A new analysis suggests that House Speaker Kevin McCarthy’s plan to cut spending in exchange for raising the debt limit would result in slower economic growth and lower employment.

What You Need To Know

  • A report from Moody's Analytics says that enacting House Speaker Kevin McCarthy’s budget plan would result in 780,000 fewer jobs by the end of 2024 compared to a clean increase to the debt limit

  • The analysis also suggests the proposal “would cut into near-term economic growth” if enacted, predicting GDP growth of 1.6% on the year compared to 2.25% under a clean debt limit increase, and would “meaningfully increase the likelihood” of a recession

  • The proposal, unveiled last week, would would raise the debt limit by $1.5 trillion into next year, while also rolling back spending levels to fiscal year 2022 levels; Speaker McCarthy says he's hoping to put the bill up for a vote this week

  • The report comes one day after the White House released an official statement of administration policy on McCarthy's bill, formally stating that the president will veto the bill in the unlikely event that it reaches his desk

The proposal, unveiled last week, would would raise the debt limit by $1.5 trillion into next year, while also rolling back spending levels to fiscal year 2022 levels, cap federal spending at 1% annually for the next decade, repeal parts of the Inflation Reduction Act, Democrats’ social spending, climate change and tax reform law, and rescind Biden’s student debt forgiveness executive action.

McCarthy’s plan, dubbed the “Limit, Save, Grow Act,” also includes Republican priorities like tougher work requirements for recipients of federal aid, as well as a sweeping energy bill passed by the House GOP which would overhaul permitting rules and boost domestic production of oil, gas and coal. The California Republican leader is eyeing a vote on the bill this week, though negotiations are still underway with his conference in order to secure enough votes to pass.

A report from Moody's Analytics says that enacting McCarthy’s plan would result in 780,000 fewer jobs by the end of 2024 compared to a clean increase to the debt limit — something that President Joe Biden and Democratic leaders are calling for — and would “meaningfully increase the likelihood” of a recession.

The report also suggested that McCarthy’s bill “would cut into near-term economic growth” if enacted, predicting GDP growth of 1.6% on the year compared to 2.25% under a clean debt limit increase.

The White House quickly seized on the report, with one member of President Joe Biden's Council of Economic Advisers calling McCarthy's bill potentially "catastrophic" for families nationwide.

"What Moody's finds is that this proposal would meaningfully increase the likelihood of a recession, it would result in almost 800,000 fewer jobs by the end of 2024, compared with just doing a clean debt limit increase," said Heather Boushey, a member of the CEA, told Spectrum News in an interview Tuesday. "And it would mean that in the first three quarters of next year, employment would actually fall."

"We have been adding jobs month-by-month, quarter-by-quarter, and now have created over 12 million jobs since the president took office," Boushey continued. "It would be really quite catastrophic for millions of families to have this job creation machine come to an end over this kind of proposal."

A new estimate from the nonpartisan Congressional Budget Office estimated that the bill would reduce spending by $4.8 trillion over the next decade, including a $3.2 trillion reduction in discretionary expenditures.

Boushey, citing figures from the country's jobs recovery from the pandemic recession, and warned that the Moody's analysis shows that the proposal puts that growth at risk.

"What this analysis is telling us is that if we go with the speaker's plan, if it were to be put in place, it would meaningfully increase the likelihood that these strong positive trends for American families all across the country would be reversed, that we would see employment start to decline, that we would see growth go down, economic growth overall, we would see economic activity slow," she said.

"That is on top of of course, the cuts that this plan would mean for millions of families all across the country in a variety of ways," she continued. "It would mean eliminating over 108,000 teachers, which would affect over 32 million children across the country, it would hurt public safety, with 1000, fewer rail safety inspections, and a whole bunch of other inspections not being done across our transportation system. These are very real world effects that the cuts would have, but also the economic downturn would affect small businesses across the country, would affect people who need to work for a living."

In a statement Monday evening, the White House's top spokesperson compared McCarthy's proposal to the budget plan put forth by the president last month

"President Biden’s agenda to Invest in America while reducing the deficit has paid off with record job creation, historically low unemployment, and more than $400 billion in private sector manufacturing, but Speaker McCarthy’s bill would cut the American economy off at the knees," White House press secretary Karine Jean-Pierre said in a statement on Monday. "In a new analysis, Moody’s Analytics finds that the Speaker’s legislation would cost 780,000 jobs and increase the odds of recession next year."

"President Biden believes we should be investing in America to revitalize American manufacturing, not holding our economy hostage over disastrous proposals that would lead hundreds of thousands of Americans to lose their jobs," she added.

The report comes one day after the White House released an official statement of administration policy on McCarthy's bill, formally stating that the president will veto the bill in the unlikely event that it reaches his desk. (Senate Majority Leader Chuck Schumer, D-N.Y., has already panned the bill as a non-starter in the Democratic-controlled chamber, saying Tuesday: "It might as well be called the Default on America Act. Because that’s exactly what it is: DOA.")

"The Administration strongly opposes the Limit, Save, Grow Act of 2023, which is a reckless attempt to extract extreme concessions as a condition for the United States simply paying the bills it has already incurred," the statement reads. "The President has been clear that he will not accept such attempts at hostage-taking. House Republicans must take default off the table and address the debt limit without demands and conditions, just as the Congress did three times during the prior Administration."

"While taking the full faith and credit of the United States hostage is irresponsible under any circumstances, this legislation would ask hard-working Americans, the middle-class, seniors, children, and people with disabilities to shoulder the burden of devastating cuts, while doing nothing to ensure that wealthy or large corporations pay their fair share," the statement continues, before blasting the proposal's cuts to education, veterans' medical care, student debt relief and other programs.

"If the President were presented with the Limit, Save, Grow Act of 2023, he would veto it," the statement concludes.