“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.)”
““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.”
“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.”
“The legislation, known as the Budget Control Act of 2011, initially increased the debt ceiling by $900 billion and guaranteed a similar amount in long-term savings across defense and non-defense expenditures. It also set up a super committee of lawmakers who were tasked with finding a set amount of additional spending cuts by late November, or automatic spending cuts would be triggered across the board.
By the time the bill passed, however, some of the economic damage was already done. Because the US was so close to default, the stock market had already dipped and the cost of borrowing had increased for the government as well. Higher borrowing costs effectively mean the government has to pay more for loans and has fewer resources to spend on public investments like infrastructure. Additionally, in part due to the brinksmanship involved, the credit rating agency S&P downgraded the country’s credit rating for the first time in US history, signaling to potential buyers that taking on US debt wasn’t as safe as it once was, and undercutting global trust in the country’s economy.
The outcome in 2011 revealed that even getting close to a default was dangerous and had a problematic impact on the economy, experts say. “This is an entirely human-made crisis that adds extra cost to the taxpayer, that can lead to market volatility, and that’s totally avoidable,” said David Vandivier, a former Treasury Department official.
“Repeating it doesn’t make sense,” emphasized Furman.
That warning may go unheeded, however. While Democrats have argued that the debt ceiling — which covers debts the US government has already incurred — should be separate from negotiations on the budget and spending, Republicans have indicated that they’re eager to use this opportunity to secure possible savings, even if it incurs risks that became apparent in 2011.”
“The bipartisan Problem Solvers Caucus—made up of 31 Republicans and 32 Democrats—has reportedly crafted a debt limit proposal that calls for Congress to return to so-called regular order for the passage of annual budget bills. That means the dozen appropriation bills that make up the federal budget would go through the full congressional process, including committee hearings and individual votes for each, rather than being rolled together in the massive omnibus packages that Congress has relied upon in recent years.
According to a draft proposal from the caucus published Wednesday by Axios, a return to regular order would be one of several changes the lawmakers in the group would demand as part of a debt ceiling deal. They’re also asking for the creation of a new fiscal commission to make recommendations on stabilizing the federal government’s dangerously high levels of debt, and the adoption of budget controls (similar to those that were in place between 2011 and 2018) to limit future spending increases.
If those terms are agreed to, the group’s framework would raise the debt ceiling to a level that won’t be reached until after 2025—in other words, until after the next election.
On their own, those proposals won’t solve America’s serious fiscal challenges. But they would be a series of good first steps toward taking the mess seriously and would avert the potentially catastrophic debt default that looms over everything in Washington right now.”
“”A bloc of at least eight corn belt Republicans are a hard ‘no’ on” House Speaker Kevin McCarthy’s (R–Calif.) bill to raise the debt ceiling unless proposed cuts to ethanol tax credits are removed from the package, Axios reported Tuesday. That group reportedly includes all four members of Congress who represent Iowa and at least four other Republican lawmakers from other “corn belt” states.
Because Republicans have a slim 222–213 majority in the House, any group of five lawmakers can hold considerable leverage by threatening to vote against a bill.”
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“this is yet another warning about the dangers of creating government subsidies in the first place.
Even though they cost taxpayers billions of dollars every year, federal ethanol subsidies and tax credits are a tiny chunk of the overall federal budget. Yet they are incredibly valuable to the farming communities that reap those benefits—and that vote to elect lawmakers who promise to keep the federal cash flowing. For the members of Congress from Iowa and other Midwestern states, voting to cut those subsidies could be a career-ending move. On the other side, there’s no significant voting block demanding the removal of ethanol subsidies—even though biofuels are expensive, ineffective, and bad for the environment—so the lawmakers more intensely committed to their special interests usually get what they want.”
“Even if McCarthy is able to push his debt limit bill to House approval, the legislation is dead-on-arrival in the Democratic-controlled Senate. Instead, the GOP debt bill is effectively a messaging tool for Republicans in their push for talks with President Joe Biden, who has thus far insisted on a no-strings-attached increase of the debt limit.
The Treasury Department has already been using “extraordinary measures” for months to hold off a default while an unclear “X-date” looms. But there could be more clarity soon: The Congressional Budget office and the Bipartisan Policy Center are planning to release updated projections the second week of May.”
“In one scenario outlined by the CBO, Congress would have to cut 86 percent of all discretionary spending if it wanted to balance the budget by 2033 without touching the military, veterans programs, or entitlements like Social Security and Medicare. In a slightly altered version of that same scenario in which the Trump tax cuts were not allowed to expire as intended in 2025, Congress would have to cut 100 percent of discretionary spending—and the country would still face a $20 billion deficit.”
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“it should be clear that any attempt at bringing the federal budget deficit under control must kill (or at least wound) the Republicans’ sacred cows of military spending, entitlements, and the recent Trump tax cuts. Right now, however, leading Republicans including former President Donald Trump and Speaker of the House Kevin McCarthy (R–Calif.) have vowed to keep Social Security out of any long-term spending deals. Rep. Jim Banks (R–Ind.) has promised to oppose any bill that cuts defense spending.
As for the tax cuts, they’re technically temporary—a gimmick that allowed Republicans to game the CBO’s scoring of the tax cut bill—but keeping the lower individual income tax rates in place past 2025 is a top priority for Republicans.”
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“the CBO’s numbers aren’t partisan and neither is the blame for America’s massive budget deficits. These latest projections only reveal how difficult the choices ahead will be. If Republicans are serious about trying to balance the budget, there can be no more sacred cows.”