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With McCarthy elected speaker, House GOP readies for fiscal showdowns

The stakes for the economy could be great as Republicans eye the debt limit and a deadline to fund the government as leverage in talks with the Biden administration

Kevin McCarthy of California celebrates with staff, family, friends and other House Republicans after he was elected speaker of the House in the 15th round of voting early Saturday. The House GOP aims to use upcoming fiscal deadlines as leverage to force the White House and Senate Democrats to accept spending cuts. (Jabin Botsford/The Washington Post)

House Republicans are set to steer the country toward a series of fiscal showdowns as they look to force the White House to agree to massive spending cuts, threatening a return to the political brinkmanship that once nearly crippled the economy and almost plunged the U.S. government into default.

The prospect for a catastrophe rose dramatically after conservatives brokered a deal with Rep. Kevin McCarthy (R-Calif.) that clinched his election as the speaker of the House early Saturday. To put an end to days of raucous debate, party lawmakers said they agreed to drive a hard line in upcoming budget talks, potentially including demands for significant changes to Social Security and Medicare.

“That is the biggest challenge in this Congress,” said Rep. Patrick T. McHenry (R-N.C.), a top ally to McCarthy, shortly after the speaker vote, adding that “debt, deficit and the fiscal house — that is a major priority for House Republicans.”

Kevin McCarthy elected House Speaker, breaking historic deadlock

In the hours before the 15th and final speaker vote, Republicans sketched out the early contours of what they might pursue over the next year — slashing spending by billions of dollars, largely targeting federal health, education, labor and other domestic agencies that Democrats say are already underfunded.

Rep.-elect Kevin McCarthy (R-Calif.) finally secured enough votes to become House speaker following the fifth-longest speaker battle in history. (Video: John Farrell, JM Rieger/The Washington Post)

Some GOP lawmakers even signaled they would insist on these reductions — along with other, more structural changes to federal entitlement programs — in exchange for voting to lift the debt ceiling. That cap is the statutory limit on how much the U.S. government can borrow to pay its existing bills, and lawmakers must act to raise or suspend it — otherwise the country will default, which many experts fear would set off a global fiscal calamity.

“Make no mistake, the debt ceiling issue in and of itself is intended to leverage better policies moving forward as it relates to spending,” said Rep. Adrian Smith (R-Neb.), who is vying to lead the top tax-focused committee in the House. “I think we shouldn’t shy away from that.”

The new threats raised the prospect of a political confrontation with sky-high stakes, since a misstep could trigger financial havoc and a full-fledged recession. More than a decade ago, the mere possibility that the U.S. might not be able to pay its bills rattled markets worldwide, while costing American taxpayers more than $1 billion.

Citing those past standoffs, many Democrats this week issued their own ultimatums: They said they are willing to discuss federal spending with their newly empowered GOP counterparts, but they would not haggle over the debt ceiling.

“I think the president has been very clear and will continue to be clear: There’s no negotiating over whether or not the United States pays its bills on time,” said Sen. Chris Van Hollen (D-Md.), a member of the chamber’s appropriations committee.

“That is an obligation every member needs to take seriously,” he continued. “We will repeat, again and again, there is a line in the sand here, and we’re not going to give the extreme Republicans their wish list in exchange for them simply allowing the country to pay its bills on time.”

McCarthy’s election in the early hours of Saturday morning nonetheless emboldened House Republicans, having overcome their fierce ideological divides — at least for the moment. Speaking to reporters after clinching the outcome, McCarthy said the political discord that characterized the debate over the past week had been instructive, helping the party “build the trust with one another” needed to govern.

It will fall now to McCarthy to keep Republicans united in a chamber where the GOP’s majority is razor thin — and, as his rocky rise demonstrated, conservatives wield immense power. Many of these lawmakers expect McCarthy to deliver on a vast array of promises, including his commitment to cut spending and extract other policy concessions from a Democrat-led Senate and the White House. If he does not, the right-leaning bloc has the power to try to remove McCarthy as speaker.

Republicans must grapple with at least two key fiscal deadlines this year. They have to raise the debt ceiling before the government breaches the borrowing cap, which could occur as soon as this summer, according to Shai Akabas, the director of economic policy at the Bipartisan Policy Center, noting that the exact date will depend on upcoming federal indicators.

But lawmakers must also work to fund federal agencies and programs before the current fiscal year ends on Sept. 30. Democrats and Republicans adopted the current $1.7 trillion spending measure, known in legislative parlance as an omnibus, in the waning hours of 2022 — and a failure to replace it would shutter Washington in the fall.

With election unsettled, Congress braces for new spending showdowns

While the issues are technically separate, Republicans have signaled early interest in fusing them together, raising the stakes in the event of congressional inaction. “We believe there ought to be specific, concrete limits on spending, attached to a debt ceiling increase,” stressed Rep. Chip Roy (R-Texas), a member of the conservative House Freedom Caucus who had opposed McCarthy as speaker until he secured a number of concessions.

Entering those fights, some Republicans have pledged to pare back federal spending at least to levels adopted in the 2022 fiscal year, which would amount to billions of dollars in cuts compared with current expenditures. Others in the party said they also intend to produce a budget blueprint that balances the federal ledger — which last ran a $1.38 trillion deficit — over the next decade.

Democrats this week have decried the approach: Rep. Rosa L. DeLauro (D-Conn.), the top party lawmaker on the House Appropriations Committee, blasted it as a “backroom deal” that “kills the 2024 government funding process before it has even started, all but guaranteeing a shutdown.”

McCarthy has not shared in detail the extent of the promises he made with conservatives in pursuit of the speaker’s gavel; his office did not respond Saturday to a request for comment. But many GOP lawmakers this week have sounded increasingly bullish about their new sense of purpose in trying to drive a hard spending bargain with the White House.

“You can’t have a balanced budget unless you start cutting,” said Rep. Ralph Norman (R-S.C.), another member of the House Freedom Caucus, promising to “look at every dollar.”

Nearly 12 years ago, a similar political dynamic swept through Washington — with what some would describe as catastrophic results. The 2010 election saw the rise of the austerity-minded tea party, as right-leaning pols took over the House and demanded steep spending cuts from then-President Barack Obama.

Republicans at one point in 2011 seized on the debt limit to force Democrats’ hand, refusing to raise the borrowing cap without significant spending cuts. The ultimatum itself carried vast, immediate consequences, costing taxpayers more than $1.3 billion, raising the costs of borrowing and sinking the Dow Jones industrial average by more than 2,000 points through the summer crisis.

To defuse the stalemate, Democrats ultimately agreed to a plan that cut and capped domestic spending for 10 years — an approach that some budget experts described as indiscriminate and harmful to Americans who rely on government services.

“The cuts were incredibly damaging,” said Sharon Parrott, the director of the Center on Budget and Policy Priorities, a left-leaning think tank, noting they fell hard on a wide array of agencies — from gutting child care spending to depleting the ranks of federal workers who oversee Social Security.

More than a decade later, the statutory spending caps have lifted — paving the way for Biden over the first two years of his presidency to seize on a Democratic majority and expand the budget significantly. Despite the recent boosts, however, Parrott acknowledged that some federal agencies and programs “haven’t in many respects recovered from what some of the cuts did.”

The debt itself still stands at more than $31 trillion, running a yearly shortfall of about $1 trillion or more for the past five fiscal years, according to the Treasury Department. While Republicans have blamed Democrats for the problem, the growing gap between what the country earns and spends is instead the result of both parties’ policymaking — from the $1.5 trillion tax cut package by GOP lawmakers in 2017 under President Donald Trump to the roughly $5 trillion in emergency coronavirus aid that began under Trump and culminated with Biden’s American Rescue Plan.

Where did the covid aid money go?

“This is a year where we should not be doing more borrowing,” said Maya MacGuineas, the leader of the Committee for a Responsible Federal Budget, which advocates for deficit reduction, citing recent spending and other factors including high inflation.

Yet MacGuineas acknowledged that the political climate may make it impossible to “govern in any of the ways we need to” — opening the door, perhaps, for a reprisal of the high-stakes showdowns of 2011.

“I see them quite similarly,” she said. “People are surfacing an issue that is very legitimate and important, which is the fiscal health of the country, but the approach and solution is reckless and unrealistic.”

Under Trump, when the government approached the borrowing cap, Republicans did not make similar spending demands at risk of fiscal calamity — and Democrats supplied votes to prevent a default. But GOP lawmakers did not always afford Democrats the same support under Biden, threatening to push the country to the fiscal brink at one point in 2021. At the time, Mark Zandi, the chief economist at Moody’s Analytics, predicted that a default would wipe out up to 6 million jobs and as much as $15 trillion in household wealth.

This time, though, Democrats maintain they have learned their lesson — and say they aren’t willing to negotiate significant concessions around spending in exchange for averting a catastrophic outcome.

“Democrats have learned their lesson over the last decade, and we understand we’re entering a period of great risk,” said Sen. Brian Schatz (D-Hawaii), a member of his chamber’s appropriations committee. “It set a precedent that was unique in American history, in which one party threatened the global economy and actually got a bunch of political concessions in exchange for their belligerence, and at this point, we just have to say we’ve seen this movie before.”

Democrats also insist they are not willing to cut Social Security and Medicare, seizing on Republicans’ commitment to look at federal entitlement programs. In his statement congratulating McCarthy, Biden himself stressed that it is “imperative that we protect Social Security and Medicare, not slash them,” noting that the improvements in the economy since the pandemic could be at risk.

“It’s imperative that we continue that economic progress,” Biden said, “not set it back.”

Liz Goodwin contributed to this report.