Concluding the Debt-Ceiling Negotiations
Last evening President Biden and House Speaker McCarthy announced that they had reached a “tentative agreement in principle” to raise the debt ceiling for two years. Their understanding, which is yet to be reduced to writing, will involve limits on federal spending over that period. It will also impose some additional work requirements for certain participants in the federal government’s nutritional assistance programs. An important feature of their understanding is that it will shave an aggregate of $10 billion off the IRS’s budget over the next ten years. President Biden emphasized that this is a compromise and that there will be many people in both political parties who will be disappointed with the final agreement.
Two things should be understood. First, as he has consistently done, President Biden chose his remarks carefully and left Speaker McCarthy ample room to claim that he had achieved many of the goals his Republican House Conference members had been demanding. Second, even the broad principles agreed upon, much less the actual language now being composed to articulate them, will not be satisfactory to a significant number of House Republicans. This means that there remains a substantial danger that a final resolution may not be achieved before June 5th, the date Treasury Secretary Yellen has warned that the nation will no longer be able to pay its obligations. Stated another way, it’s still too soon for sighs of relief.
Over the past five months not a single day has passed that I didn’t encounter a news story reporting House Speaker McCarthy saying that no deal has been struck regarding the lifting of the debt ceiling because of the Biden administration’s insistence upon continuing wasteful spending programs. He invariably concluded his statements saying that our nation has “a spending problem”, not “a revenue problem.” By contrast, the President and the members of his administration have remained silent except to say that White House negotiators and House Republicans were making progress on addressing the debt-ceiling issue. Only Karine Jean-Pierre, the White House Press Secretary, has even dared to cast blame upon House Republicans for causing the current impasse. Even so, she simply characterized their position as extremist and pointed out that it’s Congress’ responsibility to fashion a way for the nation to pay its debts.
Anyone who was taking note of the debt ceiling negotiations knows that House Republicans never made a serious proposal to reduce the nation’s annual budgetary deficits. Yes, they passed a bill in late April which they claimed would reduce the nation’s accumulated deficits by $5 trillion over the next ten years. Aside from the fact that their bill would not have reduced spending for social security, Medicare or the U.S. military it did not specify which federal programs it would actually cut. Since these three “untouchable” programs represent more than 65% of the current federal budget of $4.174 trillion, this only left slightly under $1.5 trillion of expenditures from which annual cuts aggregating roughly $500 billion could be made.
That problem was further complicated by the fact that current annual spending for Medicaid stood at $571 billion and annual service on the nation’s current indebtedness represented another $305 billion. In addition, other quasi-critical defense expenditures (including the costs of military foreign aid and homeland defense spending) represented still another $225 billion. This meant that all remaining federal programs would either have to be drastically cut or completely eliminated. Just where these cuts were to be made was never articulated for the simple reason that no explanation would have been politically palatable. For this reason the bill was just a gimmick (and not a very convincing one) to give the appearance that House Republicans were serious about eliminating budgetary deficits.
It's not just that the House bill did not explain how the Republicans were going to actually reduce federal deficits, it also sought to roll-back the $80 billion increase in the IRS budget included in the Inflation Reduction Act that was enacted last year. The Congressional Budget office had projected that these funds would enable the IRS to collect over $200 billion in additional tax revenues over the next ten years. Far from seeking to reduce the nation’s annual budgetary deficits, House Republicans went on to announce that their next move would be to pass a bill extending the tax cuts enacted during the Trump administration. This would have only further aggravated the nation’s fiscal problems as those tax cuts are currently projected to add $2.3 trillion to the nation’s cumulative deficit and that extending them would add another $3.5 trillion to the nation’s deficit. Thus, what was and is overwhelmingly clear is that the agenda of the House Republicans was never to intended to restore fiscal discipline (which was once the hallmark of their party) but rather to add to the level of income inequality which currently bedevils our nation. Thus, their proposals were not only economically foolish, they were also politically suicidal.
It's no wonder that these machinations led liberal pundits to question why the Biden administration was remaining silent and had not spoken out against what House Republicans were trying to do. It could have pointed out that the Republican spending cuts were simply a mirage. The administration could have also contended that the Republicans refusal to consider raising taxes permits that corporations to accumulate more monies than they could productively invest and wealthy individuals to pay taxes at a rate far lower than the tax rates paid by factory workers. The problem, of course, was that most Republican voters don’t listen to the national television networks and those who do have been programmed to disregard what they hear. More importantly, an attack on the House bill would have caused the Republican Freedom Caucus to unleash a firestorm of disinformation which would have likely derailed any chance of actually reaching a timely agreement on raising the debt ceiling. Stated another way, the Biden administration seems to have chosen to prioritize getting through this impasse over scoring some partisan political points that might help Democrats in the 2024 elections.
Figuring into the President’s calculus was undoubtedly the precarious political position of House Speaker McCarthy, the person with whom his administration was negotiating. McCarthy needed (and continues to need) every House Republican vote he can muster just to get a debt-ceiling bill passed. The problem was (and is) that it was unlikely that he was ever going to win the support of more than a handful of the 30+ members of the Freedom Caucus for any debt-ceiling deal he might strike with the Biden administration. His task was further complicated by former President Trump who openly encouraged House Republicans to oppose any legislation not entirely to their liking. The obvious conclusion was that it is going to take a bipartisan coalition in the House to get any debt-ceiling bill passed.
Faced with this reality, many House and Senate Democrats were encouraging President Biden to stand firm against the Republicans’ threat to hold the nation’s economic well-being hostage. They were advocating that the President ignore the debt ceiling and proceed with the issuance of further debt on the theory that debt ceiling is unconstitutional under the 14thAmendment which essentially mandates the payment of the nation’s outstanding debts. Specifically, Clause 4 of the 14th Amendment states that the “validity of the public debt of the United States … shall not be questioned.” The Biden administration rejected these calls for two reasons.
The first is that any attempt to ignore the debt ceiling would most certainly be met with a court challenge. The President also could have expected to be faced with an impeachment resolution for having violated a duly enacted statute. The real problem was that these proceedings would not be quickly resolved. In the meantime, the fear that the nation’s credit would be undermined could become a reality, causing interest rates and unemployment to soar and sending the nation, if not the world, into a recession.
It’s not just that the courts tend to move slowly, but also the issues were as much political as they were legal. It was altogether possible that conservative judges (either at the trial or appellate levels) would choose to act slowly in the hope of triggering an economic calamity that would be blamed on the Biden administration. We recently witnessed this phenomenon in the decision of District Court Judge Matthew Kacsmaryk’s which held that the abortion drug, mifepristone, must be removed from the market even though it has been safely used for over 25 years and its removal would send millions of Democratic voters to the polls in 2024.
The other problem was that the 14th Amendment does not directly conflict with Article I of the Constitution which grants Congress the sole power to authorize the sale of debt instruments. The reality is that the 14th Amendment does not actually require the Congress to raise the debt ceiling in the current circumstances, it only requires the Congress to find a way to service the nation’s outstanding indebtedness which it could just as easily be accomplished by raising taxes. More likely than not, the courts would simply hold that Congress has a duty to decide how the nation should proceed and the Constitution does not permit the President (or even the courts) to make that decision in the event that the Congress fails to do so. Therefore, precipitating litigation over the 14th Amendment wouldn’t solve the current problem; it would only determine that it’s the responsibility of the divided Congress to do so. This would have been a small consolation for the President and the nation.
In the final analysis, Speaker McCarthy is going to have to strike a deal, not with the Biden administration, but rather with House Minority Leader Jeffries as to what bill can be approved by at least 218 House members. The Biden administration, as well as the Democratic controlled Senate, will have little choice other than to go along with what the two House leaders agree upon. As a part of that deal Speaker McCarthy will also want to bargain for Democratic votes to help him retain the Speaker’s position should one or more members of the Freedom Caucus challenge his continued service as Speaker. This might give Jeffries a little additional bargaining power in fashioning the final bill, something the Freedom Caucus might not have contemplated when it forced McCarthy to agree to amend the House rules to allow a single House member to place his status as Speaker in jeopardy.