Republicans set up default clash with US debt limit bil

The Limit, Save, Grow Act advanced on Wednesday from the House of Representatives by a narrow margin of 217-215.

To win over rebels among his ranks, Kevin McCarthy held marathon meetings that stretched into the early hours. Picture: AFP

US Republicans have voted to raise the national borrowing limit, but only in conjunction with drastic cuts, as they sought a showdown with President Joe Biden over “excessive” spending with a potentially ruinous credit default looming.

The government is expecting to hit the debt ceiling within weeks, raising the possibility of the world’s largest economy ­defaulting on repayments and igniting a firestorm in global markets.

The Limit, Save, Grow Act advanced on Wednesday from the House of Representatives by a narrow margin of 217-215 but has no chance of becoming law as it is opposed by Democrats controlling the Senate and the White House. Republicans were determined to muscle it through the lower chamber of congress to strengthen their position in negotiations with Mr Biden, who has refused to agree to any spending cuts to get the debt cap raised.

House Speaker Kevin McCarthy, who had spent much of the week locked in talks as he struggled to win over a handful of Republican holdouts, celebrated a vote that would put America “back on track”.

“House Republicans just delivered a plan that will address the country’s debt crisis,” he said.

“Our conference came together to pass the only plan in Washington that will tackle the debt ceiling, stop excessive federal spending and inflation, and put our country back on track for sustained economic growth.”

The high-stakes standoff was seen as a test of Mr McCarthy’s leadership after he secured the Speaker’s gavel in January by pledging to his party’s right wing that he would slash spending.

Moments after the vote, the White House slammed the legislation for what the Biden team described as cutting healthcare for veterans and other Americans, sending jobs overseas and extending tax cuts for the wealthy.

“The President has made clear this bill has no chance of ­becoming law,” press secretary Karine Jean-Pierre said. “Congressional Republicans must act immediately and without conditions to avoid default and ensure that the full faith and credit of the United States is not put at risk. That is their job.”

The US is almost $US32 trillion ($48 trillion) in debt, a figure that has grown under both parties over decades.

The 320-page Republican bill would raise the ceiling through to next March – paving the way for another debt limit fight in the middle of the presidential election campaign – or until the debt grows to $US32.9 trillion.

But it dramatically cuts spending and rolls back major portions of Mr Biden’s agenda, such as his push to cancel student debt and mitigate climate change.

The independent Congressional Budget Office said the bill would save $US4.8 trillion over a decade, although ratings agency Moody’s Analytics estimated that it could stunt 2024 growth by 0.6 percentage point and kill 780,000 jobs.

Mr Biden has refused to entertain any debt limit increase involving spending cuts, and Mr McCarthy and his deputies hope the successful passage of the bill through the lower chamber of congress will force the President to the table.

“Today’s vote … sends a clear message to President Biden: continuing to ignore the problem is not an option,” McCarthy said.

Mr Biden had earlier said he was “happy to meet with Mr McCarthy but not on whether or not the debt limit gets extended.”

The outcome looked to be on a knife edge for much of the week, with Mr McCarthy able to shed only four Republicans to get the package through, and in the end he lost exactly that.

To win over other rebels among his ranks, the Speaker was forced to make several changes to the legislation after marathon meetings that stretched into the early hours.

The tweaks included a U-turn on repealing Democrat-passed tax breaks for the ethanol industry – a proposal that had irked Republicans from the corn belt in the Midwest – and accelerated implementation of tough work requirements for welfare programs such as food stamps.

AFP