (R-UT) and Joe Manchin (D-WV) in the Senate and Reps. Mike Gallagher (R-WI) and Abigail Spanberger (D-VA) in the House. It would create ‘rescue committees’ for the various government trust funds whose recommendations would be fast-tracked in Congress. Meanwhile, Riedl's colleague Chris Pope offers the helpful suggestion that Republicans merely commit to Medicare's current payment trajectory, generating hundreds of billions in savings as doctors and seniors continue to sign up for Medicare Advantage.”

The strength of this approach is that it wards off defenders of the status quo. The maximalist proposals found in some quarters of the House GOP supply material to Democrats eager to dust off the entitlement-protection playbook that has worked for them in the past. The "contingency plan" House Republicans are drawing up that would instruct the Treasury to prioritize payments so as not to breach the debt ceiling has serious flaws, as well. Bondholders would be at the head of the line— and many of them are foreigners. The spectacle of the "America First" party ensuring that Chinese banks are paid before air traffic controllers would be an embarrassment. It ought to be avoided.

A freeze in discretionary spending is vulnerable to criticism by defense hawks, like me, who believe that if anything America needs to spend much more, not less, on defense (and on defense-related research and development). Rather than marching under the banner of "Freeze Discretionary Spending," the GOP may want to adopt as its motto "Freeze Non-Defense Discretionary Spending Now!"

Yes, it's hard to fit on a poster. It won't produce the savings many Republicans profess to desire. But it would be a start.

Which is what we need. Since the New Deal, Progressives have built up the welfare state gradually, by supplying benefits that create constituencies over time. Why can't advocates of limited government adopt a similar logic?

Through homeschooling, school choice, individual retirement accounts, college savings accounts, and Health Savings Accounts, conservatives have created their own constituencies that are less dependent on, and therefore less susceptible to, government control. Republicans and conservatives could use the debt ceiling debate to put Biden on defense by taking small but firm steps toward smaller government, with the knowledge that nothing breeds success like success.