House Republicans have repeatedly rejected raising the debt limit unless President Joe Biden agrees to a series of spending cuts. (Photo illustration via Canva)
WASHINGTON — Experts told the U.S. House Budget Committee on Wednesday the country’s economic outlook is problematic, as a fierce debate over the nation’s budget remains front and center.
House Republicans, led by Speaker Kevin McCarthy of California, have repeatedly rejected raising the debt limit unless President Joe Biden agrees to a series of spending cuts. Biden is adamant that the two issues of raising the debt limit and setting future spending levels should move forward on separate tracks.
He’s also repeatedly called on House Republicans to release their budget resolution, a tax and spending blueprint that would show how the party proposes balancing the budget during the next decade.
The House GOP has yet to do that or set a timeline for when it will.
During Wednesday’s hearing in the House Budget Committee, Pennsylvania Democratic Rep. Brendan Boyle, ranking member on the panel, acknowledged that Congress needs to restructure federal taxes and government funding moving forward.
“We agree — our nation does face long-term fiscal challenges. Our population, like most in the Western world, is aging. So health care, Social Security, and Medicare costs are rising,” Boyle said, before adding that increasing inequality and disruptions caused by climate change are all part of the picture.
“And yes, deficits and debt are projected, especially in the next decade, to reach levels that simply none of us would be comfortable with,” he said. “So we’re seeing a similar picture and we do have very different ideas to where solutions lie.”
The men who testified before the panel had drastically different approaches for how much the federal government should tax its citizens and how much it should spend.
Scott Hodge, president emeritus and senior policy adviser at the Tax Foundation, urged U.S. lawmakers to eliminate “failing businesses enterprises,” such as the Tennessee Valley Authority, Amtrak, the Corporation for Public Broadcasting and the U.S. Postal Service.
“These and many more federal assets should be sold off and the proceeds used to pay down the national debt,” said Hodge, who was one of the Republican Party’s witnesses.
Hodge called on Congress to “make hard choices,” saying that if a “a company or industry cannot survive without taxpayer assistance, it should not be allowed to survive.”
Lawmakers must, Hodge said, make structural changes to entitlement programs, like Social Security and Medicare.
“These programs are bankrupt now and are getting worse,” Hodge said. “No member of this body is in a position to criticize the management of Silicon Valley Bank for failing to foresee the crisis in their balance sheet when the financial crisis in Social Security and Medicare have been known and getting worse for years.”
Mark Zandi, chief economist at Moody’s Analytics, agreed the country faces “significant long-term fiscal challenges” though he called for Congress to address it through “both tax increases and government spending restraint.”
Zandi also urged Congress to address the nation’s debt limit quickly and without fanfare, saying the impact of a default on the federal government and the economy would be problematic. The nation hit the debt limit in January and began a process known as extraordinary measures, in which the U.S. Treasury Department uses accounting measures to avoid defaulting on the debt.
“It would be a significant hit to the wealth of all Americans and then ultimately we’d start losing jobs, unemployment would start to rise, we’d be in a very, very severe recession,” Zandi said. “So all of us would be hit hard by that kind of scenario, depending on how long it unfolds.”
If Congress doesn’t act in time to raise or suspend the debt limit, Zandi said, the Treasury Department would likely pay bondholders, which it can do through another payment system.
Treasury officials would likely then wait to pay everyone else who receives federal funding — Social Security recipients, people receiving food assistance, members of the military — until the federal government has enough cash on hand to pay everyone.
“So everyone is going to get their money late. And over time, it’s going to get later and later and later,” Zandi said. “So the first payment might be a day late, the next go around it might be a week late, the next payment after that would be months late.”
The economic impact of that over time, he said, would be enormous.
A debt limit default would also significantly impact the financial markets through falling stock prices, rising interest rates and a drop in the value of the dollar, which would lead to more inflationary pressure, he said.
If the country does enter a debt default for the first time in history, Zandi said, it would be hard to imagine that Congress would keep the nation in default for long, “because it’d become very obvious to everybody that that was going to hurt everybody and makes no sense whatsoever.”
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