GOP leaders brace for 2023 debt limit ‘nightmare’

GOP leaders, congressional aides and business groups are bracing for a potential “nightmare scenario” next year if House Republicans regain a majority: a debt ceiling showdown reminiscent of the near- 2011 crisis.

Why is it important: There are serious question marks — and underlying anxiety — about what kind of leader Rep. Kevin McCarthy (R-California) will be if elected Speaker of the House. How he handles a showdown over the debt limit will be a crucial test of his leadership abilities that key stakeholders are already privately planning for.

  • “Speaker [John] Boehner and a hypothetical President McCarthy are different animals,” a former House Republican who served during the 2011 crisis told Axios. [of raising the debt limit] and was ready to wring his arms. I just don’t know about a President McCarthy.”
  • Current estimates put the deadline for dealing with the fiscal cliff in the fall of 2023.

Driving the news: The topic has already come up in several private conversations with Senate Minority Leader Mitch McConnell (R-Ky.) — who will play a key role as facilitator in debt limit negotiations next year, have several people familiar with the closed-door discussions told Axios.

  • Remember, McConnell was the one who cut a deal with then-Vice President Biden in 2011 to avoid a default.
  • “I expect this to be one of the first conversations McConnell has with McCarthy,” a Senate GOP aide told Axios.
  • When asked if this would indeed be among the first agendas he would raise with a President McCarthy, McConnell smiled.

What to watch: Business leaders and Republican strategists say a key indicator of McCarthy’s approach will be who he and the GOP steering committee return to chair the powerful House Ways and Means Committee, given that the Debt limit talks are within the purview of the panel.

  • Currently, the two leading candidates to head the committee are Rep. Jason Smith (R-Mo.), a House Banking Committee Republican, and Rep. Vern Buchanan (R-Fla.), who is considered the republican. next in line.
  • Smith is more of a political firebrand and close friend of McCarthy, while Buchanan is seen as a more traditional Republican. The business community is more wary of how Smith would handle a debt limit fight, multiple sources told Axios.

Smith told Axios in a phone interview he thinks Republicans should leverage the debt limit negotiations to ‘reverse’ the administration’s ‘radical’ policies – including sending a bill eviscerating the Democratic agenda to President Biden’s desk and defiant to reject it.

  • “If the Republicans were trying to cut spending, he surely wouldn’t be trying to default. If we were trying to bring inflation down … trying to secure our border, he surely wouldn’t be defaulting,” Smith said.
  • Rohit Kumar, McConnell’s former deputy chief of staff during the 2011 debt containment fight and now co-head of PwC’s national tax services, countered: “To think you can credibly threaten full faith and the federal government’s credit in exchange for some guarantee demand is just wish a casting.”

Between the lines: The debt limit turning into “political football” has become a “divided government model,” especially with a Democratic president, Neil Bradley, director of US Congressional House Policy, told Axios.

  • Both Bradley and Kumar say that as we approach the halfway point, the threat of a stalemate comes up more and more in conversations on and off the Hill.
  • Raising the debt ceiling is “this weird, toxic mix of being really politically unpopular, but really economically necessary,” Kumar said, calling a 2011-style battle a “nightmare scenario.”
  • “That’s what always, consistently causes me so much angst about this issue. The sheer necessity of it juxtaposed with the zero political benefit to do it.”

Zoom out: Business leaders, lobbyists, congressional aides and GOP Axios strategists have said with concern that the current political climate is worse now than it was in 2011, when former President Obama was in office. .

  • Bradley and Kumar, in separate interviews, raised the question of how Republicans in both houses have repeatedly voted against raising the debt ceiling and will have to reverse their votes in 2023.
  • “If the Republicans win a majority, the number of seats they have will be really important for that,” said former Obama deputy press secretary Eric Schultz, who criticized Republicans for electing “members more irresponsible in their caucus”.
  • Many Senate Republicans whom McConnell had convinced to vote in favor of his debt limit escape hatch in 2021 are retiring.

The bottom line: “There’s always this argument and this debate about whether the debt limit is leverage. The reality is that it’s a hostage that you can’t take away,” Bradley told Axios.

  • “The escrow is like touching a hot stove and taking your hand away. … A government shutdown is like putting your hand on the hot stove and holding it there until the government reopens. The default debt payment is a thermonuclear act that destroys all of Western civilization.”