Republican wonks are trying to get their party not to detonate the debt limit bomb

A small group of conservative budget experts is cautioning House Republicans that brinkmanship over the nation’s borrowing limit could lead to economic disaster, warning of severe financial ramifications even as their own party ignores their advice.

In both public and private comments, a handful of GOP budget experts - Brian Riedl, who was an aide to former Ohio Republican senator Rob Portman; Michael Strain, an economist at the American Enterprise Institute; and Douglas Holtz-Eakin, a former director of the nonpartisan Congressional Budget Office - have tried to counter the growing argument on the right that the debt ceiling can be breached with only minimal economic impact.

Those wonks appear at risk of losing the GOP debate, as House Republicans increasingly make clear that they will refuse to raise the debt limit unless President Biden agrees to massive spending cuts that he has so far rejected. On Wednesday, the House voted, largely along party lines, for Speaker Kevin McCarthy’s (R-Calif.) plan advancing this approach. Conservatives within the GOP have been emboldened by the advice of a competing faction of right-wing policy analysts and economists, who have pushed GOP leaders to stay aggressive. Led by former Trump budget director Russ Vought, these advisers have maintained that the costs of inaction on the nation’s $31 trillion debt override the need to ensure the U.S. can pay all its bills.

The fierce - and increasingly personal - split 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. Congress has until sometime over the next few months to raise the limit on what the nation can borrow, or risk what most economists say would lead to a potential financial crisis and recession. But a growing number of Republicans believe the argument advanced by Vought: that the risks have been massively overstated and can be ignored to secure trillions of dollars in spending cuts.

“You want to write a story about how we’re running over the cliff because nobody cares what we think?” asked Riedl, 47, now a senior fellow at the Manhattan Institute, a libertarian-leaning think tank. “I end up doing a ton of meetings; I talk to a lot of members and staff. And then they end up going in the exact opposite direction of what I recommend.”

For now, at least, many lawmakers are at least listening to the warnings of disaster. Riedl said he has spoken to dozens of lawmakers in the previous several weeks about the federal budget and national debt. Combined, the 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 the suggestions from the right that the debt ceiling can be breached without financial calamity.

The White House is hoping to lean heavily on these kinds of Republicans to argue against McCarthy’s plan, according to two people familiar with administration strategy, speaking on the condition of anonymity to describe internal conversations.

“They should not be doing this battle at all; it’s a terrible fight,” said Holtz-Eakin of the GOP, who added that he also blames the White House for thus far refusing to negotiate with McCarthy. “You have to raise the debt limit, so in the end you have no leverage. It’s a disservice to the country to do this brinkmanship.”

The coming weeks will test the ability of the moderate conservative analysts to push their party to reach a resolution. For now, they have largely backed McCarthy’s legislation that would raise the debt limit in exchange for spending cuts. The economists support the bill’s approach of lowering the deficit by reducing spending by trillions of dollars, including on initiatives such as student loan forgiveness. Riedl said he supports advancing it for now - as long as lawmakers are willing to lift the debt ceiling even without the spending cuts.

“I think it’s healthy to pass deficit reduction bills alongside the debt limit, as long as lawmakers understand that the debt limit ultimately has to be raised, whether the cuts pass or not,” Riedl said.

Critics on the left say that negotiating over the debt limit is inherently irresponsible.

“Any legislation that ties conditions to getting the debt ceiling done is risking it not getting raised. Now is not the time to work on these other policies,” said Claudia Sahm, a liberal economist who worked at the Federal Reserve. “While it’s good they recognize the debt limit is serious, we also need to be serious about getting it raised - and the path to that is not getting bogged down in debates about other issues.”

Still, Democrats are more likely to lean on these analysts as the debt limit deadline approaches and splits among House Republicans over tactics will likely become clearer.

Biden has vowed to veto the House-passed bill, and the parties remain starkly divided on the steps forward after that. Vought, the former Trump budget chief now leading the Center for Renewing America, a pro-Trump think tank, has urged Republicans to take a maximalist position in the talks.

“We are going to have demand that the cuts be enacted, or Joe Biden doesn’t get a dime of his debt limit,” Vought said recently on the podcast of former Trump adviser Stephen K. Bannon.

Similarly, former Trump economist Kevin Hassett has said the federal debt poses such a severe crisis to the country that the risk of defaulting is worthwhile. The Trump administration added more than $5 trillion the national debt - most of which occurred while Hassett was chief White House economist.

“The fact is that if we don’t change the trajectory of our fiscal policy soon, we will inevitably suffer a Weimar Germany-style collapse of our currency,” said Hassett, now a fellow at the Hoover Institution, in an op-ed for the National Review. “Traditionally, politicians have caved because they have been worried about the reputational risk inherent in the United States’ failing to make interest payments and defaulting on its debt. But, if we are already set to out-borrow Weimar Germany and head for ruin, as the numbers clearly indicate, what’s the added harm from that risk?”

Unlike Hassett and Vought, the conservative analysts warning against this kind of strategy did not work for Trump and have found themselves increasingly marginalized in GOP politics.

Riedl left the Heritage Foundation, arguably the most influential think tank on the right, as a young analyst after he faced internal blowback for criticizing Bush’s record on spending.

Strain, who served as an assistant economist at the U.S. Census Bureau and Federal Reserve Bank of New York, was sharply critical of Trump’s trade war with China and immigration restrictions (including in columns for The Washington Post).

Holtz-Eakin worked as the top economic adviser to Sen. John McCain (R-Ariz.), who before his death was known for frequently crossing party leadership.

Whereas Vought has helped convince Republicans to steer clear of proposing cuts to Medicare and Social Security, a position also taken by Trump, more traditional conservative analysts argue that spending on those big and popular programs must be reined in to control the federal debt. Vought has instead adopted Trump’s approach of protecting those programs - while pushing enormous cuts that would obliterate the safety net for low-income Americans.

In February, during a spat on Twitter, Vought accused Riedl of being “woke and accepting of the Left’s cultural reign,” pointing to the Ukraine flag in Riedl’s Twitter profile. Riedl responded, “Hopefully you’ll have better luck persuading Joe Biden and Charles E. Schumer than you had persuading your own boss at the White House.”

Riedl sees danger in Vought’s approach.

“The Russ Vought types - I think some of it is, there is a certain appeal to being loud, pure and aggressive. It gets you a lot of attention; you don’t have to get into messy compromise; it raises a lot of money from donors and you can kind of act tough without having to take much responsibility for catastrophe that may follow,” Riedl said. “I understand where they’re coming from for a personal and psychological perspective to demand some purity test on everyone and say the other side will just surrender - yes, that must be an easy thing to do. But I try to take a little more responsibility.”

Vought responded in a statement: “I’m entirely not surprised that people who have failed to cut spending for the last 20 years are upset with a different strategy.”

One key split between these factions is over the idea of “debt prioritization,” the idea that the Treasury Department can continue making interest payments on the debt even if the borrowing limit is not raised. Some conservatives say the government can use incoming tax revenue to make interest payments to bondholders, avoiding a U.S. default, and then should simply stop spending on other federal programs, similar to what occurs during a government shutdown. Vought recently said on Fox Business: “Joe Biden, you have the ability to pay the principal and the interest - we’re not going to default on the American Dream; we’re not going to default on freedom.”

Riedl, Strain and Holtz-Eakin have all argued this idea is impractical and dangerous, and Treasury officials have said the government isn’t capable of making sure all interest payments get made if the debt ceiling is breached. Riedl studied the idea as a staffer for Portman during prior debt ceiling standoffs before concluding it was unworkable.

“Even if we do not technically default to our bondholders, if we cannot raise the debt ceiling in time it will signal that our politics have become so dysfunctional that we as a country cannot honor our spending obligations,” Strain said. “It would be a damning indictment of where we are as a nation, and where we are as a government - and would be a big, big problem not just for the U.S. economy, but for us as a nation.”

But Stephen Moore, a conservative economic policy adviser to senior Republicans, said most Republican lawmakers disagree.

“I think most Republicans realize now it’s a false fear to say, ‘We’ll have a default on our debt,’” Moore said. “Michael Strain is not a conservative Republican, let’s put it like that. He’s been wrong on a lot of things - I don’t think he has a big following within the GOP.”