The Debt Ceiling & the End of the Republican Party(... ?)
This week the GOP must figure out a way to get to 218 votes to increase the debt ceiling ... or the nation goes into default sometime in June
Stefan Hankin | a Lincoln Park Strategies feature
Recently, Treasury Secretary Janet Yellen announced that the United States would hit the debt ceiling on January 19th. The United States not paying their bills is a big freakin’ deal (mild understatement) and a vote on increasing the ceiling has been a ridiculous political football for decades now. As a quick Cliffs Notes on the history of the debt ceiling: the debt ceiling has been in effect since 1917, when the US Congress passed the Second Liberty Bond Act. Before 1917, there was no debt ceiling, but there were procedural limitations on the amount of debt that could be issued by the government. During the pre-1917 period, Congress either authorized specific loans or allowed the Treasury to issue certain debt instruments for specific purposes. Congress would authorize each bond issued by the United States Treasury by passing a legislative act that approved the issue and the amount.
Then in 1917, during World War I, Congress created the debt ceiling and allowed the Treasury to issue bonds and take on other debt without specific Congressional approval, as long as the total debt fell under the statutory limit. The 1917 legislation set limits on the aggregate amount of debt that could be accumulated on specific kinds of debt and then in 1939, Congress instituted the first limit on total accumulated debt over all kinds of instruments.
In general, according to most accounts, Congress liked the debt ceiling since it gave them a reason to hold hearings and debates over the budget. Then in 1974, Congress passed the Budget and Impoundment Control Act which basically changed the way that the budget was passed and, not shockingly, gave more power to Congress and opened up debate among other things. This is the point where the debt ceiling arguably made little sense and in 1979, Representative Dick Gephardt imposed the “Gephardt Rule” which automatically raised the debt ceiling when a budget was passed. This ended the technical ability for Congress to approve a budget, but then not fund what they voted for.
This rule stood in place until 1995, when Newt Gingrich and the Republicans took over Congress. Gingrich and team then required a specific vote on increasing the ceiling, which then started the inevitable road to the government shutdown in 1995. In 2011, Republicans took back Congress and debt ceiling crisis #2 followed shortly thereafter (sensing a theme, yet?). In 2013, there was another fight over increasing the ceiling and this week marks the likely start of crisis #3.
Earlier this month, after 15 rounds of voting, Kevin McCarthy was voted in as Speaker of the House, and by all accounts one of the concessions he had to make to the far right faction of his party was no debt ceiling approval without $150 billion in budget cuts (give or take). As fun as it was to watch the GOP flounder around the vote on who the Speaker would be, this has real world consequences for all of us and we could very well be in store for a government shutdown before long.
The other outcome of this fight could be the end of the Republican Party.
As we have discussed in the past, the two parties are in the midst of a realignment and both parties have coalitions that are barely hanging on by a thread. In 2019, we looked at what were some of the likely outcomes for the GOP after the 2020 elections. We seem to be in a version of scenario #4 where Trump lost the 2020 election and his supporters went with him (not an exact description of where we are, but close). The incredibly close election this past fall has given more power to the far right, and we saw this on full display this month with, at first, 20 and then 6 members of the GOP who were holding out their support for McCarthy.
This week the GOP will have to start figuring out a way to get to 218 votes to increase the debt ceiling or we go into default sometime in June according to Treasury Secretary Janet Yellen. Regardless of the exact date, the GOP has very few viable options when it comes to resolving this issue.
Option 1 …
… Would be to take a vote on a clean bill that would increase this ceiling with no cuts to the budget or any other over the top stipulations. If this vote would be put forward it would pass since it is likely that all 212 Democrats (could be 213 by the end of February when the special election in Virginia’s 4th congressional district concludes) would vote for it and it is likely that there would be at least 10 Republicans who understand the importance of the vote and do not want to give any power to the far right, or are one of the 18 members who represent a district that President Biden won in 2020 and feel that letting the country go into default would be particularly bad for their career longevity. However, if McCarthy allowed the bill to go forward his reign as Speaker would last roughly less than six months …. probably not his first choice.
Option 2 …
… Republicans put forward a bill that raises the debt ceiling and cuts $150 billion from the budget. The chances of this happening are also close to zero. The challenge here is that the math doesn’t really work for the GOP. These cuts would have to come out of discretionary programs. In the 2021 budget, about 60 percent of the budget was mandatory spending, and about 30 percent was discretionary spending. Of the discretionary spending, a little less than half (47 percent) went to the military. There are certainly more than five members of the GOP caucus who are military hawks and will not vote for massive cuts to the military.
This then means that the $150 billion will need to come out of the roughly $800 billion that is available for Congress to cut (roughly a 20 percent cut to the remaining programs). With no Democratic support, the Republicans would own these cuts. That means cuts to veterans’ benefits, transportation projects, schools, etc. which would translate to crippling our economy and growth. Which would then likely translate into losses in the 2024 election.
Now it is plausible that, with some modest cuts, the GOP could pull over a handful of Democrats to vote for a bill to increase the debt ceiling. However, if McCarthy negotiates small cuts with the Democrats his Speakership will also likely end quickly thereafter.
Option 3 …
… The most likely outcome seems to be that nothing will be agreed to by mid-Spring and a default is going to loom large. If we actually default, the government will no longer be allowed to issue debt and incoming money would be insufficient to pay daily obligations: Social Security payments, salaries for federal employees, the military, veterans’ benefits, and utility bills for the government, among others, would go unpaid.
If this happens, it would likely push the global financial markets into chaos, since both domestic and international markets depend on the relative economic and political stability of U.S. debt instruments and the U.S. economy. Interest rates would rise, and demand for Treasuries would drop as investors stop or scale back investments in Treasury securities if they are no longer considered perfectly safe, increasing the risk of further defaults. This also would likely translate into massive losses for the GOP in the 2024 election.
The GOP is basically screwed (and the country along with them) thanks to their power by any means approach, which can be traced back to the 1990’s, but took on a new level of cozying up to the far right in 2009-2010 with the emergence of the Tea Party. The GOP has given the far right this power and it is coming home to bite them in the ass quicker than they probably imagined.
Regardless of which of the three options above end up happening, there is an argument that there is one outcome for all three scenarios: the GOP, for all intents and purposes, ceases to exist by the beginning of the summer. While this is not a guarantee, it feels plausible.
Let’s say the House is unable to pass a debt ceiling increase and we go into default. If this is the case, it will be because the far right coalition holds together and it becomes increasingly obvious to the remaining members that there is no way to get out of this mess without further hurting the country and giving the MAGA crowd more power. At this point, a dozen or so Republicans decide that the party’s current trajectory is no longer viable and they work out a deal with Democrats to pass an increase to the debt ceiling with minor cuts. McCarthy probably votes against the deal in order to not lose support from his right flank, but that fails (lessons will not be learned). There is then a vote on his Speakership which he loses thanks to the Democrats joining the 20 or so Never Kevin crowd.
Then the dozen Republicans who voted for the increase announce that they are leaving the party and try to work out a deal with Democrats to replace McCarthy. This will then be the official end of the GOP in the House. If we were in a parliamentary system this would be a vote of no confidence and the end of the ruling coalition. However we don’t have a parliamentary system even though we are basically acting like one.
If the House GOP falls apart it would likely follow that Senate Republicans will then need to take sides, since remaining silent either means losing primary elections or putting general election outcomes in question (the same would likely be true for Republican Governors).
If this were a movie script it would likely be rejected as too far fetched, yet somehow this is the world we are currently living in. The next couple months are likely to be rocky for the U.S., the global economy, and the GOP. We would say that ideally cooler heads will prevail, but unlike the scenario of the Republican party disintegrating, we are very confident this will not be the case.