A Republican plan to cut federal spending in exchange for lifting the U.S. government’s debt ceiling would lower employment, slow economic growth and “meaningfully increase” the likelihood of a recession, Moody’s Analytics’ chief economist told a Senate committee on Thursday.
Mark Zandi told the Senate Budget Committee that U.S. GDP growth would be 1.61% in 2024 if the Republican plan were enacted, compared with 2.23% otherwise, and lead to 790,000 fewer jobs.
Republicans are pressing Democratic President Joe Biden to agree to spending cuts as a condition for raising the United States’ self-imposed $31.4 trillion debt ceiling. Biden and his fellow Democrats insist Congress should raise the cap without conditions.
The United States could run out of money to pay its bills as soon as June 1 if Congress does not act, according to Treasury Secretary Janet Yellen.
Zandi said the government is most likely to hit that limit on June 8, though he said it could happen any time between June 1 and Aug. 8.
“We need to end this drama as quickly as possible. If we don’t, we’ll go into a recession and our fiscal problems will be made even worse,” Zandi told the committee.
The hearing is the first of several planned by Senate Democrats, who say legislation that passed the Republican-controlled House of Representatives last week on a party-line vote would undercut child care, education and other government programs.
Republicans say the cuts are needed to slow the growth of the U.S. debt, which has jumped sharply as Washington spent trillions on COVID-19 relief.
Biden is due to meet with House Speaker Kevin McCarthy and other top lawmakers at the White House on Tuesday. The standoff is worrying investors, who have pushed yields on as much as $650 billion of Treasury securities maturing in the first half of June to record highs after Yellen’s announcement.
The Senate so far has not played a role in the standoff. Republicans have lined up behind the House proposal. Democrats say they might try to pass a “clean” debt ceiling hike, but that would be unlikely to win enough Republican votes for passage.
Still, the hearings will provide the sort of legislative scrutiny that did not take place in the House, where the package was quickly passed after being assembled by its leadership behind closed doors.
The centerpiece of the House Republican plan would scale back a wide swath of annual government spending to last year’s levels, a cut of about 8%, and cap its growth by 1% each year after that.
The Republican plan does not specify how individual programs would fare. Democrats have argued that domestic spending would take the biggest hit, as Republicans would try to protect military and veterans programs.