The White House says it won’t negotiate over whether to lift the debt ceiling. But Biden did meet with McCarthy on Wednesday to talk about the borrowing cap. Eventually, some combination of these proposals will probably form the basis of what the GOP asks of the administration, either as part of debt limit negotiations or in separate talks over the federal budget.
The debt ceiling is a legal limit on how much the country can borrow, and it’s been raised or suspended routinely in the past, including three times when Donald Trump was president. The debt accumulated over the years is now near the current $31.4 trillion limit, and as a share of the nation’s economy, it’s rapidly approaching the record set after World War II.
Republican lawmakers say they want to rein in borrowing in exchange for voting to raise the cap. However, at least one of their ideas — rescinding newly approved funding for the Internal Revenue Service — is likely to reduce tax collections and therefore increase borrowing, according to nonpartisan estimates. Other proposals would force major cuts to programs that millions of Americans depend on, which could create political vulnerabilities for the GOP nationally.
Yet McCarthy may have trouble placating the House conservatives who nearly derailed his bid for the speaker’s gavel unless he embraces drastic measures — complicating GOP lawmakers’ attempts to figure out just what they’ll demand of Biden.
“They’re in the middle of a conversation that is very healthy — lots of members have lots of ideas, and they’re in the process of sorting through them now,” said Newt Gingrich, who served as the Republican speaker of the House under the Clinton administration and is an outside adviser to McCarthy. “They are trying to find serious, real changes that move the pattern of the debt by significantly reducing wasteful government spending, put it together in a form the country understands, and then offer a package that has so many good ideas the president can’t reject all of them.”
Democrats, however, see in the GOP’s ideas an opportunity to emphasize the different visions between the parties over federal spending. White House aides argue that making policy concessions in exchange for raising the debt limit would reward Republicans for holding the U.S. economy hostage. Biden has also pushed McCarthy to release his own budget, believing all the options the GOP has discussed would hurt them politically.
“House Republicans are making their priorities very clear: They are going to raise taxes on hard-working Americans, hamstring the IRS’s ability to crack down on wealthy tax cheats, and do everything they can to hurt families and the economy by slashing spending on education, transportation, housing, health care and other critical federal investments,” said Lindsay Owens, executive director of the Groundwork Collaborative, a left-leaning group.
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Here are seven of the emerging GOP ideas on what to demand in the debt limit fight, as well as why critics think they each have enormous downsides.
Big cuts to agency spending
The most likely GOP demand is sweeping cuts to the part of the federal budget known as “discretionary” spending, which excludes programs such as Medicare, Medicaid, food stamps and Social Security. This type of spending — which includes funding for the Defense Department and other federal agencies — jumped from close to $1.1 trillion a year to $1.6 trillion a year between 2017 and 2023, as Congress went on spending sprees during the Trump administration and the first two years of the Biden administration, said Brian Riedl, a conservative policy analyst at the Manhattan Institute, a right-leaning think tank. That number does not adjust for substantial increases in inflation.
Republicans have looked at cutting this type of spending — which amounts to roughly 30 percent of the entire federal budget — to the levels spent in the 2022 fiscal year. That may not sound dramatic, but it could mean slashing funds for most domestic programs by as much as 20 percent because Republicans don’t want to make any cuts to the military or veterans’ benefits, according to Donald Schneider, who served as a top aide to House Republicans on the Ways and Means Committee and is now deputy head of U.S. policy at Piper Sandler, an investment bank. That would reduce overall domestic spending by about $130 billion next year. Some Republicans are proposing rolling spending back to FY 2019, before the pandemic, which would mean a $195 billion cut if defense spending stays the same, Schneider said.
A recent paper by the Center on Budget and Policy Priorities, a left-leaning think tank, found that despite the increases funding for these domestic programs is below 2010 levels when adjusting for inflation and population growth, excluding veterans benefits.
These cuts would hit politically popular programs such as spending on energy assistance for low-income Americans; K-12 education; Pell Grants for college students; the National Institutes of Health; NASA; and others. There are other, potentially less dramatic options, such as freezing future increases in non-Pentagon spending or just cutting spending by less, Riedl said. Another idea being batted around is to demand $3 of spending cuts for every $1 increase in the debt ceiling, although that still leaves the all-important question of what to cut.
“There’s plenty of room for savings from caps, and even if you approved no savings, it would still create a constraint on the appropriations process so they could not keep growing much faster than inflation,” said Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, which advocates for lower debt. “There’s plenty you can do there that would be quite meaningful from a fiscal perspective.”
Cutting discretionary spending might provoke less outrage than cutting Social Security and Medicare, but these cuts could still prove difficult for Republicans to push — and for Democrats to accept — so soon after the GOP signed off on major spending increases under the Trump administration. “It’s not realistic,” Schneider said.
Still, many observers believe spending cuts or freezes will be a major focus in negotiations — in part because other options may be even less politically palatable.
Changes to Social Security and Medicare
After his meeting with Biden on Wednesday, McCarthy stressed that cuts to Social Security and Medicare are off the table as lawmakers try to craft a deal. Former president Donald Trump has also told the GOP to not push Social Security and Medicare cuts. But many Republicans have raised proposals and ideas that could change these programs in dramatic ways, if not now, then in the future.
GOP lawmakers say the two entitlements pose serious challenges to the country’s fiscal health. Social Security is expected to become insolvent by 2033, while Medicare’s key hospital trust fund could face its own fiscal crunch in 2026. Both will continue paying benefits, albeit perhaps at sharply reduced rates, if federal estimates are correct.
Earlier this year, Republicans raised the potential they could seek cuts in “mandatory spending,” which could include Social Security and Medicare, as part of their commitment to produce a budget that’s balanced in 10 years. Initially, some key lawmakers — including those in the Republican Study Committee, the largest bloc of GOP members in the House — pointed to past proposals that would have raised the federal retirement age for younger Americans. Last year, the Republican Study Committee also recommended raising the eligibility age for Medicare to 67 and changing the way benefits are calculated.
In recent days, though, Republicans have largely distanced themselves from these ideas — with many instead raising the possibility of a commission that would study Social Security and Medicare and report back possible changes. One bill, called the Trust Act, would pave the way for entitlement-related legislation to come to the floor more easily. Some Republicans have also pushed reductions in Medicare reimbursements for providers, such as formulas for paying hospitals, that would leave seniors’ benefits unchanged.
Undo Biden’s IRS boost
One of the most popular ideas among Republicans for negotiating over the debt limit would, according to nonpartisan experts, actually push the federal government further into debt.
Few ideas have as firmly united the GOP in opposition as Biden’s $80 billion funding increase for the Internal Revenue Service, approved last year as part of Democrats’ broader Inflation Reduction Act. Senior House Republicans have as recently as this week discussed demanding a reversal of the IRS funding increase as part of debt limit talks, according to two people familiar with the matter, who spoke on the condition of anonymity to discuss internal deliberations. Sen. Rick Scott (R-Fla.) also told The Washington Post that he regards undoing the IRS funding as a top priority in debt limit discussions. “I want to get rid of the new IRS agents,” Scott said.
“This should be at the very top of the list of demands,” said Steve Moore, a former economic adviser to Trump who is in touch with top GOP congressional leaders. “There are many Republicans who have made this a top priority.”
Democrats call this idea a giveaway to tax cheats. Former IRS commissioner Charles Rossotti and current Treasury official Natasha Sarin previously estimated the IRS could raise $1.4 trillion in additional tax revenue with more funding, and Treasury Secretary Janet L. Yellen has promised the new funding will not be used to increase audit rates for anyone earning under $400,000 per year.
The White House is almost certain to reject all GOP proposals to repeal IRS funding and has already ridiculed these requests. The nonpartisan Congressional Budget Office has also estimated that a House-passed GOP bill to rescind $70 billion in IRS funding would force the government to borrow more than $100 billion.
Claw back covid aid
At the height of the pandemic, Congress approved more than $5 trillion in emergency aid to help workers, families and businesses facing the worst economic crisis since the Great Depression. Nearly every major spending package was bipartisan in nature, except the final measure, the $1.9 trillion American Rescue Plan, which GOP lawmakers opposed in 2021 — and long have blasted as wasteful.
Some party leaders have explored in recent days whether it’s possible to claw back or rescind some of that aid to help pay down the country’s debt. The issue arose during a congressional hearing Wednesday focused on finding waste, fraud and abuse in federal pandemic funds: Rep. Byron Donalds (R-Fla.) at one point inquired what might happen to money that Congress set aside for schools — yet remains unspent — now that Biden is preparing to end the national covid emergency.
In terms of savings, though, the impact could be relatively small: Gene Dodaro, the nation’s comptroller general, said earlier in the hearing that only about $157 billion in total federal pandemic aid remained unspent and unobligated as of November. That’s about 0.5 percent of the $31 trillion national debt.
Border wall funding
Republicans have also begun discussing some debt limit demands that have little — if anything — to do with federal spending or taxes.
Rep. Chip Roy (R-Tex.), a conservative who played a pivotal role negotiating the deal that elected McCarthy speaker, said on Fox News in late January that he will use the debt limit standoff to push his controversial border security plan. Roy’s legislation would give the Department of Homeland Security the authority to block border crossings for all immigrants, including those seeking asylum.
GOP leaders have also discussed the possibility of tightening asylum laws, or pushing for additional funding to complete the border wall between the U.S. and Mexico, said the two people familiar with internal discussions. An increase in border wall funding may be more feasible than Roy’s bill, which is a nonstarter with Democrats and has even been criticized by some Republicans. “Allow anti-immigrant legislation on the House floor and I am a NO on the debt ceiling,” Rep. Tony Gonzales (R-Tex.) tweeted.
“I hear it pretty regularly as a fallback idea if there’s no budget cuts — this is part of the idea to ‘expand the deal’ to other options,” one of the people with knowledge of internal discussions said. “It’s this and cutting IRS funding.”
New work requirements for federal programs
Some congressional Republicans are discussing whether to use the debt limit to impose new work requirements on beneficiaries of federal programs.
Conservative advisers who recall the GOP’s 1996 budget deal with the Clinton administration — which placed dramatic new work requirements on federal welfare — are pushing Republicans to make a similar push this year.
Gingrich, the former House speaker, said polling supports additional work requirements on “able-bodied” Americans, and that he had pitched the idea to current House Republican leaders. “In my conversations with Republican leadership in both houses, but especially the House, I keep telling them: A key reform is to restore and expand work requirements,” said Larry Kudlow, who served as Trump’s top economic adviser and is now a Fox News host. Rep. Matt Gaetz (R-Fla.) is also now trying to persuade his colleagues to demand new work requirements in the debt limit fight, according to Semafor.
Still, even some conservative analysts are skeptical, in part because work requirements already exist for welfare, food stamps and, in many states, Medicaid, the health insurance program for the poor. “There aren’t that many places to go with work requirements that we have not gone already,” said Riedl, the Manhattan Institute analyst.
Go over the cliff
Some congressional Republicans have argued that the threat posed by the debt limit has been badly overstated. They believe that even if Congress does not increase the government’s borrowing limit, the Treasury Department can still make critical payments — such as to U.S. bondholders, Social Security and Medicare recipients and the Defense Department — by redirecting incoming tax revenue. (Government revenue covers roughly 75 percent of total federal spending.) That, they say, would force Democrats to accept large spending cuts by reducing the Biden administration’s leverage.
At least one House Republican even appeared to say he would not raise the debt limit under any condition.
“We cannot raise the debt ceiling. Democrats have carelessly spent our taxpayer money and devalued our currency,” Rep. Andy Biggs (R-Ariz.) tweeted. “They’ve made their bed, so they must lie in it.”
We cannot raise the debt ceiling.— Rep Andy Biggs (@RepAndyBiggsAZ) January 17, 2023
Democrats have carelessly spent our taxpayer money and devalued our currency.
They've made their bed, so they must lie in it.
McCarthy and most Republicans have rejected these ideas, saying the party believes in the need to raise the debt limit. But McCarthy also agreed to a deal with Roy to put forward a debt “prioritization plan” that would specify what payments Treasury should make in the unprecedented event that the government cannot meet all its obligations. Treasury officials have said such a plan is not technically feasible, and any such effort would likely still drive up the costs of U.S. borrowing by throwing the trustworthiness of federal credit into doubt.
The ideas, however, were backed by Republican Study Committee Chair Kevin Hern (R-Okla.), who wrote in a memo earlier this week that the GOP should bring to negotiations a demand to “codify procedures to ensure the federal government honors critical obligations, such as federal debt payments, national security and veterans, Social Security, and Medicare.”
The document left unclear how such a plan would ensure operations for thousands of other federal government functions.
Tony Romm contributed to this report.