By Ben Ritz
After months of dithering, Washington is finally beginning to grapple with the need to raise or suspend the federal debt limit. The White House has said for months it would not entertain negotiations until House Republicans laid out a coherent negotiating position. Speaker Kevin McCarthy sought to do just that on Monday with a speech at the New York Stock Exchange outlining his party’s vision and urging Wall Street titans to back him up. But it’s becoming apparent that his plan is half-baked and a backup is needed.
McCarthy proposes to make steep reductions in some categories of spending in conjunction with a $1.5 trillion debt-limit increase that should last through March 2024. Although some reductions in spending make sense at a time when loose fiscal policy has contributed to record-high inflation and our nation’s debt remains on an unstainable trajectory, many of the specific cuts McCarthy proposes would be deeply harmful to economic growth. Moreover, the House GOP’s decision to use the threat of defaulting on our nation’s debts if they don’t get their way threatens global financial stability at a precarious point for our economy.
The most aggressive of McCarthy’s proposed policies is a spending cap that would reduce discretionary programs by more than $3 trillion over the next decade. Depending on how these cuts are structured to comply with the GOP’s previous commitments not to reduce spending on Republican priorities, including national defense and veterans benefits, they could result in a real reduction of nearly 60% for most domestic discretionary spending. A majority of that spending is for critical public investments in infrastructure, education, and scientific research, meaning McCarthy’s cuts would likely reduce long-term economic growth. Among other misguided cuts, McCarthy also proposes to “save” money by reversing a recent funding boost to the IRS — but this move will actually increase deficits by making it easier for wealthy Americans to cheat on their taxes.
