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    Wall St. Is Counting on a Debt Limit Trick That Could Entail Trouble

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    If the debt limit is breached, investors expect Treasury to put bond payments first. It’d be politically and practically fraught.Washington’s debt limit drama has Wall Street betting that the United States will employ a fallback option to ensure it can make good on payments to its lenders even if Congress doesn’t raise the nation’s borrowing limit before America runs out of cash.But that untested idea has significant flaws and has been ruled out by the Biden administration, which could make it less of a bulwark against disaster than many investors and politicians are counting on.Many on Wall Street believe that the Treasury Department, in order to avoid defaulting on U.S. debt, would “prioritize” payments on its bonds if it could no longer borrow funds to cover all its expenses. They expect that America’s lenders — the bondholders who own U.S. Treasury debt — would be first in line to receive interest and other payments, even if it meant delaying other obligations like government salaries or retirement benefits.Those assumptions are rooted in history. Records from 2011 and 2013 — the last time the U.S. tipped dangerously close to a debt limit crisis — suggested that officials at the Treasury had laid at least some groundwork to pay investors first, and that policymakers at the Federal Reserve assumed that such an approach was likely. Some Republicans in the House and Senate have painted prioritization as a fallback option that could make failure to raise the borrowing cap less of a disaster, arguing that as long as bondholders get paid, the U.S. will not experience a true default.But the Biden administration is not doing prioritization planning this time around because officials don’t think it would prevent an economic crisis and are unsure whether such a plan is even feasible. The White House has not asked Treasury to prepare for a scenario in which it pays back investors first, according to multiple officials. Janet L. Yellen, the Treasury secretary, has said such an approach would not avoid a debt “default” in the eyes of markets.“Treasury systems have all been built to pay all of our bills when they’re due and on time, and not to prioritize one form of spending over another,” Ms. Yellen told reporters this month.Perhaps more worrisome is that, even if the White House ultimately succumbed to pressure to prioritize payments, experts from both political parties who have studied the temporary fix say it might not be enough to avert a financial catastrophe.Senator Ted Cruz, center, and other Republicans during a news conference on debt ceiling on Capitol Hill last week.Haiyun Jiang/The New York Times“Prioritization is really default by another name,” said Brian Riedl, formerly chief economist to former Republican Senator Rob Portman and now an economist at the Manhattan Institute. “It’s not defaulting on the government’s debt, but it’s defaulting on its obligations.”Congress must periodically raise the nation’s debt ceiling to authorize the Treasury to borrow to cover America’s commitments. Raising the limit does not entail any new spending — it is more like paying a credit-card bill for spending the nation has already incurred — and it is often completed without incident. But Republicans have occasionally attempted to attach future spending cuts or other legislative goals to debt limit increases, plunging the United States into partisan brinkmanship.Understand the U.S. Debt CeilingCard 1 of 5What is the debt ceiling? More

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    Biden Hammers Republicans on the Economy, With Eye on 2024

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    The president has found a welcome foil in a new conservative House majority and its tax and spending plans, sharpening a potential re-election message.WASHINGTON — President Biden on Thursday assailed House Republicans over their tax and spending plans, including potential changes to popular retirement programs, ahead of what is likely to be a run for re-election.In a speech in Springfield, Va., Mr. Biden sought to reframe the economic narrative away from the rapid price increases that have dogged much of his first two years in office and toward his stewardship of an economy that has churned out steady growth and strong job gains.Mr. Biden, speaking to members of a steamfitters union, sought to take credit for the strength of the labor market, moderating inflation and news from the Commerce Department on Thursday morning that the economy had grown at an annualized pace of 2.9 percent at the end of last year. In contrast, he cast House Republicans and their economic policy proposals as roadblocks to continued improvement.“At the time I was sworn in, the pandemic was raging and the economy was reeling,” Mr. Biden said before ticking through the actions he had taken to aid the recovery. Those included $1.9 trillion in pandemic and economic aid; a bipartisan bill to repair and upgrade roads, bridges, water pipes and other infrastructure; and a sweeping industrial policy bill to spur domestic investment in advanced manufacturing sectors like semiconductors and speed research and development to seed new industries.Republicans have accused the Biden administration of fanning inflation by funneling too much federal money into the economy, and have called for deep spending cuts and other fiscal changes.Mr. Biden denounced those proposals, including a plan to replace federal income taxes with a national sales tax, curb safety net spending and risk a government default by refusing to raise the federal borrowing limit without deep spending cuts. Why, he asked, “would the Americans give up the progress we’ve made for the chaos they’re suggesting?”Speaker Kevin McCarthy and House Republicans have not yet released a detailed or unified economic agenda.Haiyun Jiang/The New York Times“I will not let anyone use the full faith and credit of the United States as a bargaining chip,” Mr. Biden said, reiterating his refusal to negotiate over raising the debt limit. “The United States of America — we pay our debts.”But the president also sought to reach out to working-class voters — in places like his native Scranton, Pa. — who have increasingly voted for Republicans in recent elections. Mr. Biden said those voters had been left behind by American economic policy in recent years, and he tried to woo them back by promising that his policies would continue to bring high-paying manufacturing jobs that do not require a college degree to people who feel “invisible” in the economy.“They remember, in my old neighborhoods, why the jobs went away,” Mr. Biden said, vowing that under his policies “nobody’s left behind.”The Biden PresidencyHere’s where the president stands as the third year of his term begins.State of the Union: President Biden will deliver his second State of the Union speech on Feb. 7, at a time when he faces an aggressive House controlled by Republicans and a special counsel investigation into the possible mishandling of classified information.Chief of Staff: Mr. Biden plans to name Jeffrey D. Zients, his former coronavirus response coordinator, as his next chief of staff. Mr. Zients will replace Ron Klain, who has run the White House since the president took office two years ago.Voting Rights: A year after promising a voting rights overhaul in a fiery speech, Mr. Biden delivered a more muted message at Ebenezer Baptist Church in Atlanta on Martin Luther King Jr.’s birthday.The speech built on a pattern for Mr. Biden, who has found the new and narrow Republican majority to be both a political threat and an opportunity.Republicans in the chamber have begun a series of investigations into Mr. Biden, his family and his administration. They have also demanded deep cuts in federal spending in exchange for raising the borrowing limit, a position that risks an economic catastrophe given the huge sums of money that the United States borrows to pay for its financial obligations.The president has refused to tie any spending cuts to raising the debt limit and has called on Congress to increase the $31.4 trillion cap so the nation can continue paying its bills and avoid a federal default..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.But Mr. Biden, who is facing a divided Congress for the first time in his presidency, is increasingly acting as if the newly empowered conservatives have given him a political opening on economic policy. As he prepares for a likely re-election bid in 2024, he is seizing on the least popular proposals floated by House members to cast himself as a champion of the working class, retirees and economic progress.Mr. Biden’s speech on Thursday waded deep into policy details, including the acreage of western timber burned in fires linked to climate change, the global breakdown of advanced chip production and the average salary of new manufacturing jobs, as he recounted his legislative accomplishments.House Republicans have not yet released a detailed or unified economic agenda, and they have not made a clear set of demands for raising the debt limit, though they largely agree that Mr. Biden must accept significant spending curbs.But members and factions of the Republican conference have pushed for votes on a variety of proposals that have little support among voters, including raising the retirement age for Social Security and Medicare and replacing the federal income tax with a national sales tax.Mr. Biden has sought to brand the entire Republican Party with those proposals, even though it is not clear if the measures have majority support in the conference or will ever come to a vote. Former President Donald J. Trump, who has already announced his 2024 bid for the White House, has urged Republicans not to touch the safety-net programs. Other party leaders have urged Republicans not to rule out those cuts. “We should not draw lines in the sand or dismiss any option out of hand, but instead seriously discuss the trade-offs of proposals,” Senator Michael D. Crapo of Idaho, the top Republican on the Finance Committee, wrote in an opinion piece for Fox News, in which he called for Mr. Biden to negotiate over raising the debt limit.Representative Kevin Hern, Republican of Oklahoma, who sits on the House Ways and Means Committee, told a tax conference in Washington this week that there are “lots of problems” with the plan to replace the income tax with a so-called fair tax on consumption. Those include incentives for policymakers to allow prices to rise rapidly in the economy in order to generate more revenue from the sales tax, he noted.“Let’s just say it’s going to be very interesting,” Mr. Hern said at the D.C. Bar Taxation Community’s annual tax conference. “I haven’t found a Ways and Means member that’s for it.”Despite those internal disagreements, Mr. Biden has been happy to pick and choose unpopular Republican ideas and frame them as the true contrast to his economic agenda. He has pointedly refused to cut safety-net programs and threatened to veto such efforts.“The president is building an economy from the bottom up and the middle out, and protecting Social Security and Medicare,” Karine Jean-Pierre, the White House press secretary, told reporters this week. “Republicans want to cut Social Security, want to cut Medicare — programs Americans have earned, have paid in — and impose a 30 percent national sales tax that will increase taxes on working families. That is what they have said they want to do, and that is clearly their plan.”The focus on Republicans has allowed Mr. Biden to divert the economic conversation from inflation, which hit 40-year highs last year but receded in the past several months, though it remains above historical norms. On Thursday, he chided Republicans for a vote to reduce funding for I.R.S. enforcement against wealthy tax cheats — a move the Congressional Budget Office says would add to the budget deficit, and which Mr. Biden cast as inflationary.“They campaigned on inflation,” Mr. Biden said. “They didn’t say if elected, they planned to make it worse.”Progressive groups see an opportunity for Mr. Biden to score political points and define the economic issue before the 2024 campaign begins in earnest. That is in part because polls suggest Americans have little appetite for Social Security or Medicare cuts, and have far less focus on the national debt than House Republicans do.“It is a political gift,” said Lindsay Owens, the executive director of the Groundwork Collaborative, a liberal nonprofit in Washington. More

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    The U.S. Hit Its Debt Limit. What Happens Next?

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    The Treasury Department has started employing “extraordinary measures,” but the path to raising the debt ceiling is likely to be a long one.The United States hit a limit this week on how much money it can borrow, forcing the Treasury Department to initiate so-called extraordinary measures to make sure the nation has enough cash to fulfill its financial obligations.Treasury Secretary Janet L. Yellen has told lawmakers that those measures will allow the United States to keep paying military salaries, retiree benefits and interest to bondholders through at least early June.But initiating those extraordinary measures is just the first step in a series of moves that will take place as the Treasury tries to keep the United States from defaulting on its debt. Ultimately, it will be up to Congress to decide whether to let the country borrow more money or allow it to default on its debt by failing to pay investors who expect interest and other payments.At stake is the fate of the U.S. economy, which could face a financial crisis and fall into a deep recession if lawmakers cannot reach an agreement.Among the looming questions is when the United States will hit the so-called X-date — the point at which the government can no longer find creative ways to stay beneath the $31.4 trillion debt limit and will need to borrow more money or fail to pay its bills.The other big question: Will Congress agree to raise the borrowing cap?So far, House Republicans have vowed to oppose any increase in the debt limit without spending cuts. President Biden has said the debt limit needs to be raised without conditions. That has set up what could be a protracted fight to ensure that the United States does not default on its debt.Here are some of the key moments to expect over the next few months.A Spring Budget BattleThe White House is expected to unveil its annual budget proposal in early March, outlining Mr. Biden’s spending priorities. That could serve as an opening bid for any negotiations between the Biden administration and Republicans in Congress, who have been calling for spending cuts and are likely to seize on this document as evidence of what they say is “runaway spending.”Understand the U.S. Debt CeilingCard 1 of 5What is the debt ceiling? More

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    America Set to Hit Its Borrowing Limit Today, Raising Economic Fears

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    The milestone will not immediately affect markets or growth, but it sets the stage for months of entrenched partisan warfare.WASHINGTON — The United States is expected to hit a congressionally imposed borrowing limit on Thursday, requiring the Treasury Department to engage in accounting maneuvers to ensure the federal government can keep paying its bills.The milestone of hitting the country’s $31.4 trillion debt cap is the product of decades of tax cuts and increased government spending by both Republicans and Democrats. But at a moment of heightened partisanship and divided government, it is also a warning of the entrenched partisan battles that are set to dominate Washington in the months to come, and that could end in economic shock.Newly empowered Republicans in the House have vowed that they will not raise the borrowing limit again unless President Biden agrees to steep cuts in federal spending. Mr. Biden has said he will not negotiate conditions for a debt-limit increase, arguing that lawmakers should lift the cap with no strings attached to cover spending that previous Congresses authorized.Treasury officials estimate the measures that they will begin employing on Thursday will enable the government to keep paying federal workers, Medicare providers, investors who hold U.S. debt and other recipients of federal dollars at least until early June. But economists warn that the nation risks a financial crisis and other immediate economic pain if lawmakers do not raise the limit before the Treasury Department exhausts its ability to buy more time.The episode has prompted fears in part because of the lessons both parties have taken from more than a decade of debt-limit fights. A bout of brinkmanship in 2011 between House Republicans and President Barack Obama nearly ended in the United States defaulting on its debt before Mr. Obama agreed to a set of caps on future spending increases in exchange for lifting the limit.Most Democrats have solidified in their position that negotiations over the debt limit only enhance the risks of economic calamity by encouraging Republicans to use it as leverage. That is particularly true of Mr. Biden, who successfully stared down Republicans and won an increase in 2021 with no stipulations.Newly elected Republicans, emboldened by anger among their base and conservative advocacy groups over failures in the past to exact concessions for raising the limit, have pledged not to let that happen again.Treasury Secretary Janet L. Yellen has dismissed ideas for lifting the borrowing cap unilaterally, such as minting a $1 trillion coin, as fanciful.Sarahbeth Maney/The New York TimesIn reality, both parties have approved policies that fueled the growth in government borrowing. Republicans repeatedly passed tax cuts when they controlled the White House over the last 20 years. Democrats have expanded spending programs that have often not been fully offset by tax increases. Both parties have voted for large economic aid packages to help people and businesses endure the 2008 financial crisis and the 2020 pandemic recession.Federal spending declined from its pandemic high in 2022, reaching nearly $6 trillion in the fiscal year, or just under 24 percent of the economy. The federal budget deficit, which is the shortfall between what the United States spends and what it takes in through taxes and other revenue, topped $1 trillion for the year. That is a decline from the past two years as emergency pandemic spending expired, though the Biden administration predicts the deficit will rise again in the current fiscal year.Understand the U.S. Debt CeilingCard 1 of 4What is the debt ceiling? More

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    U.S. Will Hit Debt Limit on Thursday, Yellen Tells Congress

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    The Treasury Department expects to begin taking “extraordinary measures” to continue paying the government’s obligations before what is expected to be a big fight to raise the borrowing cap.WASHINGTON — Treasury Secretary Janet L. Yellen warned on Friday that she would have to begin employing “extraordinary measures” on Thursday to continue paying the nation’s bills if lawmakers did not act to raise the statutory debt limit and that her powers to delay a default could be exhausted by early June.Ms. Yellen’s letter to Congress was the first sign that resistance by House Republicans to lifting the borrowing cap could put the U.S. economy at risk and signals the beginning of an intense fight in Washington this year over spending and deficits.“Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans and global financial stability,” Ms. Yellen wrote.Ms. Yellen said on Friday that considerable uncertainty surrounded how long she could use measures to delay a default. She said she would begin suspending new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund and suspending reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan this month to avoid breaching the debt limit.The letter is the beginning of what is expected to be a protracted and potentially damaging economic fight. Republicans, who assumed control of the House last week, have insisted that any increase to the debt limit be accompanied by significant spending curbs, most likely including cuts to both the military and domestic issues.Speaker Kevin McCarthy has cited reducing the national debt — which topped $31 trillion last year and has increased during both Republican and Democratic administrations, including about a 40 percent increase under former President Donald J. Trump — as a central focus of his party’s agenda.“The American people are the ones that’s demanding the cut in spending,” Representative Jason Smith, a Missouri Republican and the chairman of the powerful House Ways and Means Committee, said Friday on Fox News. “We have to have fiscal reforms moving forward. We cannot just give an unlimited credit card.”Understand the U.S. Debt CeilingCard 1 of 4What is the debt ceiling? More

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    Speaker Drama Raises New Fears on Debt Limit

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    An emboldened conservative flank and concessions made to win votes could lead to a protracted standoff on critical fiscal issues, risking economic pain.WASHINGTON — Representative Kevin McCarthy of California finally secured the House speakership in a dramatic middle-of-the-night vote early Saturday, but the deal he struck to win over holdout Republicans also raised the risks of persistent political gridlock that could destabilize the American financial system.Economists, Wall Street analysts and political observers are warning that the concessions he made to fiscal conservatives could make it very difficult for Mr. McCarthy to muster the votes to raise the debt limit. That could prevent Congress from doing the basic tasks of keeping the government open, paying the country’s bills and avoiding default on America’s trillions of dollars in debt.The speakership battle suggests President Biden and Congress could be on track later this year for the most perilous debt-limit debate since 2011, when former President Barack Obama and a new Republican majority in the House nearly defaulted on the nation’s debt before cutting an 11th-hour deal.“If everything we’re seeing is a symptom of a totally splintered House Republican conference that is going to be unable to come together with 218 votes on virtually any issue, it tells you that the odds of getting to the 11th hour or the last minute or whatever are very high,” Alec Phillips, the chief political economist for Goldman Sachs Research, said in an interview Friday.Representative Kevin McCarthy won the speakership early Saturday only after making a deal with hard-right lawmakers.Kenny Holston/The New York TimesThe federal government spends far more money each year than it receives in revenues, producing a budget deficit that is projected to average in excess of $1 trillion a year for the next decade. Those deficits will add to a national debt that topped $31 trillion last year.Federal law puts a limit on how much the government can borrow. But it does not require the government to balance its budget. That means lawmakers must periodically pass laws to raise the borrowing limit to avoid a situation in which the government is unable to pay all of its bills, jeopardizing payments including military salaries, Social Security benefits and debts to holders of government bonds. Goldman Sachs researchers estimate Congress will likely need to raise the debt limit sometime around August to stave off such a scenario.Understand the U.S. Debt CeilingCard 1 of 4What is the debt ceiling? More

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    Biden Hopes to Amplify Contrast With Republicans on Economic Policy

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    Visiting Syracuse, N.Y., which has benefited from recent legislation, the president will point to his administration’s efforts to lower costs for families.WASHINGTON — President Biden will travel to Syracuse, N.Y., on Thursday to highlight investments in semiconductor manufacturing and make a last-ditch attempt to win over voters on inflation, the economic issue that is dragging on Democrats ahead of the midterm elections.At a time when polls show that voters disapprove of the president’s handling of rising prices and trust Republicans more on the issue, Mr. Biden will seek to frame the elections as a choice between his administration’s ongoing efforts to lower costs for families and Republican aspirations to cut taxes for corporations and the wealthy — which could fuel even higher inflation — and other plans that Mr. Biden says would raise health care and electricity costs.Senior administration officials told reporters on Wednesday afternoon that Mr. Biden would use his trip to celebrate the chip maker Micron’s announcement this month that it would spend up to $100 billion to build a manufacturing complex in the Syracuse region over the next 20 years, creating up to 50,000 jobs in the process. Company officials said that investment was enabled by a bipartisan advanced manufacturing bill that Mr. Biden championed and signed into law earlier this year.The administration officials said the area exemplified a community benefiting from Mr. Biden’s economic policies, which have also included a bipartisan infrastructure bill approved in 2021 and the Inflation Reduction Act, signed late this summer, which raises taxes on corporations, seeks to reduce prescription drug costs for seniors and invests hundreds of billions of dollars into new energy technologies to reduce the fossil fuel emissions driving climate change.They also said it was the right backdrop for Mr. Biden to amplify the contrast he has sought to draw with Republicans on inflation. Republican candidates have campaigned on rolling back some of the tax increases Mr. Biden imposed to fund his agenda, extending business and individual tax cuts passed by Republicans in 2017 that are set to expire in the coming years, reducing federal regulations on energy development and other business and repealing the Inflation Reduction Act.The State of the 2022 Midterm ElectionsElection Day is Tuesday, Nov. 8.Bracing for a Red Wave: Republicans were already favored to flip the House. Now they are looking to run up the score by vying for seats in deep-blue states.Pennsylvania Senate Race: Lt. Gov. John Fetterman and Mehmet Oz clashed in one of the most closely watched debates of the midterm campaign. Here are five takeaways.Polling Analysis: If these poll results keep up, everything from a Democratic hold in the Senate and a narrow House majority to a total G.O.P. rout becomes imaginable, writes Nate Cohn, The Times’s chief political analyst.Strategy Change: In the final stretch before the elections, some Democrats are pushing for a new message that acknowledges the economic uncertainty troubling the electorate.In a memo released by the White House on Thursday morning, officials sought to frame those Republican proposals as potential fuel for further inflation, posing a risk to families struggling with high prices. “Their economic plan will raise costs and make inflation worse,” administration officials wrote.The memo suggests that among his other attacks in Syracuse, Mr. Biden will hit Republicans for what he says is an effort to raise costs for student borrowers. Several Republican-led states have sued to stop his plan to forgive up to $20,000 in student loan debt for qualifying individuals.Mr. Biden has struggled in recent weeks to persuade voters to view inflation as an issue that shows the contrasts between him and Republicans, rather than a referendum on his presidency and policies.Polls suggest the economy and rapid price growth, which touched a 40-year high this year, are top of mind for voters as they determine control of the House and Senate. Nearly half of all registered voters in a New York Times/Siena College poll this month named economic issues or inflation as the most important issue facing the country, dwarfing other issues in the survey, like abortion. Other polls have shown voters trust Republicans more than Mr. Biden and his party to handle inflation.Through the start of this month, Republican candidates had spent nearly $150 million on inflation-themed television ads across the country this election cycle, according to data from AdImpact. Those ads blame Democratic policies under Mr. Biden, including the $1.9 trillion economic relief package he signed in 2021, for inflation; economists generally agree that the spending helped fuel some price growth but disagree on how much.Mr. Biden previewed his renewed attacks on Republicans on Wednesday evening, in a trio of virtual fund-raisers for Democratic members of Congress. In each one, Mr. Biden focused almost exclusively on economic issues, championing the laws he has signed and warning that Republicans would seek to roll them back.The president criticized Republicans for promoting what he called “mega-MAGA trickle-down economics,” and he said the tax cuts Republicans support risk creating turmoil in financial markets. He drew a direct parallel between the Republican proposals and the tax cuts for high earners in Britain pushed by former Prime Minister Liz Truss, which prompted a harsh backlash in financial markets that led Ms. Truss to resign after a brief tenure.“You read about what happened in England recently, and the last prime minister, she wanted to cut taxes for the superwealthy — it caused economic chaos in the country,” Mr. Biden said. “Well, that’s what they did last time, and they want to do it again.” More

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    Republicans Denounce Inflation, but Few Economists Expect Their Plans to Help

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    Proposed tax and spending cuts by the G.O.P., which is making a push to take back Congress, are unlikely to bring down rapidly rising prices any time soon.WASHINGTON — Republicans are riding a wave of anger over inflation as they seek to recapture the House and the Senate this fall, hammering Democrats on President Biden’s economic policies, which they say have fueled the fastest price gains in 40 years.Republican candidates have centered their economic agenda on promises to help Americans cope with everyday price increases and to increase growth. They have pledged to reduce government spending and to make permanent parts of the 2017 Republican tax cuts that are set to expire over the next three years — including incentives for corporate investment and tax reductions for individuals.And they have vowed to repeal the corporate tax increases that Mr. Biden signed into law in August while gutting funding for the Internal Revenue Service, which was given more money to help the United States go after high-earning and corporate tax cheats.“The very fact that Republicans are poised to take back majorities in both chambers is an indictment of the policies of this administration,” said Senator Bill Cassidy, Republican of Louisiana, noting that “if you look at the spending that they did on a partisan basis, we certainly would be able to stop that.”But while Republicans insist they will be better stewards of the economy, few economists on either end of the ideological spectrum expect the party’s proposals to meaningfully reduce inflation in the short term. Instead, many say some of what Republicans are proposing — including tax cuts for high earners and businesses — could actually make price pressures worse by pumping more money into the economy.“It is unlikely that any of the policies proposed by Republicans would meaningfully reduce inflation in 2023, when rapidly rising prices will still be a major problem for the economy and for consumers,” said Michael R. Strain, an economist at the conservative American Enterprise Institute.As they position themselves for the midterm elections, Republicans have also indicated that they might try to hold the nation’s borrowing limit hostage to achieve spending cuts. The debt ceiling, which caps how much the federal government can borrow, has increasingly become a fraught arena for political brinkmanship.The State of the 2022 Midterm ElectionsBoth parties are making their final pitches ahead of the Nov. 8 election.Florida Governor’s Debate: Gov. Ron DeSantis and Charlie Crist, his Democratic challenger,  had a rowdy exchange on Oct. 24. Here are the main takeaways from their debate.Strategy Change: In the final stretch before the elections, some Democrats are pushing for a new message that acknowledges the economic uncertainty troubling the electorate.Last Dance?: As she races to raise money to hand on to her embattled House majority, Speaker Nancy Pelosi is in no mood to contemplate a Democratic defeat, much less her legacy.Secretary of State Races: Facing G.O.P. candidates who spread lies about the 2020 election, Democrats are outspending them 57-to-1 on TV ads for their secretary of state candidates. It still may not be enough.Multiple top Republicans have signaled that unless Mr. Biden agrees to reduce future government spending, they will refuse to lift the borrowing cap. That would effectively bar the federal government from issuing new bonds to finance its deficit spending, potentially jeopardizing on-time payments for military salaries and safety-net benefits, and roiling bond markets.Mr. Biden has tried to push back against the Republicans and cast the election not as a referendum on his economic policies, but as a choice between Democratic policies to reduce costs on health care and electricity and Republican efforts to repeal those policies. He has accused Republicans of stoking further price increases with tax cuts that could add to the federal budget deficit, and of risking financial calamity by refusing to raise the debt limit.“We, the Democrats, are the ones that are fiscally responsible. Let’s get that straight now, OK?” Mr. Biden said during remarks on Monday to workers at the Democratic National Committee. “We’re investing in all of America, reducing everyday costs while also lowering the deficit at the same time. Republicans are fiscally reckless, pushing tax cuts for the very wealthy that aren’t paid for, and exploiting the deficit that is making inflation worse.”The challenge for Mr. Biden is that voters do not seem to be demanding details from Republicans and are instead putting their trust in them to turn around an economy that voters believe is headed in the wrong direction. Polls suggest Americans trust Republicans by a wide margin to handle inflation and other economic issues.In a nationwide deluge of campaign ads and in public remarks, Republicans have pinned much of their inflation-fighting agenda on halting a stimulus spending spree that began under President Donald J. Trump and continued under Mr. Biden, in an effort to help people and businesses survive the pandemic recession. Those efforts have largely ended, and Mr. Biden has shown no desire to pass further stimulus legislation at a time of rapid price growth.Representative Jason Smith of Missouri, the top Republican on the House Budget Committee, said in a statement that “the first step in combating inflation is to stop the historically reckless spending spree occurring under one-party Democrat rule in Washington, and that will only happen with a Republican majority in Congress.”.css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.“Republicans,” he added, “will fight to bring down the cost of living and impose fiscal restraint in Washington, and that begins by ensuring Democrats are not able to impose round after round of new inflationary spending.”Economists largely agree that the Federal Reserve is most responsible for fighting inflation, which policymakers are trying to do with rapid interest rates increases. But they say Congress could plausibly help the Fed by reducing budget deficits, in order to slow the amount of consumer spending power in the economy.One way to do that would be to significantly and quickly reduce federal spending. Such a move could result in widespread government layoffs and reduced support for low-income individuals — who would be less able to afford increasingly expensive food and other staples — and could prompt a recession. “The amount of cuts you’d have to do to move the needle on inflation are completely off the table,” said Jon Lieber, a former aide to Senator Mitch McConnell of Kentucky who is now the Eurasia Group’s managing director for the United States.Still, Mr. Lieber said that likelihood would not sully the Republican pitch to voters this fall. “Midterm votes are a referendum on the party in power,” he said, “and the party in power has responsibility for inflation.”“The very fact that Republicans are poised to take back majorities in both chambers is an indictment of the policies of this administration,” said Senator Bill Cassidy, a Republican.Haiyun Jiang/The New York TimesBiden administration officials contend that the Republican plans, rather than curbing inflation, could worsen America’s fiscal situation.Administration economists estimate that two policies favored by Republicans — repealing a new minimum tax on large corporations included in the Inflation Reduction Act and extending some business tax cuts from Mr. Trump’s 2017 legislation — could collectively increase the federal budget deficit by about $90 billion next year.Such an increase could cause the Federal Reserve to raise rates even faster than it already is, further choking economic growth. Or, alternatively, it could add a small amount to the annual inflation rate — perhaps as much as 0.2 percentage points. Fully repealing the Inflation Reduction Act would also mean raising future costs for prescription drugs for seniors on Medicare, including for insulin, and potentially raising future electricity costs.“Their plan to repeal the I.R.A. and double down on the Trump tax cuts for the wealthy will worsen inflation,” said Jared Bernstein, a member of Mr. Biden’s Council of Economic Advisers. “On top of that, they’re also explicit that they’re coming for Social Security and Medicare, making this a terribly destructive agenda that starts by fighting the Fed and moves on to devastating vulnerable seniors.”Conservative economists say the inflation impact of extending Mr. Trump’s tax cuts could be much smaller, because those extensions could lead businesses to invest more, people to work more and growth to increase across the economy. They also say Republicans could help relieve price pressures, particularly for electricity and gasoline, by following through on their proposals to reduce federal regulations governing new energy development.“Those things are going to be positive for investment, job creation and capacity” in the economy, said Donald Schneider, a former chief economist for Republicans on the House Ways and Means Committee and the deputy head of U.S. policy at Piper Sandler.A budget proposal unveiled this year by the Republican Study Committee, a conservative policy group within the House Republican conference, included plans to permanently extend the Trump tax cuts and to impose work requirements on federal benefits programs, in hopes of reducing federal spending on the programs and increasing the number of workers in the economy.“We know for a fact that federal spending continues to keep inflation high, which is why a top priority in next year’s Republican majority will be to root out waste, fraud and abuse of taxpayer money,” Representative Kevin Hern, Republican of Oklahoma, said in a statement. Mr. Hern, who helped devise the budget, called it “one of many proposals to address the dire situation we’re in.”As they eye the majority, top Republicans have suggested that they will consider an economically risky strategy to potentially force Mr. Biden to agree to spending cuts, including for safety-net programs. Representative Kevin McCarthy of California, who is the minority leader and is seen as the clear pick to be speaker should Republicans win control of the House, suggested to Punchbowl News this month that he would be open to withholding Republican votes to raise the federal borrowing limit unless Mr. Biden and Democrats agreed to policy changes that curb spending.How to use that leverage has divided Republicans. Some, like Representative Nancy Mace of South Carolina, who fended off a Trump-backed primary challenger, are supportive of that option.But other Republicans — particularly candidates laboring to present a more centrist platform in swing districts held by Democrats — have shied away from openly supporting cuts to safety-net programs.“Absolutely not,” Lori Chavez-DeRemer, a Republican and former mayor running in Oregon’s Fifth Congressional District, said when asked if she would support cuts to Medicare and Social Security as a way to rein in federal spending. “Cutting those programs is not where I, as a Republican, see myself. I want to make sure that we can fill those coffers.” More