Jun 20, 2023 6 min read

President Biden and U.S. Speaker of the House Kevin McCarthy successfully resolved the debt ceiling crisis manufactured by the Freedom Caucus Republicans that threatened to crash the economy and drive up borrowing costs unless Biden acceded to their demands.

Their demands initially included drastically scaling back or rescinding recent Democratic legislative successes, such as the Inflation Reduction Act and funding for the IRS; easing regulations of new energy infrastructure; adding work requirements to the food stamp and cash assistance programs for single people aged 50-to-65 years-old; and reducing discretionary spending by a total of $4.8 trillion over 10 years. The Republican threat to crash the economy was real enough that Biden felt compelled to negotiate.

It’s unfortunate that not crashing the economy is a concession to the Democrats, but in our system, the president would certainly have been blamed had the Republicans refused to raise the debt ceiling.

While most Democrats wanted Biden to refuse to negotiate and use one of the untested options, such as invoking the 14th Amendment, minting a trillion-dollar coin or issuing special bonds, to continue to pay the bills Congress had already approved, the uncertainty surrounding that approach – and more importantly, the time needed to litigate those strategies – meant that many of the negative consequences of default may have happened anyway. Had Biden been firm in his refusal to negotiate the budget under the Republican threat of forcing us into default, he might have gotten the Republicans to back down, but he undermined his own position by dismissing the alternatives available to him.

Biden and the Democrats knew the prospect of the Republicans using the debt ceiling as leverage was likely once the Republicans took back the House of Representatives last fall. Theoretically, the Democrats could have eliminated the debt ceiling during the lame-duck session after the midterm election, but that would have required every Democratic senator agree, including West Virginia’s Joe Manchin and Arizona’s Kyrsten Sinema. Recently, Sen. Chuck Schumer, the Democratic majority leader, said that they were not the only Democrats reluctant to get rid of the debt ceiling. But the Democrats should have had that debate, and those other senators who opposed eliminating the debt ceiling should have done so publicly. President Biden should have had an easier time negotiating with Democratic senators in the fall than with the Freedom Caucus this spring.

The deal that Biden and McCarthy got passed was about what one might expect to get from normal budget negotiations with a divided government. The Freedom Caucus got to claim they forced Biden to negotiate, forced borrowers to resume student-loan payments, and forced work requirements on recipients of cash assistance and food stamps over age 55. Also, Manchin finally got expedited approval for the Mountain Valley natural gas pipeline.

McCarthy got plaudits for keeping the Republicans together long enough to make the deal, while some think Biden rolled the Republicans because he got a lot more than his critics feared. Biden had already pledged to end the pause on student loans, though without the agreement, he might not have kept that pledge. Social Security and Medicare remain untouched, and discretionary spending will be flat in 2024, followed by a 1% rise in 2025, which is not a large spending reduction. The IRS funding that was cut can be restored in the future, and while the work requirements will reduce access to the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF), Biden got improved access to veterans and the homeless that the Congressional Budget Office projects will actually increase spending slightly.

In other words, the manufactured debt crisis was all about messaging, not the debt. Actual debt reduction will be minimal.

Ironically, while the Republicans claim to stand for fiscal responsibility, for the last 40 years deficits grew much faster under Republican presidents. Bill Clinton, a Democrat, was the last president to have a budget surplus. Biden came into office facing an historic deficit and an economy struggling to recover from the pandemic, but he has whittled down the $3 trillion deficit Trump left, down to less than half of that. Given the need for the federal government to address the impact of COVID-19, the deficit spending in Trump’s last year in office was understandable. But the deficits had been growing under Trump before the pandemic, largely due to his tax cuts for the wealthy. Republicans simply refuse to admit that cutting taxes on the wealthy does not increase tax revenue, in spite of three presidents – Ronald Reagan, George W. Bush and Trump – attempting it. It’s almost as if they care more about cutting taxes on the rich than balancing the budget.

While the deficit is a potential long-term problem, it is not the immediate crisis Republicans claim it is to justify cutting Democratic programs. The claim by Bush’s vice president Dick Cheney that deficits “don’t matter,” is not quite true, but as long as people are willing to buy U.S. debt, the market doesn’t see the deficit has a problem. If the economy is growing, we can handle a growing deficit, because government revenues should grow with the economy, just as higher-income people can afford to pay higher loan payments. But when the deficit is growing faster than the economy, eventually that will matter, and it may be hard to predict when that day will come, so it would be good to prepare for that.

History has shown that Republicans are fine with deficits, as long as they pay for Republican priorities. Before the ink was dry on the budget deal, the Republicans introduced a plan to cut taxes by $240 billion over 10 years, paying for $210 billion of it by cutting expenses on green energy programs. Real efforts to reduce the deficit would include raising taxes on the wealthy, Social Security reform, reducing spending on defense – not giving the Pentagon more money than it asked for would be a start – as well as in the rest of the discretionary budget. Republican scaremongering about the deficit should be seen for what it is – leverage to achieve other goals.

Kent James is a member of East Washington’s borough council.