Tag: Debt Limit

The Grand Debt Deal: Look to the Future


Politics, in times of crisis, surely makes for strange bedfellows. That was clearly evident in the recent debt-ceiling deal, which won with a bipartisan majority in both the Senate and the House, albeit with more Democratic votes than Republican. In the Senate, 46 Democrats and independents combined with only 17 Republicans to put the deal over the top. The vote in the House had 165 Democrats joined by 149 Republicans, with 46 Democrats and 71 Republicans voting against. The vote was clearly one that was opposed by Freedom Caucus Republicans and Progressive Democrats—for, of course, diametrically opposed reasons. The former want less spending, regulation, and taxes, and the latter want more of all three.

The bipartisan middle secured a two-year moratorium on fixing the debt-ceiling problem, which means that the topic will be front and center after the presidential election of 2024, and this could well lead to a sharp switch in one direction or the other. As a political matter, I think that both sides did the right thing when they chose to blink and pass legislation that neither really wants. Each side is in position to claim victory on a far-ranging deal, tendentiously labeled the Limit, Save, Grow Act of 2023, which might not, when all is said and done, achieve any of those goals. This complex statute resists any easy summarization, but the one provision that looks most relevant to a spending bill calls for an automatic 1 percent reduction to all spending programs if the parties cannot reach an annual budget in a timely fashion. That provision is augmented by attempts to rein in spending, deal with the efforts to scoop back the “unobligated coronavirus funds,” “prohibit unfair student loan giveaways,” and expand offshore oil and gas leasing, tightening work requirements for receiving food for people under fifty-four and able-bodied adults who have no dependents at home, and greenlighting the Appalachian natural gas pipeline. Yet there is a $45 billion allocation for dealing with toxic conditions for veterans, which is no mere rounding error, even with today’s stratospheric budget allocations. It was some achievement for the two sides to craft a complex bill that ranged so widely on topics, but no one should be under the illusion that the bipartisan process shall continue after the next election.

President Biden issued a clever victory statement that held out an olive branch to Republicans for coming to the table, only to add that his victory comes from keeping key issues off the table. Thus, he was adamant that his program contained no cuts with respect to Medicare, Medicaid, or Social Security, which to his mind have become not benefit programs but firm entitlements that the government has the obligation to fund, come hell or high water. There is a real risk in taking this hard-line position in light of the precarious financial situation of all these entitlement programs. The Social Security program is expected to run out of money one year sooner than expected, by the year 2034. At that point, the benefits are cut to 80 percent unless additional tax revenues are raised to close the gap. The situation could improve markedly if the economy expands, as is evidenced by the strong labor numbers just released, but underlying uncertainty about world events in Ukraine, the Middle East, and the Taiwan Strait change the picture radically. Medicare is even more precarious: the Hospital Insurance trust fund could be depleted by 2028. The program spends more than it receives in receipts, leading to the need to tap into the trust fund—a need that will only increase with time. Indeed, the current deal, which keeps Medicare off limits, means that nothing will be done within the framework to try to rationalize and restrain a program that constitutes 20 percent of national expenditures on health and 12 percent of the federal budget.

What Happens Now (With Congress)?


Russian revolutionary Vladimir Lenin famously said, “There are decades where nothing happens, and there are weeks where decades happen.” They often qualify as fulfilling the ancient Chinese curse, “May you live in interesting times.”

We’re about to learn whether one or both fits the present. In the meantime, much drama awaits as the 118th Congress, probably the most narrowly divided Congress in American history, begins on January 3rd.

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It should have been no surprise that Senate GOP leader Mitch McConnell expertly timed a proposal late Wednesday – after the “markets” closed, and more about that later – to go along with a temporary, conditional “deal” to extend our government’s debt limit until December, including a “price tag” just south of $500 billion. Senate […]

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I’m waiting for a sane Democrat (oxymoron alert) to say that it’s “darkest before dawn.” It would at least add a little levity to the negotiations that resemble more a locker room brawl that is spilling out onto the field for everyone to see. Nancy Pelosi broke her promise to vote Thursday on a bipartisan […]

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Pathway to a Balanced Budget Begins with a Fixed Debt Limit that Provides Flexibility


According to the Bipartisan Budget Act of 2015 (Public Law 114-74), the current suspension of the debt ceiling expires at the end of the day Wednesday, March 15. Following this date, the US Treasury can avoid defaulting on the federal debt only by using “extraordinary measures.” Indeed, Treasury Secretary Mnuchin sent a letter to Speaker Ryan on March 8, stating that the Treasury will start using these measures on March 16. He also asked Congress address the matter in a way that avoids jeopardizing the full faith and credit of the US government. These measures (i.e., accounting steps) will most likely allow the federal government to make it to early fall before it runs up against a hard ceiling on the debt.

Suspension or No Suspension?

The first question facing Congress on the debt ceiling is whether to set a new debt ceiling or simply to extend the current suspension. What should Congress do? Without hesitation, I recommend that Congress set a new ceiling that aligns with the state of the art balance budget amendment that is being proposed by the States.

Short of eliminating the debt ceiling permanently, extending the current suspension is the most fiscally irresponsible act Congress can possibly take. Fiscal conservatives must recognize, however, that extending the suspension is the easiest thing for Congress to do. It serves to kick the can down the road on fixing the budget. The big spenders will argue that only raising the debt ceiling will still lead to a government shutdown or default on the government’s debt. The use of these scare tactics will be designed to precipitate a fight in Congress the big spenders will use to put in place a policy of permanent deficits and unending increases in the debt. Fiscal conservatives must be prepared to fight back.