Twelve years ago, when the Obama Administration and a Republican-controlled House of Representatives reached an agreement to raise the debt ceiling, the Missouri Democrat Emanuel Cleaver called the deal a “sugar-coated Satan sandwich,” adding, “If you lift the bun, you will not like what you see.” Cleaver’s metaphor proved apt. The agreement called for both immediate and longer-term spending cuts, and, as many Keynesian economists warned at the time, these cuts came too soon after the Great Recession of 2007-09. The pullback in spending stunted the country’s economic recovery for years, and Donald Trump used that fact to his advantage in his 2016 Presidential campaign.
On Sunday, House Republicans released the legislative version of the 2023 debt-ceiling agreement that President Biden and the Speaker of the House, Kevin McCarthy, finalized the previous day. If both houses of Congress pass the agreement later this week—and that’s a big if—it will remove the threat of a catastrophic debt default for another two years. And the Biden Administration will have secured a deal that, although occasionally callous and misguided, more closely resembles the debt-ceiling deals of 2015, 2018, and 2019 than the deeply damaging agreement that was passed in 2011.
As is to be expected in an agreement negotiated with hostage-takers, parts of the deal are disturbing. At the G.O.P. side’s insistence, the agreement will introduce work requirements for needy adults in their fifties who receive federal food assistance, and it will stiffen existing work requirements for needy families who receive cash assistance. Republicans claim that these provisions will save the country money, but the sums involved are relatively trivial in a 6.3-trillion-dollar budget, and the effect on the lives of some of the neediest Americans could be devastating. The deal also claws back some twenty billion dollars in funding that Congress had previously allotted to the Internal Revenue Service for a crackdown on tax evasion, particularly by the wealthy.
The Biden Administration can say that it avoided even worse outcomes. House Republicans were also demanding work requirements for Medicaid, the federal health-care program for poor individuals and families, and the debt-ceiling bill that they passed in April would have rescinded all eighty billion dollars of additional I.R.S. funding from last year’s Inflation Reduction Act. The White House fended off these demands, but the fact remains that it reached an agreement that targets spending programs for poor people but doesn’t ask anything of the rich—and, by the way, also exempts the vast Pentagon budget from any cuts. Evidently, the White House decided that, in order to secure a deal, it had to give McCarthy some red meat for his MAGA-heavy caucus. Sure enough, when the Republican leadership issued some points about the agreement over the weekend, it highlighted the work requirement for anti-poverty programs and claimed that the package would “slash funding for Biden’s new IRS agents.” In today’s G.O.P., making life harder for poor people is something to celebrate, whereas going after rich tax evaders is simply unacceptable.
In return for agreeing to some bad stuff, the Administration got a deal that raises the debt ceiling and caps non-defense discretionary spending for two years rather than the ten years that Republicans originally demanded. The agreement also calls for over-all spending growth to be limited to one per cent a year for six years, but the White House made sure part of the deal isn’t enforceable, so it doesn’t mean very much. To the extent that the House Republicans were trying to exploit the looming breach of the debt ceiling to create, at one blow, a draconian fiscal framework that would dominate American politics for much of the next decade, they failed to achieve their goal.
In the short term, the agreement will freeze discretionary, non-defense spending at or close to current levels for a couple of years, while allowing McCarthy to claim that he has fulfilled his stated target of cutting this category of spending from 2023 levels. The way that this apparent contradiction works is classic Washington. The spending figures in the debt-ceiling legislation meet McCarthy’s target, but White House officials point out that the over-all agreement also includes two side deals that will raise outlays when Congress gets around to writing actual spending bills. One is the clawback of I.R.S. spending, and the other involves repurposing some thirty billion dollars in unused COVID funding. “When factoring in agreed-upon appropriations adjustments, the deal holds non-defense spending roughly flat in 2024 and increases it by 1% in 2025,” the White House said in a background briefing paper.
These figures don’t account for ongoing inflation, so a freeze or small increase in nominal spending would amount to a cut in inflation-adjusted terms. But, given the big increases in spending that Congress pushed through last December, in a 1.7-trillion-dollar omnibus spending bill, that isn’t the end of the story, either. Because of the December boost, the economics team at Goldman Sachs said on Monday, “discretionary spending is likely to be slightly higher in real terms next year despite the new caps.”
In terms of the U.S. government’s over-all fiscal trajectory, which features big deficits as far as the eye can see, the agreement isn’t likely to have much long-term impact. That’s partly because the spending caps are only for two years, and partly because discretionary non-defense spending—despite covering many vital programs—amounts to only about a seventh of the over-all federal budget. Most of the budget is taken up by four items that are largely excluded from the debt-ceiling deal: Social Security, health-care programs, defense spending, and interest on the national debt. Since the interest must be paid, and cutting any of the other big three spending categories appears to be politically impossible, over-all spending will keep growing, and keep outstripping tax revenues. It seems like the only practical way for the country to prevent its total debt outstanding from continuing to spiral upward is for it to find some new sources of revenue. To be fair to President Biden, he put forward some tax proposals focussed on the very wealthy. In the face of blanket Republican opposition, they went nowhere.
Of course, tackling America’s long-term fiscal challenges is a task that proved to be beyond the U.S. political system even before it became infected with nihilistic right-wing populism, and trying to resolve those challenges on the brink of a debt default would be perhaps the worst option of all. Given the burn-it-down mentality that characterizes much of today’s G.O.P., and its Mar-a-Lago-based disrupter-in-chief, we should perhaps be grateful for a sandwich that is somewhat less than satanic. If McCarthy and Hakeem Jeffries, the leader of the Democrats in the House, manage to get the agreement voted through this week, the debt ceiling won’t have to be raised again until 2025. Before then, we should go all out to eliminate it, so we don’t have to go through this dangerous and unnecessary process again. 
The Debt-Ceiling Deal Could Be a Lot Worse
Source: News Flash Trending
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