A House-passed GOP proposal to cut federal spending in exchange for lifting the nation’s borrowing limit would “meaningfully increase” the likelihood of a recession, an economist testified before a key Senate budget panel on Thursday.
Moody Analytics chief economist Mark Zandi, who has been described by Republicans as “Democrats’ favorite economist,” told the Senate Budget Committee that he projects economic growth will be at about 2.23% in 2024 if Congress passes a debt ceiling increase without spending cuts, versus 1.61% if the Republican plan became law. He contended this would lead to nearly 800,000 fewer jobs.
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Zandi also warned senators that the date the government could run out of cash to pay its bills if Congress does not raise its self-imposed $31.4 trillion debt ceiling could be by June 8, but also admitted that June 1, the date Treasury Secretary Janet Yellen predicted earlier this week could be possible, calling it a “worst-case scenario.” The U.S. has been using “extraordinary measures” to pay the bills after hitting the borrowing limit back in January.
“By my calculation, the x-date, the day in which the Treasury will run out of cash to pay all the government’s bills on time, will be June 8,” Zandi told the panel. “There is a possibility, worst-case scenario, that it will be June 1; it will be very close. Best case scenario will be August 8.”
“We need to end this drama as quickly as possible,” Zandi added. “If we don’t, we’re going to go into recession, and our fiscal challenges will be made even worse.”
During the hearing, another expert from a conservative think tank, senior fellow Brian Riedl of the Manhattan Institute, noted that a recent survey found around 70% of United States voters, including 58% of Democrats, agree with the statement that “President Biden should agree to negotiations and try to find common ground around the debt ceiling, including some reductions in government spending.”
“All that said, I agree the debt limit must be raised on time, no matter what,” Riedl said. “Hitting the debt limit would force an immediate 20% cut in federal spending and possibly default on the national debt. The effect on families, businesses, financial markets, and the broader economy would be devastating.”
The hearing came as the debt ceiling impasses continues. It appears everyone agrees the nation’s borrowing limit needs to be raised, but lawmakers seemed no closer to accomplishing that feat during the Budget hearing, which examined a Republican plan that passed in the House last week to cut federal spending in exchange for lifting the federal government’s debt ceiling. The bill narrowly passed by House Republicans last week with a 217-215 vote, with just four Republicans voting against the measure.
The U.S. could run out of money to pay its bills as early as June 1 if Congress does not raise its self-imposed $31.4 trillion debt ceiling, earlier than her previous prediction. The U.S. has been using “extraordinary measures” to pay the bills after hitting the borrowing limit back in January.
Throughout the duration of the hearing, Senate Democrats attempted to pick the House’s legislation apart while also criticizing Republicans for not advancing it through the committee process before passing it. Democrats continue to argue that the GOP legislation will undercut government programs, education, and childcare.
Republicans in both chambers continue to assert they won’t pass a debt ceiling increase unless they have an agreement with the White House on budget cuts, arguing that reduced spending is needed to curb inflation.
Sen. Sheldon Whitehouse (D-RI), the chairman of the committee, noted that $7 trillion in debt was added under President Donald Trump and $3 trillion under President George W. Bush.
“When there’s a Democrat in the Oval Office, they seek to interfere with the ability of government to function, whether it’s shutdowns or near-defaults, or blocking economic recovery legislation,” Whitehouse said in his opening remarks. “They seek to cause chaos.”
Republicans, drawing a clear contrast, praised House Speaker Kevin McCarthy for making the first step and passing a bill through the House. The legislation pairs nearly $4.8 trillion in deficit reduction measures with a debt limit increase into the next year. The bill would freeze spending at last year’s levels for a decade and would also roll back parts of President Joe Biden’s expansive health, climate, and tax law, expand mining and fossil fuel production, and impose work requirements on social programs.
“House Republicans have acted responsibly by passing a debt limit increase while also beginning to tackle our country’s unsustainable debt and deficits,” said Sen. Chuck Grassley (R-IA), the ranking member of the panel. “Now, in contrast, President Biden and Senate Democrats have stood idly by, watching the clock tick down to default by not thoughtful engaging.”
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McCarthy accepted Biden’s invitation to meet with him and other top congressional leaders at the White House on May 9 earlier this week, ending a months-long impasse between the two leaders over the looming deadline.
Thursday’s hearing came after Senate Majority Leader Chuck Schumer (D-NY) said his chamber would begin to hold hearings to shine a light on the impact of the House GOP’s debt limit bill.
