House Speaker Kevin McCarthy and President Biden just announced that they have reached a deal to raise the debt ceiling. While raising the debt ceiling usually occurs routinely, occasionally there are problems. This time there were big problems.
McCarthy and the GOP-led House of Representatives had already passed a bill that would only raise the debt ceiling if there were promises to reduce government spending. Biden initially said that he wanted a “clean” deal that address only the debt ceiling and refused to negotiate. But in the 11th hour, negotiations produced a compromise.
Most economists say that the U.S. debt should be less than one year’s output. The debt ceiling is currently $31.5 trillion dollars. That’s about 20% more than the country’s yearly output. The GOP recognized that not raising the debt ceiling would cause a myriad of very nasty outcomes. Yet they also knew that when someone is stuck in a deep hole, the first thing to do is to stop digging.
So, the GOP reasoned, any deal to raise the debt ceiling must include restrictions on further spending increases. The increased spending in the last five years alone has made the problem much worse. In fiscal year 2019, the federal government spent less than $4.5 trillion. In fiscal 2024 Biden has proposed spending $6.9 trillion.
Historically, reducing government spending has almost never occurred. (It did occur in 1946 when WWII ended.)
The debt bill will hold next year’s spending to no increase and allow only a 1% annual increase in discretionary spending going forward. That’s about the best that can be done.
Cutting government spending is so difficult because most of the budget is vitually untouchable. About 60% of the spending pays for Social Security, Medicare and Medicaid. Politically that’s untouchable, although eventually the U.S. will have to face the Social Security and Medicare deficits.
Nearly 10% of the budget is for interest on the public debt. About half of what’s left over goes to defense and the military, which is also untouchable today. That leaves very little room to cut.
The very conservative Republicans have denounced the bill. They note that the bill will still add $4 trillion of additional debt. “No one claiming to be a conservative could justify a yes vote,” said Rep. Bob Good (R-Va.)
The very liberal Democrats also oppose the bill. They say that President Biden has not defended the party’s priorities. Rep. Pramila Jayapal (D-Wash.), who chairs the Congressional Progressive Caucus, said she did not know if she would support the deal. She was specifically criticizing the new work requirements for some people who receive federal food assistance, calling it “bad policy.”
The deal, however, represents two very important events. First, there was true compromise. Biden said that everyone will not get everything they want but overall, this is a good bill. While he was firmly against negotiating in the beginning, he finally negotiated and was willing to compromise.
McCarthy held firm where he had to and found compromise where needed. This bill shows that Congress can compromise. And indeed, it must.
Secondly, the mood in the country has changed enough to influence members of Congress. Prior to President Obama’s election in 2008, the majority of the country was center-right, meaning the majority of the people expressed mostly moderate views but leaned toward the conservative side.
From 2008 to 2023 the country moved to the center left and then toward the far left. With this debt ceiling bill, the mood of the country and the resulting government policy starts to move away from the far left and toward the center.
For those two reasons and noting that this bill is probably the best compromise bill possible, it is important that both houses of Congress approve the bill this week. Then the President can sign it into law and all those nasty outcomes will be avoided. That’s what Congress is supposed to do. Find compromising solutions to difficult problems.
Pass the bill!
Michael Busler is a public policy analyst and a professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written op-ed columns in major newspapers for more than 35 years.
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