Entitlement, Spending Cap Plans Linked by GOP to Debt-Limit Deal

(Updates with Pelosi comment in 8th paragraph of Focus on Entitlements section.)

Social Security and Medicare eligibility changes, spending caps, and safety-net work requirements are among the top priorities for key House Republicans who want to use next year’s debt-limit deadline to extract concessions from Democrats.

The four Republicans interested in serving as House Budget Committee chairman in the next Congress said in interviews that next year’s deadline to raise or suspend the debt ceiling is a point of leverage if their party can win control of the House in the November midterm elections.

The Republican position — which members are still formulating — could set the stage for an explosive standoff next year, reminiscent of the 2011 negotiations when the Tea Party wave of Republicans took on the Obama administration over spending.

It’s also possible Republicans will demand process-focused legislation — such as requiring a reduction in the debt-to-GDP ratio — that could subsequently put major entitlement programs in play.

If Congress doesn’t raise or suspend the debt limit by the deadline, the federal government would default on payments officials had already agreed to make. Treasury Secretary Janet Yellen warned during 2021 negotiations that a default would be “a catastrophe” and could cause a financial crisis.

“The debt limit is clearly one of those tools that Republicans — that a Republican-controlled Congress — will use to make sure that we do everything we can to make this economy strong,” said Rep. Jason Smith (R-Mo.) , the ranking member of the House Budget Committee. He’s seeking the top GOP spot on the tax-writing Ways and Means Committee but said if he doesn’t get it, he’ll remain in his Budget Committee position.

Reps. Jodey Arrington (R-Texas), Buddy Carter (R-Ga.), and Lloyd Smucker (R-Pa.) are seeking the top spot on the Budget Committee if Smith gets the Ways and Means role. Those three agreed Republicans must use the debt-limit deadline to enact fiscally conservative legislation. Rep. Kevin Hern (R-Okla.), head of the Republican Study Committee’s Budget and Spending Task Force, also said the upcoming debt-limit deadline is “obviously a leverage point.”

Republican lawmakers have already started discussing potential outcomes for their debt-limit demands, Smucker said, including, “What would we consider a win? What would we consider to be a fiscally responsible budget?”

Making such major changes to popular entitlement programs could be politically perilous, one of the reasons such proposals have foundered in the past. The ideas have already become campaign fodder for Democrats, with President Joe Biden warning that Republicans would put Social Security and Medicare “on the chopping block.”

Republicans have acknowledged the risk, with Arrington saying if members float too many specific approaches, “this can get so politicized.” This time, Smucker said high inflation after record deficits may give conservatives the political willpower to seek ambitious cuts needed to curtail government spending.

Focus on Entitlements

Social Security and Medicare need to be addressed in the near future, some of the lawmakers said. “Our main focus has got to be on nondiscretionary — it’s got to be on entitlements,” Carter said.

A bipartisan negotiation on Social Security and Medicare would likely start with Democrats pushing for more revenue, while “Republicans have a list of eligibility reforms, and we don’t like the tax increases,” Arrington said. He said an increase in the eligibility age for both programs would be a commonsense change.

Reducing benefits for wealthier Americans could also cut costs, Smucker said.

“We should ensure that we keep the promises that were made to the people who really need it, the people who are relying on it,” Smucker said. “So some sort of means-testing potentially would help to ensure that we can do that.”

Social Security and Medicare are the two largest mandatory expenditures — formula-based programs that aren’t negotiated each year by Congress, unlike discretionary funds. Some of the trust funds that help support the programs could run out of money in the next 12 years, which would trigger cuts to benefits. Social Security’s Old-Age and Survivors Insurance Trust Fund is projected to be depleted after 2034, according to the program’s board of trustees. Medicare’s Hospital Insurance Trust Fund is projected to run out of funds in 2028.

The Republican Study Committee, the largest group of House Republicans, released a budget plan in June that called on lawmakers to gradually raise the Medicare age of eligibility to 67 and the Social Security eligibility to 70 before indexing both to life expectancy. It backed withholding payments to those who retired early and had earnings over a certain limit. And it endorsed the consideration of options to reduce payroll taxes that fund Social Security and redirect them to private alternatives. It also urged lawmakers to “phase-in an increase in means testing” for Medicare.

Speaker Nancy Pelosi (D-Calif.) has said the proposals constitute privatizing Social Security and “ending Medicare as we know it.”

“House Republicans are openly threatening to cause an economic catastrophe in order to realize their obsession with slashing Medicare and Social Security,” Henry Connelly, a Pelosi spokesman, said in a Tuesday statement to Bloomberg Government. “As House Republican leaders’ own words constantly reveal, dismantling the pillars of American seniors’ financial security is not a fringe view in the extreme MAGA House GOP, it is a broadly held obsession at the core of their legislative agenda.”

Smith said Republicans will focus on “protecting and preserving” Social Security and Medicare, but he declined to say specifically if he supports the RSC proposal to raise the eligibility age. He said broadly that Republicans would find “innovative ways to drive down the cost of health care.”

Work Requirements

A conservative welfare overhaul — focused on work requirements or other cost-reducing measures — could serve as lower-hanging fruit for Republicans seeking spending cuts, members said.

Smith said Republicans should focus on “welfare reform, making sure that work requirements are put in place for able-bodied healthy adults. We need to make sure income verification are in place for welfare programs.”

Arrington pointed to work requirements for able-bodied adults without dependents to receive Supplemental Nutrition Assistance Program benefits, formerly known as food stamps. The Trump administration in 2019 imposed a rule rolling back states’ ability to waive work requirements — but Trump backed off of those at the height of the pandemic in 2020. Arrington said lawmakers should write those restrictions into law.

The SNAP proposals could turn the farm bill, up for reauthorization in 2023, into another point of contention, Arrington said.

Spending Caps

Another way to curb federal expenditures would be for Congress to impose caps on discretionary spending, as lawmakers did after the 2011 debt-limit negotiations, Smith and Arrington said. Those limits were routinely increased and expired after 10 years.

Arrington introduced a bill in late September to place statutory caps on discretionary spending, which would limit funds to slightly less than $1.6 trillion in fiscal 2023 and limit growth to 2% annually for 10 years.

Smith was a lead author of a letter during 2021 debt-limit negotiations calling for any increase or suspension to be accompanied by discretionary spending limits, a statutory cap on the annual federal deficit, and a constitutional Balanced Budget Amendment, among other measures.

Discretionary spending has made up 25% to 30% of federal outlays in recent years. Some members said capping that part of the budget wouldn’t be as effective as overhauling Social Security and Medicare.

“I wouldn’t describe it as a distraction, but I’m not sure it’s where our main focus should be,” Carter said.

Defense spending, which is part of the discretionary budget, would continue to be a high priority for Republicans. Arrington said nondefense programs should be cut to increase military funds and stay within his proposed spending caps.

Broader Measures

Republicans also proposed plans to set budget goals or form committees that could indirectly lead to major policy changes, such as Smith’s proposed Balanced Budget Amendment or cap on annual deficits.

Formal debt-to-GDP targets are another popular measure for Republicans. Arrington cosponsored a bill with Rep. Scott Peters (D-Calif.) that would automatically send the president legislation to suspend the debt limit if Congress agrees to a budget resolution that would reduce the debt-to-GDP ratio by 5% of GDP within 10 years.

Arrington also praised a bipartisan bill introduced in both chambers that would establish committees to advance legislation to shore up the solvency of any of the major federal trust funds that are projected to deplete their reserves in the next 14 years.

But Smith countered that “the American people are sick of a new committee being formed to try to address the problems.”

Carter said he would prefer to turn the House Budget Committee into “an All-Star committee” by requiring that every authorizing committee have a member on it.

Democrats don’t have a plan to preempt a 2023 standoff on the debt limit. House Budget Chair John Yarmuth (D-Ky.), who is retiring, and Sen. Tim Kaine (D-Va.), a Budget Committee member, both said there’s been no significant discussion of trying to raise or suspend the debt limit in the lame-duck session.

“Since 2011, there have always been demands,” Kaine said. “So that doesn’t surprise me.”

To contact the reporter on this story: Jack Fitzpatrick in Washington at jfitzpatrick@bgov.com

To contact the editors responsible for this story: Bennett Roth at broth@bgov.com; Sarah Babbage at sbabbage@bgov.com