Debt Limit Deal Clears a Major Hurdle

Plus: Is McCarthy blowing smoke on savings in the deal? ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ [The Fisc]()   By Yuval Rosenberg and Michael Rainey Happy Wednesday! The House is set to pass the debt limit deal tonight, setting the stage for some Senate drama. Here’s what we’re watching while waiting to bid farewell to "Ted Lasso." The final House vote on the debt limit bill is expected around 8:30 p.m. ET (Reuters) Debt Limit Deal Clears a Major Hurdle The bill that would suspend the debt ceiling and set new limits on federal spending cleared an important hurdle Wednesday afternoon, as the House voted 241-187 to pass a rule advancing the legislation. The full bill is expected to pass the House later tonight. Democrats played an important role in this afternoon’s vote, providing significant backing in a procedural matter that typically does not require bipartisan cooperation. Riven by internal conflicts, 29 Republicans voted against the bill, denying House Speaker Kevin McCarthy the 218 votes needed to advance the bill without Democratic support. In an unusual moment during the vote, a group of mostly moderate Democratic lawmakers waited in the well of the House, holding back until the last minute. Many saw that as sending a message to McCarthy to remind him that he needs Democratic support. In the end, 52 Democrats voted in favor of the rule. The bipartisan Problem Solvers Caucus endorsed the measure earlier Wednesday. "In divided government, you have to actually work together to find a solution that can make it across the finish line," Rep. Josh Gottheimer, Democratic co-chair of the group, said. Minority Leader Hakeem Jeffries told reporters that Democrats would do what it takes to support the bill. "House Democrats are going to make sure the country doesn’t default. Period. Full stop," Jeffries said, per [The Washington Post](. Republicans who backed the bill touted its accomplishments. "This is the largest cut in American history," McCarthy said, repeating a claim that fact checkers have found to be false. "It also brings you work requirements on welfare, something we’ve never been able to get through in our modern time." Rep. Garret Graves, a McCarthy lieutenant who led the Republican negotiating team, celebrated the GOP bill, saying that it resulted from a "major miscalculation" by the White House. "It is why they absolutely have tire tracks on this negotiation," Graves said. "It is why we absolutely ran over them in negotiations on about seven of their red lines." Some Republicans still fuming: Although it seems likely that the bill will pass with bipartisan support tonight, a substantial group of hard-right Republicans have declared their opposition. Rep. Chip Roy, the policy chair of the ultraconservative House Freedom Caucus, encouraged his fellow Republicans to vote no. Freedom Caucus member Lauren Boebert said the bill doesn’t go far enough in reducing spending. "This bill doesn’t get us to fiscal 2022 levels, and that in itself should be enough to vote against the rule," she said. The bottom line: The debt limit bill appears to be headed for passage in the House. But the clock is ticking ahead of the June 5 deadline set by Treasury Secretary Janet Yellen, leaving the Senate very little wiggle room as lawmakers rush to get the bill to Biden’s desk in time. What the Debt Limit Deal Would Really Mean for the Deficit The debt limit deal cut by President Joe Biden and House Speaker Kevin McCarthy would reduce the federal budget deficit by about $70 billion in fiscal year 2024 and by some $1.5 trillion from 2023 through 2023, according to [estimates]( released by the Congressional Budget Office Tuesday evening. Cuts to discretionary spending would amount to $1.3 trillion over the next 10 years, while mandatory spending would dip by $10 billion and revenues would decrease by $2 billion. Interest costs would fall by $188 billion, the nonpartisan budget scorekeeper said. Why conservatives are furious: The CBO analysis helps explain why so many conservatives are irate over the bipartisan deal, suggesting that the balance between additional borrowing and deficit reduction has been flipped from the Limit, Save, Grow Act passed by House Republicans last month. That bill would have raised the debt limit by $1.5 trillion and would have reduced deficits by $4.8 trillion over 10 years, according to the CBO. The compromise bill would raise the debt limit by some $4 trillion while cutting deficits by $1.5 trillion. Some deficit-raising provisions: Some parts of the deal would add to the deficit, CBO says. A $1.4 billion cut in funding for the Internal Revenue Service would wind up reducing government revenues by $2.3 billion, for a net increase of $900 million to the deficit. "The actual loss in tax revenue could be much larger," NPR’s Scott Horsley [notes](, "since the Biden administration is planning to ‘repurpose’ another $20 billion of the $80 billion that had been set aside for the IRS as part of the Inflation Reduction Act." That shift in funds was agreed to as part of the debt limit deal. In a surprise to Republicans, CBO also says that changes to the federal food stamps program would increase spending by $2.1 billion over 10 years rather than cut costs as GOP negotiators had intended. The agreement phases in work requirements for beneficiaries between the ages of 49 and 54, but it also creates new exemptions from work requirements for veterans, people who are homeless and 18-to-24-year-olds who were in foster care when they turned 18. CBO said that the new work requirements on their own would reduce spending on food stamps by $6.5 billion from 2023 through 2033. But the new exemptions would increase spending by $6.8 billion over that time. Factoring in the timing of all the changes in the deal raises the total additional spending to over $2 billion. On net, CBO projects that between 2025 and 2030, about 78,000 people would gain benefits, representing a 0.2% increase in the total number of people on food stamps. The changes to work requirements are then set to expire on October 1, 2030, with the age limit reverting from 54 to 49. McCarthy dismissed the CBO numbers on food aid. "Come see me in a year, and I’ll show you how much we actually saved," he told reporters. "You watch — a lot of people are going to get jobs now." Making sense of the numbers: Overall, the amount of deficit reduction that will result from the bill will depend on the actions of this and future Congresses. Donald Schneider, deputy head of U.S. policy at Piper Sandler and a former chief economist for House Ways and Means Committee Republicans, [said]( the CBO projections were a bit of a "choose your own adventure" story. The final tally will depend to a large extent on what happens after 2025. McCarthy has been touting the deal as providing $2.1 trillion in deficit reduction, calling it "transformative spending reform" in a [Wall Street Journal op-ed]( this week. But it’s highly questionable whether lawmakers will adhere to the spending caps particularly those proposed after 2025. The deal includes hard, enforceable spending caps for the next two years, and the savings from those caps total about $245 billion through 2023. Extrapolating out the lower spending under those caps reduces outlays over the next decade by about $1.1 trillion. Adding in the four additional years of non-enforceable spending caps included in the deal would cut outlays by another $550 billion. Looking at budget authority rather than outlays, the total savings could come to about $1.9 trillion. And adding in the CBO’s projected savings on debt service, the total climbs to $2.1 trillion, which is where McCarthy gets the number he’s been touting. In other words, McCarthy’s total relies on the highly questionable — let’s call it doubtful — assumption that six years of spending caps are kept in place, even though the deal does not include any enforcement mechanism beyond the first two years. "It’s important to note that only the first two years of discretionary caps are semi-binding. The remaining four years are a gentlemen’s agreement that can be easily waived. I say semi-binding because the caps agreement leaves loopholes large enough that Congress could drive a truck through them," Chris Edwards, a federal-budget expert at the conservative Cato Institute, told [The Washington Post](. The Post’s fact checker, Glenn Kessler, concludes: "Even without firm numbers in place, we can safely say that McCarthy is blowing smoke" when he calls this "the largest cut" Congress has ever voted on. Quotes of the Day "The speaker promised that we would operate at 2022 appropriations levels when he got the support to be speaker. He’s now changed that to 2023 levels plus 1%. That’s a major change for a lot of people. And so after this vote — and he will win the vote tonight — but after this vote we will have discussions about whether there should be a motion to vacate or not." – Republican Rep. Ken Buck of Colorado, a member of the House Freedom Caucus, telling CNN this afternoon that Speaker Kevin McCarthy may face calls for his ouster from GOP members upset about the spending levels in the speaker’s debt deal. Buck said McCarthy can’t call this an historic victory if he’s relying on large numbers of Democrats to vote for the deal. A vote to remove McCarthy can be triggered by any single House member, according to the unusual package of rules he agreed to earlier this year in order to win support from conservatives in his conference. For now, those grumblings have yet to coalesce into a genuine threat to McCarthy’s position. "A defense budget that served a coherent strategy, one that makes meaningful choices between regions, perceived enemies, and programs to combat them, would be less ambitious and cheap. The real problem with U.S. defense is that it underwrites an impossibly ambitious and counterproductive effort to dominate the world militarily." — Benjamin Friedman, policy director at Defense Priorities, a think tank backed by Sen. Rand Paul and associates of libertarian billionaire Charles Koch. Friedman was quoted in a [Bloomberg article]( Wednesday that highlights Republican complaints that the debt ceiling bill agreed to by President Joe Biden and House Speaker Kevin McCarthy fails to provide enough money for defense. "When I hear Republican leaders say this budget deal fully funds defense, I laugh," Sen. Lindsey Graham said Wednesday. The bill provides a 3.3% increase in defense funding, with a topline of $886 billion in fiscal year 2024. Chart of the Day: Quitting Time American workers started quitting their jobs at much higher rates than usual during the pandemic, which economists have seen as a sign of exceptional strength in the labor market. This chart from Skanda Amarnath, director of research at Employ America, a labor advocacy group that promotes full employment policies, suggests that conditions are returning to more typical levels. "The Quits Rate for all nonfarm employees is now back to the prepandemic rate," Amarnath [tweeted]( Wednesday. "Labor mkt has substantially cooled." Still, not all signs point to a return to normal. The number of available jobs jumped higher in April, to 10.1 million, following three months of declines, the Bureau of Labor Statistics reported Wednesday. "The report indicated that the labor market could be getting hot again," [wrote]( The Washington Post’s Lauren Kaori Gurley. --------------------------------------------------------------- Send your feedback to yrosenberg@thefiscaltimes.com. And please encourage your friends to [sign up here]( for their own copy of this newsletter. --------------------------------------------------------------- News - [Biden-McCarthy Debt Ceiling Bill Heads for House Passage After Clearing Key Test Vote]( – NBC News - [McCarthy Tries to Hold Off Last-Minute Rebellion Over Work Requirements in Debt Deal]( – Politico - [Debt Limit Deal Is in Place, but Budget Deficit Is Still a Multi-Decade Challenge for US Government]( – Associated Press - [Changes to Food Aid in Debt Bill Would Cost Money, Far From Savings GOP Envisioned]( – Associated Press - [House GOP Challenges CBO’s Analysis of Work Requirements in Debt Ceiling Bill]( – CNN - [Republicans Push for More Military Spending in Debt Deal as They Decry Deficit]( – Bloomberg - [Packing Figures and Charts, Roy Leads G.O.P. Revolt Against Debt Limit Deal]( – New York Times - [A Washington Surprise: Centrists Push Back Against Fringes in Debt Deal]( – Washington Post - [Treasury Cash Pile Hits New Low as Debt Wrangling Persists]( – Bloomberg - [Biden Suggests Using 14th Amendment to Stop Future Debt Ceiling Standoffs]( – Washington Post - [Debt Ceiling Deal: What’s in the Bill to Raise the Debt Limit?]( – Washington Post - [Here’s What’s In, What’s Out of the Debt Limit Bill to Avert US Default]( – Associated Press - [‘Terrible Public Policy’: Why the Debt Deal Infuriates Climate Activists]( – Washington Post - [Shalanda Young Emerges as Quietly Essential Figure in Debt Deal]( – Washington Post - [Court Grants Sackler Family Immunity in Exchange for $6 Billion Opioid Settlement]( – CNN Views and Analysis - [Debt Ceiling Deal: 5 Takeaways on the Economic Impact]( – Abha Bhattarai, Washington Post - [Can McCarthy Pass the Debt Deal and Keep His Job?]( – Catie Edmondson, New York Times - [McCarthy Hypes ‘Largest Cut’ to Sell Debt-Ceiling Deal]( – Glenn Kessler, Washington Post - [Politicians Keep Looking in the Wrong Place to Fix the Debt Problem]( – Washington Post Editorial Board - [We May Be About to Find Out How This Republican Party Really Works]( – Ezra Klein, New York Times - [McCarthy’s Secret Speaker Deal Takes a Bizarre Turn]( – Aaron Blake, Washington Post - [The Quirky Conservative Who Saved the Economy and McCarthy]( – Ben Jacobs, New York - [A Weak Debt-Ceiling Deal Is Better Than None]( – Bloomberg Opinion Editors - [The Debt Ceiling Compromise Is a Missed Opportunity to Raise Taxes on the Wealthy]( – Timothy Noah, New Republic - [An Unemployment System Frozen in Amber]( – Bryce Covert, American Prospect - [Biden, Student Debt, and the 2024 Election]( – Robert Kuttner, American Prospect - [How to 'Build a Better NIH']( – Dan Diamond, Washington Post Copyright © 2023 The Fiscal Times, All rights reserved. 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