[ Republicans are threatening to tank the global economy if
President Biden doesn’t agree to slash spending on social welfare
programs. It’s a trap.]
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DEMOCRATS SHOULDN’T FALL FOR MCCARTHY’S DEBT LIMIT RANSOM ATTEMPT
 
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Max B. Sawicky
May 2, 2023
In These Times
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_ Republicans are threatening to tank the global economy if President
Biden doesn’t agree to slash spending on social welfare programs.
It’s a trap. _

House Speaker Kevin McCarthy wants to take the entire economy
hostage., Tom Williams/CQ-Roll Call // In These Times

 

ontrary to some expectations, Speaker of the House Kevin McCarthy
(R-Calif.) has managed to unite his caucus around an austerity plan
dubbed the ​“Limit, Save, Grow Act,” which is being used as
ransom for not blowing up the economy with a debt default by the U.S.
government. Democrats are charging that the plan would cut benefits to
veterans and food stamp recipients, among others, while Republicans
have issued outraged denials. So what’s really going on?

McCarthy is accusing President Biden of endangering the economy by
refusing to negotiate on the debt ceiling. Of course, it would be easy
for the ceiling to be lifted absent the obstruction by McCarthy
himself. His is the ​“stop me before I kill again” strategy.

Republicans routinely fail to agree on, let alone enact, specific
stand-alone spending cuts that match their rhetoric on deficit
reduction. They are forced to resort to extortion that exploits the
need to approve a lifting of permitted U.S. national debt.
McCarthy’s bill cannot pass the Senate, but he thinks it provides
him leverage in negotiating with the White House. Biden, meanwhile,
has asserted that he will not negotiate on the debt ceiling. 

The need to continue borrowing is founded, it should be noted, on
spending that was already approved by Congress. As with electoral
defeats, the Republicans would like the opportunity to stage do-overs
of votes they have already lost. In and of itself, raising the debt
ceiling is not synonymous with new spending increases.

A failure to raise the debt ceiling is feared to impede the federal
government’s ability to pay its bills, including interest due on
bonds held in the private sector. Failure to pay interest due, on
time, would represent a default — the global financial
implications of which are unknown, and possibly catastrophic.

The debt ceiling is a legal fact, but it is directly contradicted by
an alternative fact: the U.S. Constitution stipulates that the
government must make good on its debts. So one suggested resolution of
this conflict is for the Treasury to simply ignore the debt ceiling
and go on about its routine operations.

A more exotic remedy, also based in law according to some authorities,
is that the Treasury may legally mint a platinum coin of any
denomination — something perhaps in the trillions of
dollars — and claim the implied purchasing power to meet its
financial obligations. The coin gambit may sound nutty and would
probably provoke a political furor, but that doesn’t mean it
can’t work.

What about the Republican cuts? The key to understanding their method
is that they want to avoid leaving any fingerprints on unpopular
reductions in benefits or services. To this end, they explicitly rule
out major categories of federal spending, such as defense, Social
Security and Medicare. (Interest on the debt is automatically out
of bounds.) 

The trick is what they implicitly rule in: most of what’s classified
as ​“non-defense discretionary spending.” If you start with the
assumption that huge cuts are necessary, and you then rule out the
biggest components of the federal budget, you put enormous pressure on
a narrow category of social programs. Non-defense discretionary
spending is about [[link removed]] 14% of
total outlays. The Republicans claim that it is possible to gouge the
entirety of their deficit reduction out of this component of
federal spending.

The Republican plan would subject its targeted spending to caps rolled
back to fiscal year 2022 spending levels, with increases limited
to 1% annually. The reality is that programs already in place would
naturally grow in cost, due to the increasing size of the job to be
done, and due to ordinary inflation that usually exceeds 1%. Hence
a cap stipulated in dollar terms not, at the very least, adjusted
fully for inflation, automatically amounts to a cut.

Spending on veterans, among other popular programs, is not exempted
from possible cuts, but neither is it specifically reduced. The way it
works is that non-defense spending is put in a box with the specific
decisions on how much and where to cut left for later, in the obscure
deliberations of Congress’s appropriations committees. If one
applies the cuts implied by the spending caps across-the-board, then
you can begin to derive the implications for every specific program of
non-defense discretionary spending, i.e. a disastrous
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toll. These implications are what Republicans would like us
to ignore.

The McCarthy plan is best understood as a set of talking points, not
unlike the sort of policies concocted by the Trump administration.
Instead of actual policies, Trump’s minions would craft press
releases with bullet points aimed at scratching particular itches.
[[link removed]] Propaganda on
behalf of McCarthy’s gambit is streaming out of the Committee for
a Responsible Budget, contemporary heir to the panic stories
circulated by the Concord Coalition and others
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claim that we are on an unsustainable fiscal path. But these people
have been saying that since the 1980s.

Another unwelcome endorsement of the McCarthy scam has come from
Trump’s former chief economist, Kevin Hassett, who discounts the
hazards of an imminent default on U.S. debt
[[link removed]]. It is true
that a default could amount to a big nothing, but it could also be
quite the contrary. Nobody with any sense wants to find out for
certain, as the negative effects would largely be borne by
working people.

The Republican plan includes some frivolous items founded in pure
politics that have little to do with debt reduction. One is
a commitment to hastening the institution of work requirements for
Medicaid, which nobody thinks matters for the overall costs of the
program. While the plan attacks such means-tested benefits for
Medicaid’s 93 million beneficiaries
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it does indulge welfare for wealthy farmers, in the form of subsidies
for biofuels.

Another clownish initiative in McCarthy’s plan is reversing the
Biden administration’s move to increase the IRS budget. Such
a reversal would actually increase public debt, not lower it.
Improved IRS enforcement would reduce the extent to which federal
taxes are left unpaid, or not paid on time. The rate of non-payment,
known as the ​“tax gap
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at roughly
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in six dollars. Of course those most likely to avoid taxes are big
corporations and the ultra wealthy, who also contribute to
GOP candidates.

Braying about the deficit has not discouraged Republicans from
proposing further tax cuts. As recently as last October, they
supported extended tax cuts first enacted during the Trump
administration. Despite their anguish over the public debt,
Republicans still
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more tax cuts for corporate America.

The Democrats’ invocation of a threat to veterans’ benefits, more
than anything else, bespeaks a defensiveness that does not do justice
to the broad gamut of federal programs. So too with the effort to cite
Republican tax cuts as an important factor in the growth of public
debt. It has been an important factor, but this political argument has
not worked for 40 years. Democrats thought they could mousetrap
Ronald Reagan with it. That never happened.

The future of welfare spending will depend on public support for what
it does, not by relying on nostrums about how taxing the rich will
relieve the average person of paying for what should be seen as
worthwhile in its own right. Democrats should be steadfast and
clear-eyed in their defense of social programs, no matter the
hostage-taking tricks played by Republican leadership.

_[MAX B. SAWICKY is a senior research fellow at the Center for
Economic and Policy Research. He has worked at the Economic Policy
Institute and the Government Accountability Office, and has written
for numerous progressive outlets.]_

_Reprinted with permission from In These Times
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All rights reserved. _

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* Debt Ceiling
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* Budget talks
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* National debt
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* Kevin McCarthy
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* GOP
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* Congress
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* MAGA
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* House GOP
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* Joe Biden
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* global economy
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* Platinum coin
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* Trump tax cuts
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* tax cuts
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* discretionary spending
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