April 25, 2023 - 1:15pm
This week, Republicans in the House of Representatives are set to vote on whether to raise the American Government’s debt limit, which is currently capped at $31.4 trillion. The so-called “debt ceiling debate” is now a noted fixture in the DC calendar, occurring any time the Republicans control the House and the Democrats control the White House. But there are good reasons to think that this time is different.
Historically, Republicans have typically sought to pressure Democrat administrations to cut so-called “entitlements”. For example, when talks around the debt ceiling took place in the Obama administration, Republicans pressured the then-president to cut social security. But this time around, “entitlement” cuts are off the table. Why? Because they are not popular with the electorate, something the Republicans discovered when Donald Trump campaigned on protecting these programmes and then won the presidency.
Instead, Republicans are taking aim at a kind of spending that is far more partisan in its nature — and far less popular with voters. The GOP is singling out the subsidies to clean energy companies contained in the Biden administration’s Inflation Reduction Act (IRA). They are also focusing on the highly unpopular provision in the bill to massively increase funding of the IRS; most voters, unsurprisingly, do not want more IRS agents to investigate their taxes.
This new tactic seems likely to produce far better political results for the GOP. It will force a debate on how the Biden administration is allocating spending, rather than targeting programmes which benefit most Americans. This will be particularly important should the US economy head into a recession in the coming months. If there are layoffs and Americans are forced to tighten their belts, they will be far less enthusiastic about giveaways to clean energy companies — much less about hiring more tax collectors.
Notably, Republicans are not targeting the more vanilla aspects of the Biden administration’s IRA. There is no sign that they have any problems with the subsidies to the American semiconductor industry or other manufacturing subsidies. This signals a broad acceptance among GOP lawmakers of active industrial policy. It also shows the dangers of turning industrial policy into a partisan issue by spending most of the money on a highly divisive “green” agenda. For every $1 the IRA allocates to semiconductors and general manufacturing, green energy companies get nearly $6.
This iteration of the debt ceiling debate comes at a time when partisan tensions in America are at fever pitch. Since the Republicans seem to have found much firmer political ground on which to take a stand than their classic pitch of “entitlement” cuts, there is every reason to think this could be an uglier fight than we typically see. Markets seem to think so, with the price of CDS insurance against a US sovereign debt default rising higher than any time seen during the Obama administration.
Ultimately, the Republicans will not force a default. They never do. But looking at the way the chips are stacked, it looks like we are in for a drawn-out fight, and this will probably lead to Biden’s signature IRA being gutted. The only alternative is that the Democrats refuse to play ball and revert to using the force majeure of executive power to outmanoeuvre the Republicans, employing one of several legal tricks available. If they do this, however, they will be tearing up yet more long-standing — but increasingly flimsy — norms in American politics. An uncertain few weeks lie ahead.
Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics
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SubscribeRepublicans always pick battles they can’t win. They’ve learned absolutely 0 from their defeats in the 1990’s. They will be portrayed as the villains if there is a government shutdown and not without reason. They always supported raising the deficit ceiling when Trump was president, but now that it’s a Democrat, they’re back to being deficit hawks. You can’t go from hawk to dove to hawk depending on if the President is of your party.
If they want to eliminate IRS agents and green subsidies do it in the next budget. They can pass individual bills funding Social Security, defense, farm subsidies, etc. Then, if the Senate doesn’t pass them or Biden doesn’t sign them, it will be the Democrats’ fault unambiguously.
I’m not sure it would have been a good strategy to argue against raising the debt ceiling during a lock down of society during the pandemic.
I’m not sure it would have been a good strategy to argue against raising the debt ceiling during a lock down of society during the pandemic.
Republicans always pick battles they can’t win. They’ve learned absolutely 0 from their defeats in the 1990’s. They will be portrayed as the villains if there is a government shutdown and not without reason. They always supported raising the deficit ceiling when Trump was president, but now that it’s a Democrat, they’re back to being deficit hawks. You can’t go from hawk to dove to hawk depending on if the President is of your party.
If they want to eliminate IRS agents and green subsidies do it in the next budget. They can pass individual bills funding Social Security, defense, farm subsidies, etc. Then, if the Senate doesn’t pass them or Biden doesn’t sign them, it will be the Democrats’ fault unambiguously.
It’s difficult to argue for larger deficits when you are already effectively bankrupt. The Democrats seem to think the best way to avoid default is to continually go deeper into debt. Why have a debt ceiling in the first place? We’re talking about $31 trillion, or 125% of GDP.
Perhaps the public will become interested in this debate when the debt reaches 150% of GDP? Or perhaps 200% or even 500%? Or maybe when it reaches 100 trillion dollars? It’s beyond funny money already.
It’s difficult to argue for larger deficits when you are already effectively bankrupt. The Democrats seem to think the best way to avoid default is to continually go deeper into debt. Why have a debt ceiling in the first place? We’re talking about $31 trillion, or 125% of GDP.
Perhaps the public will become interested in this debate when the debt reaches 150% of GDP? Or perhaps 200% or even 500%? Or maybe when it reaches 100 trillion dollars? It’s beyond funny money already.
The debt ceiling debate sometimes fails to see that the US Government bond is the worlds prime investment asset of choice.
And when you keep borrowing at some point the piper will need to be paid and the US will default. Then the whole house of cards will collapse.
And when you keep borrowing at some point the piper will need to be paid and the US will default. Then the whole house of cards will collapse.
The debt ceiling debate sometimes fails to see that the US Government bond is the worlds prime investment asset of choice.
I hope the Repubs can win some concessions prior to conceding. The Dems’ budgets under Biden aren’t completely insane yet, but there’s still lots of crazy that deserves a fight.
“Entitlement” cuts are off the table. Why? Because they are not popular with the electorate” — for what it’s worth, as a 54-yo with 10s of thousands in SS payments to come, I am willing to let it go if a real reform effort came along.
I know, those pigs don’t fly!
I hope the Repubs can win some concessions prior to conceding. The Dems’ budgets under Biden aren’t completely insane yet, but there’s still lots of crazy that deserves a fight.
“Entitlement” cuts are off the table. Why? Because they are not popular with the electorate” — for what it’s worth, as a 54-yo with 10s of thousands in SS payments to come, I am willing to let it go if a real reform effort came along.
I know, those pigs don’t fly!