(Bloomberg) -- Ultraconservatives in the House have dominated the public discussion on the US debt ceiling, but Speaker Kevin McCarthy can’t afford to ignore GOP centrists if the country is to avoid a catastrophic payments default later this year.
Republican moderates are looking for bipartisan solutions to the debt-ceiling dilemma that would avoid the massive cuts to federal spending — including popular Social Security and Medicare programs — that some GOP members have demanded.
Their ideas, which are more likely to gain traction with Senate Democrats and the White House than with conservatives, include indexing discretionary spending to inflation; tying the debt ceiling to the country’s GDP; and small, across-the-board cuts to outlays. Discretionary spending excludes entitlement programs.
Both parties are also working on long-term fixes to Social Security that could have significant implications in the debt-limit fight — if they can come to a resolution that can pass both chambers.
Senate Republican Leader Mitch McConnell has said it’s up to President Joe Biden and McCarthy to avert a debt default. Any Senate bill addressing the debt ceiling that could get the requisite 60 votes in that Democratic-led chamber would almost certainly not win passage in the House, where Republicans hold a slim majority.
Inflation Restraint
That leaves the House speaker, who made concessions to conservatives to be elected to the post, facing the challenge of corralling his factious party.
“It’s been made clear over the past week that House Republicans are going to have to be proactive and take the lead on debt-ceiling negotiations,” Majority Whip Tom Emmer of Minnesota said at a press conference Wednesday.
Representative Don Bacon, a moderate Republican from Nebraska, wants to tie increases in discretionary spending to inflation. Defense spending, in particular, typically climbs much faster than consumer prices — to the consternation of liberal Democrats and fiscal conservatives.
“It would be a compromise, I believe, that you can get many people on board,” Bacon told Bloomberg News in an interview. “Democrats and Republicans. Because you’re not making draconian cuts, but you’re reducing spending. It’s under inflation, so in the long run, you’re pointing the ship in the right direction.”
GDP Link
As for mandatory spending, Bacon wants both parties to address Social Security and Medicare via a joint committee, emphasizing that one party cannot solve the issue alone.
GOP Representative Brian Fitzpatrick said that he and Democratic Representative Josh Gottheimer are working on a proposal that would eliminate a fixed debt ceiling and instead calculate the limit based on a percentage of the country’s economic output.
The two men chair the bipartisan Problem Solvers Caucus, which is meeting Wednesday night to discuss the debt ceiling. Fitzpatrick didn’t offer any specifics, including the actual debt-to-GDP ratio that would set the ceiling, while Gottheimer declined to comment.
“We’re meeting and working,” Gottheimer said. “I’m optimistic that we’re going to have to get this done, however it gets done, because we have no choice.”
Senator Kevin Cramer, a North Dakota Republican, raised one concern with the idea: an economic downturn might reduce the limit beyond what existing appropriations can handle.
Total US debt as of July was around 120% of the country’s GDP, a number that has increased steadily over the past two decades and spiked at the onset of the pandemic, when economic growth slumped.
“We’ve been in a high inflation, high productivity sort of boom — and then all of a sudden, you hit a recession and you go backwards, which could happen,” Cramer said.
Representative Nancy Mace, a moderate Republican from South Carolina, said that a debt-ratio proposal would have to also overhaul government spending habits. “If that doesn’t include budget reform, then that’s going to be problematic,” she told reporters Wednesday.
Mace plans to reintroduce an idea of her own idea, the so-called Penny Plan. The proposal would shave off a small percentage of every future dollar the federal government spends without touching Social Security or Medicare and Medicaid.
It could take close to a decade to balance the budget, Mace said, double the timeframe she’d pitched last year.
“Nobody wants to cut Social Security,” Mace said. “So that’s off the table, but looking at ways to cut spending in other places – whether they’re discretionary, mandatory, there’s waste everywhere.”
Social Security
Bipartisan talks are just getting underway on strategies to tackle trust funds like Medicare and Social Security, which some estimates say could run short of funds to pay full benefits within five and 12 years, respectively. Cramer has floated raising the age for Social Security eligibility.
Senators Bill Cassidy and Angus King are working on a bipartisan compromise on Social Security that King insists isn’t related to the debt limit, while Senator Mitt Romney has a bill backed by West Virginia Democrat Joe Manchin to set up commissions to propose solutions for Social Security and other trust funds.
Romney’s proposal would establish 12-member “rescue committees” tasked with drafting legislation to extend the solvency of each trust fund. The legislation, he said, would not trigger cuts to benefits for current or future retirees.
“We want to make sure we don’t ever cut Social Security benefits,” Romney told reporters Tuesday, warning that insolvency in the trust fund would automatically cut benefits by 25%. “We need to make sure that we do not reach that point, and that’s what this bill does.”