FINANCIAL NEWS
What spending cuts has McCarthy asked Biden to make in the debt ceiling fight and why?
Controlling the House of Representatives gives Republicans a large seat at the negotiating table with both parties set to dig in for the debt ceiling battle
House Speaker Kevin McCarthy has reiterated his calls for spending cuts from the Biden administration for the debt ceiling negotiations that look set to dominate political discussions on Capitol Hill for the next few months.
“We must commit to finding common ground on a responsible debt limit increase. Finding compromise is exactly how governing in America is supposed to work, and exactly what the American people voted for just three months ago,” McCarthy said.
“Defaulting on our debt is not an option, but neither is a future of higher taxes, higher interest rates and an economy that doesn’t work.”
Republican control of the lower house gives the party the power to flex its muscles again after two years out in the cold. In that time much of the platform President Biden ran on in 2020 has collapsed in the House or Senate due to Democrat infighting. The prospect of any legislation, especially progressive, being passed before the next presidential elections in 2024 is very slight.
The speaker is yet to elucidate which spending is to be cut, though there has been rumours that Social Security could be up for the chopping block.
McCarthy’s comments come on the eve of the State of the Union address that Biden will give on Tuesday.
What options do both parties have?
The US has never defaulted on its debt responsibilities, though it did come close during the Obama administration. The long negotiations before the crisis was averted still resulted in higher increases in the cost of government borrowing which would exacerbate put the US debt under more pressure in future.
Meanwhile, the Republicans can hold out as long as possible to gain as much as they can. They are the power-brokers and, though they won’t want a default, will drive as hard-a-bargain as possible. The Democrats have the most to lose as negotiations draw out.
An option for the Democrats would be to remove the debt ceiling all together. It is actually a self-imposed limit. Denmark is the only other country in the world with a debt limit measured by a finite amount rather than percentage of gross domestic product. However, do not expect this to happen.