5 winners and 5 losers from the debt ceiling deal
https://www.vox.com/politics/2023/6/1/23743797/debt-ceiling-biden-mccarthy-winners-losers
Tag: spending
The biggest policy changes in the debt ceiling deal, explained
“The deal negotiated by the Biden White House and House Republicans cuts some domestic programs in 2024 and limits spending growth to 1 percent in fiscal year 2025. That will still amount to a cut, after accounting for inflation.
Almost two-thirds of the $6 trillion federal budget is mandatory spending on programs like Social Security, Medicare, and Medicaid that will happen without any action by Congress. The rest is determined by Congress, and that is the bucket that will be affected by the debt limit deal.
The cuts are going to land disproportionately on programs that help the poor and on administration, which also affects the people who rely on government programs. Some discretionary spending — on the military and for veterans — is actually going to increase. But the rest, including funding for child care, low-income housing, the national parks, and more, will be subject to a cut for the next two years.
The exact cuts are supposed to be set by legislation that Congress will pass later this year. Should lawmakers fail to pass those spending bills, automatic spending cuts of 1 percent across the board would occur instead. (The incentive for Congress to pass the spending bills is that these automatic cuts would include the military, which all parties involved want to exempt.)”
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“while this cut is shallower than the automatic cuts of the last decade, it applies to programs that already have been feeling the squeeze: According to the Center on Budget and Policy Priorities, spending for discretionary domestic programs (excluding veterans’ health care) is 10 percent below 2010 levels when adjusted for inflation and increases in the US population.
The long-running neglect has led to shortages in the services they provide. Child care assistance has fallen for the better part of two decades. The primary grant program served 373,000 more children in 2006, even though now there are an additional 1 million American children living in poverty. Likewise, 3 out of 4 US families that should be eligible for federal housing assistance don’t actually receive any aid because there is no funding available. Cuts to the Social Security Administration have been going on for years, while wait times for assistance have been increasing. Investments in water infrastructure have been stagnant, even after clean water crises in Flint, Michigan, and Jackson, Mississippi.”
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“TANF, meanwhile, was created by the 1996 welfare reform law, replacing a program that offered guaranteed cash for low-income parents with a block grant giving $16.5 billion annually to states to spend on anti-poverty programs (though in practice the money is used for all manner of things). Because its appropriation has never been adjusted for inflation over its 27 years of existence, the program has effectively been cut in half over time, and now only about 21 percent of poor families with children get help from it.”
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“The biggest surprise of the deal might be its approval of the 300-mile Mountain Valley Pipeline, which will carry natural gas from West Virginia to southern Virginia.
The pipeline, held up for years by federal lawsuits, has long been a top priority for Sen. Joe Manchin. But the pipeline’s role in debt ceiling talks largely flew under the radar. The deal would give a green light to outstanding permits for the pipeline and shields its construction from court intervention, to the frustration of environmentalists worried about the pipeline’s impact on rural and low-income areas and the 1,000 streams and wetlands along its way.
There are a few other modest changes to permitting for energy projects in the deal, mostly affecting the bedrock 1970s-era environmental protection law, the National Environmental Policy Act. It sets a one-year deadline for agencies to complete an environmental assessment, and a two-year deadline for the more thorough environmental impact statement, an expensive review requiring community input. (Progressives argue that, rather than time limits, federal agencies need more staffing to complete reviews quickly.)”
9 questions about the debt ceiling, answered
“The US government doesn’t have to work this way.
Congress could pass legislation doing away with the debt ceiling, and the president has options to ignore it as well, though they’d likely prompt legal challenges. As mentioned above, the president could invoke the 14th Amendment and ignore the debt limit, or Congress could approve an increase to the debt cap that’s so high it basically nullifies the ceiling.
Abolishing the debt limit altogether would prevent either party from using this process as political leverage. Doing so would greatly reduce the uncertainty that comes around every time there’s a deadline like this and prevent significant market volatility that results.
“There are zero downsides to getting rid of the debt ceiling,” said Bivens from the Economic Policy Institute.
Other economic experts note that eliminating the debt ceiling could take away an opportunity for Congress to debate fiscal policy. But many feel like that’s a moot point, given debt ceiling standoffs are rarely about any specific spending anymore, but rather about weakening the party in power.”
Biden’s Student Loan Plan Could Cost Twice as Much as Projected
“A new analysis from the Congressional Budget Office (CBO) shows that Biden’s so-called income-driven repayment plan will cost at least $230 billion over 10 years—with an additional $45 billion in costs likely coming if the Supreme Court invalidates the White House’s student loan forgiveness scheme. That means the final tab could be more than twice the $138 billion price tag attached to the proposal by the Department of Education, which is overseeing the program’s rollout.
Under current law, federal student loan payments are capped at 10 percent of an individual’s “discretionary income,” which the Department of Education defines as income that exceeds 150 percent of the federal poverty guidelines. In practice, that means a single borrower with no children starts making payments on income that exceeds $20,400.
Biden wants to lower that threshold to 5 percent for undergraduate loans and impose a new limit of 10 percent for loans put toward a graduate degree. Biden’s plan would also wipe away outstanding student debt after 10 years of payments for those who borrowed $12,000 or less—and a maximum payment period of 20 years no matter how much was borrowed.
But if you cap monthly payments at a lower level and also shorten the allowable repayment time, there will be a lot of loans that never get paid back in full. That cost ultimately falls on the taxpayers, and that’s what the dueling estimates from the CBO and the Department of Education are all about.”
Biden Falsely Bragged About Lowering the Budget Deficit. Now, It Is Predictably Rising Again.
Biden and McCarthy reach a final deal to avoid US default and now must sell it to Congress
https://www.yahoo.com/news/biden-gop-reach-debt-ceiling-050430970.html
The Biden Administration Reduced the Debt-to-GDP Ratio in the Worst Possible Way
“Public debt since 2020 has grown by $3 trillion. According to the latest Monthly Treasury Statement, government spending in March of 2023 alone was twice the revenue collected. The deficit in the first six months of FY 2023 is about 80 percent as large as the deficit for the entire FY 2022. Our mid-year deficit is $1.1 trillion, compared to $667 billion at the same point last year. Falling revenue collection is responsible for only 17 percent of this difference. The other 83 percent is overwhelmingly due to excessive and increased spending.
In simpler terms, the decline in the debt-to-GDP ratio cannot be attributed to spending cuts, even as we move away from what’s now widely regarded as an excessive fiscal response to the pandemic.”
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“Government debt as a share of the U.S. economy is falling.”
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“The main driver behind the reduction is inflation”
How the White House sees its debt ceiling standoff with McCarthy
“Republicans, Biden asserted Wednesday, “say they’re going to default unless I agree to all these wacko notions they have. Default. It would be worse than totally irresponsible.”
He reminded McCarthy of the GOP’s hypocrisy — they had no problem raising the debt ceiling three times during the Trump presidency — and of Ronald Reagan and Donald Trump’s own comments decrying debt limit brinkmanship as reckless. Biden also urged the speaker to “take default off the table, and let’s have a real, serious, detailed conversation about how to grow the economy, lower costs and reduce the deficit.”
According to two people familiar with the administration’s strategy, it’s not clear to anyone inside the White House if McCarthy has the votes from his own caucus to pass his bill, and it may not yet be clear to the speaker himself, who has what one person familiar with the White House’s thinking termed a “principal-agent problem.”
The bill would be dead on arrival in a Democrat-controlled Senate. But the White House is signaling clearly to GOP moderates in the House: Vote to cut popular programs, including Social Security and Medicare, at your own risk.
“If they pass this, we are going to hang it around their moderates’ necks,” said one person familiar with the administration’s thinking.”
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“Biden, his aides say, learned from the Obama administration’s 2011 standoff with Republicans that it’s imperative not to allow the debt ceiling to become part of negotiations. But with McCarthy’s tenuous speakership constantly hanging by a thread, and dependent in large part on his ability to placate his most extreme members, the White House knows that talking him off the ledge on risking default — giving up what he sees as his main point of leverage — won’t be easy.
And as much as White House officials like the politics of the negotiations’ current phase, they know they, too, will face pressure to negotiate the closer they get to D-Day.”
Pentagon chiefs: Debt default is bad for troops, good for China
““China right now describes us in their open speeches, etc., as a declining power,” Milley said. “Defaulting on the debt would only reinforce that thought and embolden China and increase risk to the United States.”
Austin added that a default would mean a “substantial risk to our reputation” that China could exploit.”
Why the debt ceiling problem never goes away
“The reason Congress continues to land in the same place is that raising or suspending the debt ceiling, much like funding the government, is something it must address on a regular basis. Every few years or so, Congress has to either increase or suspend the country’s debt ceiling as it accrues more debt. This debt comes from covering government expenses including paying for the military, health care programs, and Social Security.
If it fails to address the debt ceiling, Congress would ruin the US credit rating and put its ability to pay its bills in doubt. That would likely trigger a domestic economic crisis, if not an international one. Were the US to default, interest rates would probably go up and unemployment would increase, potentially putting thousands or even millions of people out of work.
Because it’s must-pass legislation and requires the backing of both chambers, the party that’s out of power in the White House or in the minority in Congress has often used this measure as leverage to extract policy concessions or send a political message. That has erased any incentive to reform the process, even though Congress could do away with the debt ceiling if it wanted to.”
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“In recent years, Republicans have been more aggressive in demanding concessions from Democratic administrations in exchange for their support for a debt ceiling increase, though both parties have utilized such votes in the past to make a point. That’s left the US in a dangerous cycle in which the minority party tries to squeeze every concession it can out of the process, debt ceiling negotiations go down to the wire, and any miscalculation on the part of lawmakers could inadvertently cause a default.”
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“the United States is unique in having a debt limit that lawmakers need to suspend or raise every few years.
A debt limit was first established in 1917 in order to “make it easier to finance mobilization efforts in World War I,” per the Brookings Institution. That enabled the US government to take on debt without Congress approving each individual expenditure, which meant it could more quickly and efficiently finance the military. Since the 1960s, Congress has raised the debt limit more than 70 times; 20 of those times have been in the last 23 years. The debt limit effectively caps how much the US is able to borrow from federal agencies, foreign countries, and banks, so if the country defaults, it isn’t able to pay its bills.”
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“The US government doesn’t have to work this way.
Congress could pass legislation doing away with the debt ceiling, and the president has options to ignore it as well, though they’d likely prompt legal challenges. As Vox’s Dylan Matthews has reported, the president could invoke the 14th Amendment and ignore the debt limit, or Congress could approve an increase to the debt cap that’s so high it basically nullifies the ceiling.
Abolishing the debt limit altogether would prevent either party from using this process as political leverage. Doing so would greatly reduce the uncertainty that comes around every time there’s a deadline like this and prevent significant market volatility that results.
“There are zero downsides to getting rid of the debt ceiling. It is utterly meaningless as a policy guide or institution; it is good only for gridlocking government. And, in the modern age, gridlock is an enormous problem, given the huge pressing needs policymakers should be addressing,” said the EPI’s Bivens.
Other economic experts note that eliminating the debt ceiling could take away an opportunity for Congress to debate fiscal policy. But many feel like that’s a moot point, given debt ceiling standoffs are rarely about any specific spending anymore, but rather about weakening the party in power.”
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“It’s unlikely there’s enough political will to make any of these changes happen. Instead, it seems as though lawmakers are comfortable getting right up to the brink — and running the risk of a default again and again.”