Kevin McCarthy was in celebration mode on Wednesday night after convincing lawmakers to pass his deal with President Joe Biden to avoid a US debt default.
“We decided that you had to spend less, and we achieved that goal,” the Speaker of the House of Representatives told reporters in the US Capitol. “Is it everything I wanted? No. But . . . I think we did pretty dang good for the American public.”
When McCarthy won the speakership of the lower chamber of Congress in January after a marathon 15 rounds of voting, there were widespread doubts over whether he could control his slim Republican majority and contain the resistance from hardline pro-Trump lawmakers on the party’s right flank.
But five months later, with the fate of the global economy and financial markets on the line, he secured the votes needed for the bipartisan bill to raise the US borrowing limit, which would prevent an unprecedented default, while putting new caps on government spending until after the 2024 election.
The McCarthy-Biden deal still needs to clear the Senate before it becomes law, so there is still some uncertainty over the final outcome in Congress. But the House vote was always seen as the biggest hurdle and the riskiest moment for investors. Ultimately it passed comfortably, with 314 votes in favour and 117 opposed.
“I think that McCarthy has taken a relatively weak hand and played it extraordinarily well,” said Doug Holtz-Eakin, a former official in the George W Bush administration who is now president of the American Action Forum, a right-leaning economic think-tank.
McCarthy had to overcome fierce internal resistance on the way to securing the deal. Earlier in the week, a group of Republicans from the Freedom Caucus, the most hardline conservatives in the House, held a seething press conference outside the Capitol during which they blasted the agreement and suggested they might try to oust McCarthy as speaker.
To them, the agreement was a betrayal that did not do enough to rein in Washington spending or the policies introduced by Biden over the past two years.
That bitterness could linger. “No matter what happens, there is going to be a reckoning,” Chip Roy, a Texas Republican, warned at the event.
After Wednesday’s vote, Dan Bishop, a North Carolina Republican and one of McCarthy’s most outspoken critics within the party, posted a screenshot of the tally to Twitter. “This is what it looks like when the uniparty cartel sells out the American people,” he wrote.
In the final House vote, 71 Republicans rejected the deal, while 149 voted in favour, allowing McCarthy to be able to claim the backing of most of his party members.
McCarthy had already shored up support among the vast majority of mainstream Republicans who are fiscally conservative, pro-business and hawkish on defence. To them, the Speaker had done the best he could, given Democrats’ control of the White House and Senate.
“We were headed towards a horrible fiscal cliff [and] we put our faith in the Speaker,” said Greg Murphy, another Republican House member from North Carolina, in an interview. “While not perfect [the deal] gets a lot of Republican wins.”
The deal will keep annual domestic spending roughly flat for the coming fiscal year, excluding the Pentagon budget and the biggest government pension and healthcare programmes, and then allow it to rise 1 per cent in 2025, though the specific cuts have not been identified.
It also includes measures limiting the eligibility of food aid for adults without children up to the age of 54, instead of 49, reducing additional funding allocated for the Internal Revenue Service to pursue wealthy tax evaders and cutting unspent Covid-19 relief money. It also includes measures to speed up environmental reviews for big projects and complete a controversial pipeline in West Virginia.
Over a decade, it would save $1.5tn for the government, the Congressional Budget Office said.
Even some of the most extreme House Republicans ended up in favour of McCarthy’s deal, including Marjorie Taylor Greene, the pro-Trump Georgia lawmaker known for embracing conspiracy theories and election denialism.
She said: “There’s a lot of small businesses in my district, they don’t want to have financial problems. We don’t want to see our bonds downgraded. We don’t want to see any kind of economic failure or bank problems coming from a default.”
Since claiming the speaker gavel in January, McCarthy has gradually built credibility among House Republicans by successfully passing legislation in the House on the party’s top priorities, including energy and border security, even if those bills died in the Senate.
In April, House Republicans approved their own legislation to avert default along with deep spending cuts. While it was destined to go nowhere in the Democratic-controlled Senate, it forced Biden into a negotiation that the president had resisted for weeks. “[McCarthy] defined the terms of the debate,” said John Feehery, a Republican strategist at EFB Advocacy.
Eric Cantor, the former Republican House majority leader now a managing director at Moelis & Co, the investment bank, said the Biden administration was “caught completely flat-footed”.
Meanwhile, Mitch McConnell, the Republican Senate leader, also backed McCarthy’s position, as did the biggest business lobby groups, which embraced his idea of a negotiated deal rather than the unconditional debt ceiling increase pushed by the White House.
Many Democrats accused the Speaker of manufacturing the debt ceiling crisis to extract concessions on fiscal policy, in effect holding the economy hostage unless his demands were met. Progressives in particular were deeply unhappy with some of the terms of the deal.
But McCarthy had to rely on Democratic votes in order to pass the compromise legislation through the House. In one tense moment on Wednesday, Democrats withheld support until the last minute on a procedural vote that could have derailed the entire process.
In the end, 165 Democrats voted in favour of the final bill — more than the number of Republicans who supported it. Hakeem Jeffries, the Democratic leader in the House, told MSNBC it was his party that had to “rescue” Republicans from their own “extremism”.
Democrats did give McCarthy some credit for not revving up hostility in the final stretch of the talks or excessively antagonising the president and his White House team.
“The Speaker avoided the sorts of ridiculousness and performative temper tantrums that tank the markets and imperil a deal,” Dan Pfeiffer, a former White House communications director under Barack Obama, said.
Patrick McHenry, one of the Republican negotiators, suggested McCarthy and Biden might have even bonded during the talks. “You’ve got two Irish guys who don’t drink,” he quipped.
Aside from the nervousness about the economic and financial impact of a default, the debt ceiling stand-off was the latest litmus test of whether the US political system can function amid high levels of polarisation and the influence of Donald Trump.
Last month, the former president urged Republican lawmakers to allow the US to default on its debts in the absence of the kind of “massive” spending cuts that McCarthy has failed to extract from the White House.
The eleventh-hour deal to avoid a self-inflicted crisis suggested the centre of US politics was still holding, although most in Washington were wary of drawing too many encouraging conclusions heading into what is expected to be a vicious 2024 election cycle.
Holtz-Eakin said: “We didn’t blow up the global financial system. That hardly constitutes a great accomplishment.”