Former Trump aide builds House GOP’s debt ceiling playbook
Those gains risk losing the GOP debate as House Republicans make it increasingly clear they will refuse to raise the debt ceiling unless President Biden agrees to the massive spending cuts he has so far rejected. On Wednesday, the House voted largely along party lines for a plan by Speaker Kevin McCarthy (R-Calif.) that would advance this approach. Conservatives within the GOP, emboldened by the advice of a competing faction of right-wing policy analysts and economists, have urged GOP leaders to be aggressive. Led by former Trump budget director Russ Vodt, the advisers said that passive spending on the nation’s $31 trillion debt outweighs the need to ensure America pays all its bills.
The sharp — and increasingly personal — divide within conservative policymaking circles reflects a broader battle within the Republican Party over spending and deficits and could determine how the current fiscal standoff ends. The next few months before Congress could determine what the nation could borrow or risk what most economists say could lead to a financial crisis and recession. But a growing number of Republicans believe Vote’s argument: The risks have been vastly overstated and could be ignored to protect trillions of dollars in spending cuts.
“Do you want to write a story about how we run off the cliff because no one cares what we think?” asked Riedl, 47, now a senior fellow at the Manhattan Institute, a libertarian think tank. “I end up doing a ton of meetings; I speak to many members and staff. And then they end up going in the exact opposite direction of what I suggested.
For now, at least, many lawmakers are at least heeding the doomsday warnings. Riedl said he had spoken to dozens of lawmakers over the previous several weeks about the federal budget and the national debt. Combined, analysts have held hundreds of meetings, phone calls and Zooms with GOP House and Senate members and their aides over the past several months, rejecting suggestions from the right that the debt ceiling could be exceeded without fiscal disaster.
The White House is relying heavily on these kinds of Republicans to argue against McCarthy’s plan, according to two people familiar with administration strategy who spoke on condition of anonymity to describe internal conversations.
“They should never have waged this war; It’s a terrible fight,” said the GOP’s Holtz-Eakin, who also blamed the White House for refusing to negotiate with McCarthy. “You have to raise the credit limit, so at the end you have no foreign exchange. It’s bad for the country to cheat like this.”
The coming weeks will test moderate conservative analysts’ ability to push their party to a resolution. For now, they largely support McCarthy’s legislation, which raises the debt ceiling in exchange for spending cuts. Economists support the bill’s approach to reducing the deficit by cutting trillions of dollars in spending, including initiatives like student loan forgiveness. Riedl said he supports moving it forward for now — as long as lawmakers are willing to raise the debt ceiling without spending cuts.
“I think it’s healthy to pass deficit reduction bills with the debt ceiling as long as lawmakers understand that eventually the debt ceiling will have to be raised whether the restrictions are passed or not,” Rietl said.
Left-wing critics say negotiating the debt ceiling is inherently irresponsible.
“Any law that attaches conditions to passing the debt ceiling will not raise it. Now is not the time to work on these other policies,” said Claudia Sam, a liberal economist who has worked at the Federal Reserve Bank. The path should not get bogged down in discussions about other issues.”
However, Democrats are more likely to lean on these analysts as the debt ceiling deadline approaches and House Republicans are divided over tactics.
Biden has vowed to veto the House-passed bill, and the parties are sharply divided on steps forward. Vote, a former Trump budget chief who now leads the Center for Renewing America, a pro-Trump think tank, has urged Republicans to take a maximum stand in the negotiations.
“The cuts have to be enacted or Joe Biden won’t get a dime on his credit limit,” Vote recently told former Trump adviser Stephen K. Bannon said on his podcast.
Similarly, former Trump economist Kevin Hassett said the federal debt poses such a severe crisis for the country that it’s worth the risk to repay the debt. The Trump administration added more than $5 trillion to the national debt — much of it during Hassett’s tenure as chief White House economist.
What’s in the House GOP bill to raise the debt ceiling and cut spending?
“The reality is that if we don’t change the course of our fiscal policy soon, we will inevitably face a Weimar Germany-style collapse of our currency,” said Hassett, a fellow at the Hoover Institution. A version for national review. “Traditionally, politicians have worried about the reputational risk inherent in America’s failure to pay interest and default on its debt. But if we’re already borrowing Weimar Germany and planning to doom it, as the numbers clearly indicate, what’s the additional harm from that risk?
Unlike Hassett and Vought, conservative analysts warning against this kind of strategy haven’t worked for Trump and have found themselves increasingly marginalized in GOP politics.
Rietl left the Heritage Foundation, one of the most influential think tanks on the right, when as a young analyst he faced internal backlash for criticizing Bush’s spending record.
Strain, who worked as an assistant economist at the U.S. Census Bureau and the Federal Reserve Bank of New York, has been a vocal critic of Trump’s trade war with China and immigration restrictions (including in columns in The Washington Post).
Holtz-Eakin served as a top economic adviser to Sen. John McCain (R-Ariz.).
The vote helped prevent Republicans from proposing cuts to Medicare and Social Security, a position Trump has taken, and traditional conservative analysts argue that spending on those big and popular programs should limit the federal debt. Vote instead embraced Trump’s approach of protecting those programs — while pushing for massive cuts that would destroy the safety net for low-income Americans.
In February, during a spat on Twitter, Vote accused Riedel of pointing to the Ukrainian flag on her Twitter profile and “evoking and embracing the cultural hegemony of the left.” Rietl responded, “I hope you have better luck persuading Joe Biden and Charles E. Schumer than you have persuading your own boss in the White House.”
Reed sees danger in Vodt’s approach.
“Russ vote types — some of them, I think, have a certain appeal to being loud and clean and aggressive. It gets you a lot of attention; you don’t have to engage in messy compromises; it raises a lot of money from donors, and you can work harder without taking on too much responsibility for the disaster that may follow, “Reidle said. “I understand where they’re coming from, from a personal and psychological point of view, to demand some purity tests for everybody and say they’re going to surrender on the other side — yes, that should be an easy thing to do. But I’m trying to be a little more responsible.
Vote responded in a statement: “I am not at all surprised that those who have failed to cut spending for the past 20 years are upset by a different strategy.”
A key divide between these factions is the idea of ”debt priority,” which allows the Treasury Department to continue making interest payments on debt even if the debt ceiling is not raised. Some conservatives say the government could use incoming tax revenue to pay bondholders interest, avoid a U.S. default, and then freeze spending on other federal programs, such as would happen during a government strike. Vote recently said on Fox Business: “Joe Biden, you have the ability to pay principal and interest — we’re not going to execute the American dream; we’re not going to infringe on freedom.
Riedl, Strain, and Holtz-Eakin all argued that the idea was impractical and dangerous, and Treasury officials said they could not guarantee all interest payments if the debt ceiling were breached. Rietl studied the idea as a staffer for Portman during previous debt ceiling impasses and decided it was unworkable.
“Even if we haven’t technically defaulted on our bondholders, if we can’t raise the debt ceiling in a timely manner, it means our politics are so dysfunctional that we can’t honor our spending obligations as a country,” Strain said. “It would be a damning indictment of where we are as a nation, where we are as a government — and it would be a big, big problem not just for the American economy, but for us as a nation.”
But Stephen Moore, a conservative economic policy adviser to senior Republicans, said most Republican lawmakers disagreed.
“I think most Republicans now realize that saying, ‘We’re going to default on our debt,’ is a false fear,” Moore said. “Michael Strain is not a conservative Republican, to put it that way. He’s wrong on a lot of things — I don’t think he has a big following within the GOP.