January 23, 2023
Congress’s 2023 To Do List: The Debt Limit and Other Action Forcing Events
After 15 votes, the House elected Representative Kevin McCarthy (R-CA) Speaker early on the morning of January 7. While Republicans gained a majority and control of the House in last November’s elections, the drawn-out drama and trauma in the Speaker’s election demonstrated the enormous challenges they will face in passing legislation, including budget-related bills.
The House is a majoritarian institution that normally vests the Speaker with inordinate power. For legislation, the Speaker primarily exercises that power through the Rules Committee, frequently known as the “Speaker’s Committee,” where the majority has a disproportionate ratio with nine members to the minority’s four. A rule is a resolution reported by the Rules Committee and passed by the House that determines the procedures (time for debate, any amendments, waiver of points of order, etc.) for an individual bill or bills the House will consider. Rules also can include provisions that deem passage of legislation without requiring the House acting separately to vote on them.
Rules are traditionally reported and passed on party-line votes. Speaker McCarthy (R-CA) can only afford to lose four Republicans and still pass a rule if Democrats stay united. During the 15 votes for Speaker, he failed to secure at least six Republican votes. On the final vote that elected McCarthy Speaker, six Republicans voted present. Except for bills that enjoy broad and strong Republican support, he and his Republican leadership team will be constantly challenged to put together the 218 Republican votes necessary to pass any rule and subsequent legislation.
THE 2023 LEGISLATIVE AGENDA
Donald Rumsfeld, former Secretary of Defense, once commented there are known knowns, known unknowns, and unknown unknowns. We are going to focus primarily on the first category, things we know Congress must address this year. They pose both a challenge, but also a potential opportunity, for the new House Republican majority.
The biggest challenge and the one currently getting the most attention is the debt limit. We wrote about debt limit challenges in the House last month, but the divisions the Speaker’s election exposed have made solving that problem more difficult. Even so, we think the prospects for a 2023 federal default remain small.
In McCarthy’s first press conference as Speaker, he tried to balance Republican demands for future spending controls and reassure markets that he would not push the country into an economically damaging default. He pointed to past bipartisan agreements that included two-year discretionary spending caps and increased the debt limit and referenced a recent discussion he had with the President regarding the debt limit.
Not one member of the United States Congress wants to default, but under no circumstances should we bless a so-called clean increase in the debt ceiling without meaningful spending reform.
Rep Roy (R-TX),
However, a statement by Rep. Roy (R-TX), a key figure among House conservatives who initially opposed McCarthy for Speaker before supporting him after he made some House Rule and other concessions, demonstrate the difficulty of getting the debt limit done.
Treasury Secretary Yellen chose Friday January 13 to write Congressional leaders informing them that Treasury expects the debt limit to be reached on January 19 and that she would need to begin deploying extraordinary measures that allow Treasury to continue to finance federal programs while abiding by the current $31.4 trillion statutory limit on the debt.
It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit. Failure to meet the government’s obligations
would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability.
Treasury Secretary Yellen,
The date when extraordinary measures are exhausted and the Federal government confronts a possible default is frequently referred to as the “X date.” Yellen’s letter estimated these extraordinary measures would allow the government to meet its obligations without exceeding the debt limit until early June. Other estimates have placed the X date sometime during the third quarter of this year (July-September 2023). Senate Majority Leader Schumer (D-NY) and House Democratic Leader Jeffries (D-NY) followed Yellen’s letter with a joint statement calling on Congress to quickly move legislation to increase the debt limit and avoid a “disastrous default.”
A default forced by extreme MAGA Republicans could plunge the country into a deep recession and lead to even higher costs for America’s working families on everything from mortgages and car loans to credit card interest rates.
Joint Statement by Senate Majority Leader Schumer (D-NY) and House Democratic Leader Jeffries (D-NY),
Failure to raise the debt limit and allowing Treasury to exhaust its extraordinary measures would not trigger an immediate out- right default on U.S. debt obligations. Instead, we would expect Treasury and the Federal Reserve to prioritize interest payments on outstanding U.S. debt and still meet the statutory debt ceiling. That approach would help mitigate a financial crisis and the potential economic fallout, but it would it would also shift and compound the political problem by deferring payments for important and politically popular federal programs such as payments to federal contractors, Medicare and Medicaid health care providers, and Social Security beneficiaries. Each day the Congress failed to raise or suspend the debt ceiling, Treasury would limit payments to ensure funds disbursed that day did not exceed cash on hand. We also would expect prioritizing payments to trigger litigation and questions about the credit-worthiness of the federal government.
The threat of payment delays can rattle markets and increase costs to the federal government. In 2011, the Government Accountability Office (GAO) found that delays in increasing the debt limit increased borrowing costs by $1.3 billion.
Other 2023 action-forcing events complicate the legislative path forward. They also create legislative vehicles Congress can use to either increase the debt ceiling or be part of a larger agreement that allows Congress to increase the debt ceiling. The most significant will be federal appropriations. If Congress does not enact all 12 appropriations bills by October 1, 2023, it will either need to pass a short-term continuing resolution or face a partial government shutdown. This last-minute drama has become the appropriations routine for Congress, regardless of its composition. However, the two currently do not align. Congress will likely have to confront the debt ceiling (June or July) before it has to confront funding for the government (September).
10% The risk that Treasury exhausts its extraordinary measures and has to defer payments of other obligations for a short period of time before Congress approves a debt ceiling increase.
There are a number of other issues, other known knowns, that are briefly summarized in Chart I below. And, there are the known unknowns and the unknown unknowns that Congress may have to also confront this year.