McCarthy’s Big Test: Can He Get to 218?

Plus: Wall Street grows nervous about possible default ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ [The Fisc](   By Yuval Rosenberg and Michael Rainey Happy Friday! Next week will be a momentous one, as President Biden is expected to officially announce that he’s running for a second term and House Republicans are expected to try to pass their bill to raise the debt limit and cut spending. Here’s what you need to know about the GOP effort. McCarthy faces his biggest test since winning the gavel (Reuters) McCarthy Scrambles to Win Over Republicans Wavering on Debt Bill Next week, Kevin McCarthy will face his biggest test since winning the speaker’s gavel. McCarthy and House Republicans want to vote soon on the 320-page debt ceiling package they released this week. It’s not clear yet whether McCarthy can convince 218 Republicans to back his plan, though the speaker and his leadership team are expressing confidence that they’ll have the votes they need. Republicans hold a 222-213 majority, meaning McCarthy can only lose the support of four of his members. “Republican lawmakers, some who have never before voted to raise the nation’s debt limit, now are seriously considering doing just that,” Lisa Mascaro of the Associated Press [reports](. “They say McCarthy has built up goodwill by listening to — and accepting — many of their proposals. Rather than fight amongst themselves, they want to force Biden to the negotiating table.” As of Friday, McCarthy reportedly has not yet secured 218 votes. “McCarthy is coming up short in support for his first big legislative effort,” Bloomberg’s Billy House and Erik Wasson [reported]( at midday, adding that several Republicans — both conservative and moderate — remain noncommittal. His leadership team is working to win over wavering members, and some conservatives reportedly are pressing to further tighten Medicaid work requirements. The legislation as drafted would make those requirements apply to beneficiaries up to age 56, higher than the current 49. Conservatives reportedly want to increase the number of hours that able-bodied adults must work or perform community service to qualify for the program to 30, up from 20. Moderates are resistant to such changes, and one Republican lawmaker told [Semafor]( that raising the work requirement would start “taking numbers off the board” for McCarthy and his team. “This is a sensible proposal and we want to keep folks in lockstep. I would say don’t f--- it up!” a House GOP aide told Semafor. McCarthy told reporters Thursday that his plan was in good shape. “I want you to see as the clock goes up, I want you to write stories like, I’m teetering, whether I can win or not, and the whole world hangs in the balance,” he said. “And then I want you to write a story after it passes, Would the president sit down and negotiate?” Pressuring Biden is the House GOP’s goal here. “We have to got to make our case that the president is being totally unreasonable to not show up at the negotiating table,” said Budget Committee Chairman Jodey Arrington (R-TX). “We have to have a united front and demonstrate we have 218 and we have a set of terms we are willing to negotiate.” The bottom line: Whether McCarthy can secure 218 votes will determine how the debt-limit drama plays out. If he can’t corral his own party and has to pull the bill, it would be an embarrassing defeat. “McCarthy could be left watching the Democrats hash out a deal with Senate Republican Leader Mitch McConnell,” Bloomberg’s House and Wasson suggest. Even if McCarthy can get his bill passed, the next steps would be uncertain given that the package has no chance of clearing the Senate and the White House has insisted on a “clean” bill. “In some ways,” Mascaro writes, “this is the easy part, with the real lift still to come.” Chart of the Day: Different Votes for Different Folks Congress has raised the federal debt limit 52 times since 1978, and partisan considerations played an important role in lawmakers’ votes — much more so for Republicans. This chart, [highlighted]( by former Obama administration “car czar” Steven Rattner, shows how Democrats and Republicans have voted on debt ceiling increases since 2000, depending on the party of the president in office at the time. According to the data, about 65% of House Republicans voted to raise the debt limit when a Republican was in the White House. But that share dropped sharply to about 25% when a Democrat was in office. The numbers for Senate Republicans are even more dramatic, with the percentage dropping from 74% to just 20%, depending on the party holding the presidency. Democratic lawmakers changed their voting behavior as well, but not as sharply, and with the majority voting to raise the debt ceiling overall. Wall Street Getting Nervous About Possible Default While Wall Street has been fairly blasé about the potential for a market-shaking default by the U.S. in the coming months if lawmakers are unable to raise the debt ceiling in time, there are signs that concerns are growing. Bloomberg’s Alex Harris says Friday the yield premium for securities that are exposed to the risk of a U.S. default has been rising, while the premium on those with no exposure has been falling. “Investors right now are demanding higher yields on securities that are due to be repaid shortly after the US runs out of borrowing capacity,” Harris [writes](. “That’s because the government won’t be able to sell fresh securities and get cash to repay holders.” Harris notes that demand for three-month Treasury bills — which mature in July, when some analysts think a default is possible — has been lackluster, pushing the yield up to the highest level since 2001. Shorter-duration notes have seen much higher demand, pushing yields lower. Perhaps the most obvious sign of concern is the cost of insuring Treasury debt, which has risen sharply, hitting the highest level on record. The chart below, also from [Steven Rattner]( shows the cost of credit default swaps on Treasury debt that investors use to hedge the risk of nonpayment. --------------------------------------------------------------- Send your feedback to yrosenberg@thefiscaltimes.com. And please encourage your friends to [sign up here]( for their own copy of this newsletter. --------------------------------------------------------------- News - [Leaving Drama Behind, GOP Warms to McCarthy in Debt Fight]( – Associated Press - [McCarthy Is Coming Up Short in Support for House Debt-Limit Bill]( – Bloomberg - [‘Don’t F*** It Up!’: Republicans Worry as Hardliners Push for More Debt Ceiling Concessions]( – Semafor - [McCarthy Builds a Kitchen Cabinet Ahead of Debt Showdown — Without His No. 2, Scalise]( – Politico - [Biden Establishes Office of Environmental Justice, Blasts GOP Attempts to Roll Back IRA]( – The Hill - [Biden Wants to Send More Climate Cash Abroad. Republicans Want a Say]( – Politico - [Senate Legislation Would Cap Insulin at $35 per Month for People With Private Insurance]( – CNBC - [Feds Request More Than Half a Billion Dollars for Coastal Restoration in 30 States]( – The Hill - [Medicaid Is Paying for Housing, Food in More States]( – Washington Post - [These US States Saw Their Jobless Rates Fall to Record Low in March]( – Bloomberg - [Treasury Lets Automakers Do the Math for EV Credit Eligibility]( – Bloomberg - [Experts Slam Plan to Sell Overdose Antidote Narcan at About $50 a Kit]( – Washington Post Views and Analysis - [The Debt Ceiling Debate Is About More Than Debt]( – Jim Tankersley, New York Times - [Heat Rises on Biden as Democratic Squeamishness Over Debt Showdown Emerges]( – Stephen Collinson, CNN - [If Kevin McCarthy’s Tightrope Act Works, Democrats Would Face an Agonizing Choice]( – Patrick T. Brown, CNN - [Enraged by GOP Debt Limit Extortion? Blame Maga’s Moderate Enablers]( – Paul Waldman and Greg Sargent, Washington Post - [The GOP Takes Another Misguided Stab at Defunding the Tax Police]( – Catherine Rampell, Washington Post - [Fixing The IRS Will Require Much More Than Hiring Additional Staff]( – Howard Gleckman, Tax Policy Center - [McCarthy Medicaid Proposal Puts Millions of People in Expansion States at Risk of Losing Health Coverage]( – Gideon Lukens, Center on Budget and Policy Priorities - [Taking Medicaid Away for Not Meeting a Work-Reporting Requirement Would Keep People From Health Care]( – Laura Harker, Center on Budget and Policy Priorities - [The Bizarre True Story of the Last Time America Raised Its Retirement Age]( – Dylan Matthews, Vox - [Why Republicans Want to Keep Free Money Out of Their Districts]( – Kate Aronoff, New Republic - [We Will Hold the Country Hostage Until Our Demands Are Met — Once We Know Them]( – Alexandra Petri, Washington Post - [Medicare Advantage Is Not an Advantage for Many Seniors With Cancer]( – Dr. Harlan Levine, The Hill Copyright © 2023 The Fiscal Times, All rights reserved. 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