Rep. Kevin McCarthy, R-Calif., celebrates while holding the speaker's gavel after being elected as speaker on Jan. 7.

Rep. Kevin McCarthy, R-Calif., celebrates while holding the speaker's gavel after being elected as speaker on Jan. 7. Win McNamee/Getty Images

McCarthy's Deal to Secure the House Speakership Puts Agencies at Risk of Severe Budget Cuts

Republicans will demand non-defense spending cuts of up to 25%, putting Congress on a collision course with a shutdown.

House Republicans have agreed to only consider spending bills for fiscal 2024 that would cut domestic agency funding across the board by more than 20%, already sparking concerns of a shutdown when current funding expires this fall. 

House Speaker Kevin McCarthy, R-Calif., made the agreement in his bid to win over 20 defectors within his party who for days prevented him from obtaining the position to lead the chamber in the 118th Congress. While not formally part of the rules package that will govern the House for the next two years, those negotiating the deal have said it will ensure the House caps the next set of appropriations bills at fiscal 2022 levels. Republicans quickly made clear they are not looking to slash Pentagon spending, creating the potential for onerous reductions at non-defense agencies. 

Congress grew overall discretionary spending by $200 billion in the recently passed fiscal 2023 omnibus funding bill, though excluding various anomalies and supplemental appropriations produces a slightly lower figure. Unwinding that increase with domestic agencies shouldering the entire burden would give a nearly 20% cut. Shai Akabas, director of economic policy at the Bipartisan Policy Center, predicted Republicans would shield not just defense spending but also the departments of Veterans Affairs and Homeland Security, which would in turn reduce the remaining agencies’ real-dollar budgets by 25%. He called such draconian cuts “not feasible” and “something many Republicans don’t want.” 

House Republicans have vowed to consider each of the 12 annual must-pass appropriations bills independently, rather than in one omnibus package, and McCarthy has reportedly agreed not to engage in negotiations with the Senate—or take up Senate-backed spending bills—unless they are in line with his caucus’ demands. 

“The [Environmental Protection Agency] never needed tens of billions of new dollars going towards it over these last couple of years,” Rep. Dan Crenshaw, R-Texas, said on CNN on Sunday to defend the promise for cuts. “There's probably going to be plenty of places to cut. And so I think we're going to be OK. Every budget process is messy.” 

Rep. Kay Granger, R-Texas, who will chair the House Appropriations Committee, stressed after McCarthy cut his deal that the Pentagon would be spared from any forthcoming cuts. 

“There have been reports that House Republicans support cutting our national defense,” Granger said. “Let me be clear: this House Republican does not support that position."

Granger’s counterpart on the spending panel, Rep. Rosa DeLaruo, D-Conn., said McCarthy’s deal was putting Congress on a path toward forcing agencies to shutter later this year. 

“This backroom deal not only contradicts Republican calls for transparency, but it also kills the 2024 government funding process before it has even started, all but guaranteeing a shutdown,” DeLauro said. “From cuts to public health investments to decreases in funding for education, this secret deal endangers so much of the progress we made to help children and families, create better-paying jobs, strengthen our national security, and protect our environment.” 

Republicans are looking to tie their efforts to cut spending to an upcoming fight over the debt ceiling. While a U.S. government debt default would cause untold economic calamity, the holdouts during McCarthy’s repeated speaker votes have demanded Republicans use the situation as leverage to demand funding reductions. The Treasury Department is expected to hit its borrowing limit this spring or summer. 

There is no blueprint for how the government would operate if it breaches its debt ceiling, though it is clear agencies would not be able to carry out their normal operations. Because typical spending outpaces the revenue the Treasury brings in on a given day, the federal government would not be able to pay all of its bills in a given month of a default scenario. 

Analysts and Treasury officials have sketched out two possible outcomes during a default: the government would either delay payments until it collected enough revenue to cover them, or prioritize some payments while allowing others to go unpaid. In either scenario, agency payments to beneficiaries, states, grantees, contractors and, potentially, their own employees, could be disrupted. Some federal workers could be furloughed or asked to continue working on the promise of back pay in the future.

Rep. Chip Roy, R-Texas, who led negotiations for many of the anti-McCarthy Republicans during the speaker votes, pointed to the 2011 Budget Control Act as a blueprint for the type of results he and his colleagues hope to achieve in upcoming talks. That agreement, negotiated between congressional Republicans and President Obama, led to one year of “sequestration” that clawed back federal appropriations and several more years of adjusted spending caps that tightened agency budgets. Roy said, also on CNN, that lawmakers should immediately begin talks and “fight now to end the status quo” of growing spending levels.  

Many House Republican demands are dead on arrival in the Democratic-controlled Senate, and funding bills and debt ceiling increases have in recent years come about after bipartisan negotiations in the upper chamber. Some moderate Republicans, such as Rep. Brian Fitzpatrick, R-Pa., who played a key role in negotiating with conservatives initially opposed to McCarthy’s speakership, have said they can join with Democrats in forcing votes on the House floor that conservatives—or even leadership—oppose. The House rules package allows for any member to bring up amendments on appropriations bills, however, which could further complicate efforts to advance measures carefully crafted in the Senate.  

Akabas cautioned the process of bringing bills to the floor without leadership’s approval is typically lengthy and not well suited for avoiding shutdowns or defaults. Whether such crises emerge, he said, will depend on whether Republicans are signaling a starting point in future negotiations or a hard-line position from which they will not back down. He noted they could back themselves out of that corner on the debt ceiling by passing bipartisan legislation introduced in the last Congress that would offer a path for the president to unilaterally suspend the borrowing limit while creating an option for lawmakers to override that decision. 

Meanwhile, McCarthy will continue to lead efforts to drastically reduce federal spending at agencies—both in the near and long term. The new speaker has also agreed to vote on a 10-year budget that would balance within 10 years. Previous Republican efforts to reach such a goal, then led by former Rep. Paul Ryan, R-Wis., proposed drastic cuts to agencies, significant reductions to the federal workforce and slashing benefits for federal employees. Akabas noted that a balanced budget that keeps Republican promises to maintain defense spending, not cut entitlements and not raise taxes would reduce remaining discretionary funding so severely it would nearly cease to exist. Still, budget resolutions are non-binding, allowing Republicans to pass such a measure without following through on actual appropriations. 

Republicans are taking a multi-pronged approach to constraining federal agencies. They are set to resurrect the "Holman Rule," which will allow individual lawmakers to propose reducing the number of federal workers at specific agencies or cut their compensation as a provision of or an amendment to an appropriations bill. After the House approves the rules package, it is slated to vote Monday evening on a measure revoking $80 billion in funding for the Internal Revenue Service. The Family and Small Business Taxpayer Protection Act would rescind the 10-year cash infusion Democrats provided last year to IRS as part of the Inflation Reduction Act.

House Republicans will also make clear their intention to target federal offices through another part of their rules package, which suggests agencies set oversight plans that “may make recommendations to consolidate or terminate duplicative or unnecessary programs and agencies.” The package will create a Select Subcommittee on the Weaponization of the Federal Government within the House Judiciary Committee. It is set to focus on how federal agencies, such as the FBI, work with technology companies and private sector entities to investigate U.S. citizens.