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A partial retreat from total condemnation of the debt ceiling deal

After my last commentary pleading with President Biden to invoke the 14th Amendment and say to hell with the debt ceiling, I vowed I would talk about something completely different for this one. Well --- I was wrong --- I think the nature of the agreement reached between Speaker McCarthy and President Biden is worth exploring in detail.

First of all, let’s dispense with President Biden’s spin. YES --- he did permit the Republicans to force him to negotiate over the Budget with the threat of default hanging over the country’s head. He demanded a “clean” increase in the debt ceiling, after which he promised to negotiate over the budget. On March 9, he submitted a budget to Congress and kept saying to the Republicans: “Show us your budget.” [For some summary information about the Biden budget submission, see https://www.whitehouse.gov/omb/briefing-room/2023/03/09/fact-sheet-the-presidents-budget-for-fiscal-year-2024/. I don’t think it’s worth checking the actual submission because it never was even subject to a hearing before Congress.]

Now President Biden can claim that when he sat down with Speaker McCarthy he was just negotiating over the budget and not the debt ceiling, but obviously he was operating under a time constraint. He had to come to a budget deal before the Treasury ran out of money. (Originally, Secretary of Treasury Yellen said June 1 was the default date --- last week she said it was June 5.). Thus, it is clear that despite his protestations, President Biden allowed the Republicans to force the pace of negotiations over the budget because of the threat of default.

Second, let’s admit that in the negotiation, the March 9 budget submission played no role whatsoever in the ultimate deal reached with McCarthy. I challenge any supporter of the agreement to find ANYTHING in it that was in Biden’s original budget proposal. The negotiations with Speaker McCarthy boiled down to how much of the disgusting horrible Republican hostage bill had to be accepted in order to get the Republicans to let the hostage --- the United States economy --- go without too much damage.

[And make no mistake about it --- the original bill, the Limit, Save, and Grow Act, was really awful. For a somewhat supportive analysis see Committee for a Responsible Federal Budget, “CBO Scores the Limit Save and Grow Act,” available here.

If the law had been enacted, over the next ten years spending would have been $4.8 trillion lower than under current law with all of the cuts coming from the non-defense discretionary federal budget. For an angry critique of that bill, see Ricardo Pacheco, “Debt Limit Crisis: A Look at the Limit, Save, Grow Act,” Congressional Progressive Caucus Center, available here. It is, however, important to understand that this bill was just posturing. There was never a chance of a snowball in Hell that the Senate would even consider such a bill. And, there is evidence that many so-called moderate Republicans were told by Speaker McCarthy to vote for the bill with a guarantee that it was just a bargaining chip for McCarthy to use with President Biden and would never become law. And, of course, as it turned out, Speaker McCarthy’s promise to the moderate Republicans turned out to be true – much to the chagrin of the extreme right-wingers who voted against the final compromise.]

So, my discussion two weeks ago in my commentary still holds water. I wish President Biden had refused to negotiate and used the 14th Amendment or some of the other gimmicks that had been suggested.

[For example of some possibilities, including a very strong take against the budget compromise, see James Galbraith, “The Debt Deal Is a Tragedy:  The debt-limit agreement entrenches long-term austerity. It was a huge GOP win,” The Nation, (May 30, 2023), available here.]

Nevertheless, after reading a relatively detailed article in the NY Times I got a much more favorable impression of what President Biden was able to accomplish: The Limit, Save and Grow Act, was the Republican’s first bargaining chip. As the author of the article put it, “…how much of [that bill] …would the president accept in exchange for increasing the debt ceiling.”

[The article is by Peter Baker and is available here. All following quotes are from that article.]

You may remember when I was railing against Biden’s effort to compromise during my last commentary, I was particularly incensed that the Republicans had raised the debt ceiling only for one year, guaranteeing that they would have another chance to take the economy hostage next year during the 2024 election campaigns. Well, the agreement puts off the next “discussion” of the debt ceiling till the spring of 2025 when a new Congress and (hopefully) a second Biden administration will have to make a new deal. It also by the way, is a two-year budget agreement which means that there will be no threat of a government shutdown during the next two years --- not a small thing given the crazies in Congress on the Republican side.

Here is Baker’s takeaway: “Mr. Biden succeeded in stripping the … Act significantly down from what it originally was, to the great consternation of conservative Republicans. Instead of raising the debt ceiling for less than one year while imposing hard caps on discretionary spending for 10 years, the agreement links the two so that the spending limits last just two years, the same as the debt ceiling increase. While Republicans insisted on predicating the limits on a baseline of 2022 spending levels, appropriations adjustments will make it effectively equivalent to the more favorable baseline of 2023.

As a result, the agreement will pare back anticipated spending over the decade just a fraction of what the Republicans sought. The Congressional Budget Office estimated that the caps passed by House Republicans last month would have trimmed $3.2 trillion in discretionary spending over 10 years; a rough New York Times calculation suggests the agreement reached by Mr. Biden and Mr. McCarthy might instead cut a third of that or less.

Moreover, while Mr. Biden did not advance many new Democratic policy goals in the agreement with Mr. McCarthy, he effectively shielded the bulk of his accomplishments from the first two years of his presidency from Republican efforts to gut them.

The Republican plan envisioned revoking many of the clean energy incentives that Mr. Biden included in the Inflation Reduction Act, eliminating additional funds for the Internal Revenue Service to chase wealthy tax cheats and blocking the president’s plan to forgive $400 billion in student loans for millions of Americans. None of that was in the final package.”

In fact, there are many observers who argue that the “deal” McCarthy and Biden struck is about what would have happened in the normal course of budget negotiations between a Republican House and a Democratic White House and Senate. Others have gone further and suggested that Biden actually trapped the Republicans into a negotiation by loudly proclaiming he would never negotiate over the debt ceiling because (according to some) the vast majority of Republicans in Congress are just as afraid of a default as are the Democrats. Absent the pressure to come to an agreement without defaulting, the Republicans might have held out for more drastic cuts and been more than willing to force a government shut-down this coming October when push would come to shove over the budget were it a stand-alone issue without the pressure of immanent default.

So am I going to completely repudiate the arguments I was making in my last commentary? No. There are still some terrible elements in the current compromise. One particularly egregious part of the bill which has absolutely nothing to do with arguments over the level of spending and the debt ceiling was the fast-track agreement to approve the Mountain Valley Pipeline --- a 300-mile natural gas pipeline which is a pet project of West Virginia Senator Joe Manchin. Virginia Senator Tim Kaine tried to amend the bill on the Senate floor but it failed as did a number of Republican sponsored amendments. I saw Kaine talk about this on television and he raised a valuable point. The bill short-circuited the regulatory process and took jurisdiction away from an Appeals Court that had slowed down the project, allowing property owners affected by it --- especially though in Appalachian Virginia --- to sue. [For details of Kaine’s arguments see https://www.wric.com/news/virginia-news/sen-kaine-wants-mountain-valley-pipeline-out-of-debt-ceiling-deal/#:~:text=A%20pipeline%20project%20isn%27t,land%20in%20the%20project%27s%20path.]

So Baker is right that much of the environmental and green energy provisions of the Inflation Reduction Act escaped evisceration at the hands of the Republicans --- but Biden did have to surrender some to the fossil fuel industries and their Congressional enablers.

Or consider the increase in work requirements for some SNAP (food stamps) recipients. Currently there are work requirements for some adult recipients of SNAP ages 18-49. The agreed to change was to raise that age to 54. This is a small but still terrible change --- thousands will be denied food aid. A lot has been made of the fact that Biden got McCarthy to agree to eliminate work requirements for veterans, the homeless and individuals aging out of the foster care system – actually increasing those eligible for SNAP even as they throw some 50-year-olds off. However, just increasing eligibility doesn’t mean that those newly eligible will be able to navigate the paperwork to actually start receiving food assistance. One of the unfortunate secrets about the American safety net is that many programs involve so many hoops to jump through that the rate of participation is much much lower than the rate of eligibility.

There of course was some good news. The original Republican bill added work requirements for Medicaid and the TANF (temporary assistance for needy families) program. In fact, in the compromise, no work requirements were added for Medicaid recipients or TANF. And Federal spending on Medicaid is three times as large as what it spends on SNAP.

In the end, though I am glad the default did not happen, this compromise is clearly a mixed bag. I am somewhat satisfied that the deal wasn’t as bad as it might have been.

HOWEVER, I think it is absolutely essential that the progressive wing of the Democratic Party make it clear to President Biden and the Democratic Congressional leadership that this has to be the LAST TIME they will negotiate over the debt ceiling expansion. President Biden, right now, has to begin the process of using the 14th Amendment to permanently banish the threat of default by making it clear that the debt ceiling law will NEVER be followed. (Of course, a strong Democratic Congress combined with a re-elected Biden Administration could abolish the debt ceiling once and for all in 2025. However, if the Republicans retain either house, the second Biden Administration should be prepared to accept the recommendation of Professor Laurence Tribe which I detailed in my last commentary. Adhering to the debt ceiling violates the President’s responsibility to enforce the laws, including previous appropriations by Congress.)

I sure hope one way or another that this is the last time there will ever be a question of the debt ceiling forcing a default on the US government’s obligations.

Michael Meeropol is professor emeritus of Economics at Western New England University. He is the author with Howard and Paul Sherman of the recently published second edition of Principles of Macroeconomics: Activist vs. Austerity Policies

The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.

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