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  • Sheri Rivlin Allan Rivlin

Averting a “Crisis,” Joe Biden Eats Kevin McCarthy’s Lunch

Once again, bipartisan compromise breaks out when it was least expected. At the end of May, when we, and the bond markets and bond rating services, and just about everyone else were worried that a partisan standoff could lead to an American default on our nation’s debt, we wrote an article titled “Washington Dysfunction and Chaos Is a Choice Not an Inevitability” detailing the many decisions made to bring us to that impasse. Well, it seems function is also a choice, and for the first time this year our leaders chose to make a bipartisan deal to avert the “crisis” manufactured by the House Republicans. We should not have been as surprised as, we must admit, we were.

We wrote a book “Divided We Fall, Why Consensus Matters” (Brookings Press, 2022) that extolled the virtues of the bipartisan path for repairing our broken political system. In it we argued that bipartisanship happens all the time, more than most people think, and often when it is least expected. Last week bipartisanship happened again, and as we have seen many times in the past, it took the form of a last-minute deal to end another of the all-too-common partisan standoffs and averted a “crisis.” The book makes the case for more non-crisis bipartisanship to reduce the number of times we need crisis avoiding bipartisanship, and once again the path of non-crisis bipartisanship is available for Washington policymakers. The string of bipartisan legislative accomplishments that characterized 2022 could yet return in 2023 and 2024 with bipartisan solutions to our unsustainable debt (which was not meaningfully addressed in the Biden/McCarthy deal), immigration, firearms safety, and/or climate change.

The debt limit “crisis” halted any continuation of non-crisis bipartisan achievement. The confrontation was entirely a choice, a bad choice, made by the House Republicans. The nation’s creditworthiness should never be weaponized by any political party, there is no need for a debt limit at all, and it should be permanently eliminated as called for in the legislation proposed by Senators Chris Van Hollen (D-MD) and Brian Schatz (D-HI). And even though an agreement was reached raising the debt ceiling through the end of 2024, the stand-off has caused lasting damage to the economy, and America’s reputation and standing in the world. The Fitch rating service put America’s credit rating on a negative watch list and did not remove it from the list after the deal was announced because one American political party has shown a willingness to threaten our good credit rating as a political bargaining chip, and Fitch has a responsibility to warn current and potential holders of American Treasury Bonds of the potential that they would not be honored as the result of some future political stunt.

The United States gained great privileges following World War II including an international economic order that depends on US Treasury bonds and the US dollar as the most stable forms of debt and currency. The Chinese would love to join us or replace us for this privilege. This prospect would have advanced if America had defaulted and even advanced a bit just because there was another threat of a possible default. The world was watching as this “crisis” played out and continues to wonder if our system of government is worthy of the respect it has earned.

We and many others did not think President Biden should negotiate at all over the debt ceiling so the dangerous House GOP gambit would yield nothing, but Biden (and his lead negotiators Steve Ricchetti, Budget Director Shalanda Young, and Chief of Staff Jeff Zients) gave up next-to-nothing because McCarthy and the GOP had no bargaining leverage from a threat they would not, and could not, actually carry out, that was starting to roil bond markets and get threats of a US debt downgrade.

The Biden McCarthy deal is basically a continuing resolution (CR) to fund the government at 2023 levels through the end of 2024. Continuing resolutions are bad policy because government is “on autopilot” when grownup policymakers could make better decisions, and because a CR is a major cut against inflation and growth in the economy and population. The deal put caps on growth in the discretionary budget which is the part of the budget that is not growing too fast, while negotiations took the part of the budget that is growing unsustainably off the table when both sides agreed there would be no cuts in “entitlements” like Social Security and Medicare. The deal included increases in some areas including funding for the military and veterans’ benefits.

The public does not support cuts in Social Security and Medicare, and even though the public supports budget cutting in the abstract, they do not support cuts in the specific programs like research to cure cancer and Alzheimer’s, border security, food safety inspections, managing the national parks and forests and fighting forest fires, law enforcement, education, and scores of other specific programs that compose the discretionary budget. We need a smaller deficit from slower growth in Medicare spending (through greater efficiencies and changed incentives in the delivery of medical services) and more tax revenue (by closing tax loopholes and restoring higher rates on the largest corporations and highest earners) but these policies are not politically feasible right now. There were productive discussions in the Simpson-Bowles and Domenici-Rivlin Commissions and many proposals to put the nation’s borrowing on a sustainable path in 2010-2011 but they were sidelined by the standoffs, default threats, deadlines, and government shutdowns in the Obama vs. Tea Party budget battles and these discussions have not been resumed.

Throughout the Obama era budget battles, we learned that a continuing resolution is always the most likely outcome of a contentious budget negotiation, and in 2023, negotiators could have arrived at a CR without all the threats and drama. There were a few specific areas of spending that deviated from the Bipartisan FY2022 Budget passed in December, and some excellentreporting gives us insights into how much better Biden’s team understood the details of budget negotiations than McCarthy’s team. Republicans are good at writing bold statements into their talking points, like “we spend too much on government handouts” but their statement fall apart under scrutiny. For example, do they want to take food assistance away from veterans?

The deal banks three areas of budget savings – well sort of.

COVID Spending Claw Back: President Biden would likely have agreed to return unspent COVID relief funds in a normal budget negotiation. Much of the unspent funds were for businesses that retained employees during the shut-down but have not yet filed for their compensation payments. Those ads offering to help businesses file their claims will likely stop fairly soon. (Sorry “Mr. Wonderful.”)

Increased Funding for the IRS: Last year President Biden, Senate Minority Leader Mitch McConnell and other leaders agreed to pass a bipartisan budget for FY2022 that added $80 billion for increased IRS enforcement of tax laws. The House Republicans used their first vote to pass HR1 rescinding this increase in a symbolic vote that stood no chance in the Democratically controlled Senate. They again included elimination of the IRS increase in their plan to avoid default even though the cut would add to the deficit because the enhanced enforcement pays for itself in increased revenue from greater tax compliance. The White House negotiated a $60 Billion IRS increase “saving” $20 billion. But there are reports that this will not reduce IRS funding levels at all because the IRS had not planned to spend all of the $80 billion before the deal expires at the start of 2025. The IRS will have more auditors and collect more revenue by going after tax cheats and encouraging compliance and this will reduce the deficit as much as the 2022 bipartisan budget had planned.

Work Requirement for SNAP Benefits and New Exceptions: Republicans were seeking to add work requirements for Medicaid and for the Supplemental Nutrition Assistance Program (formerly called “Food Stamps.”) The Medicaid work requirement would have put even more pressure on struggling urban and rural hospitals and clinics and were not included in the deal. There already were work requirements for SNAP benefits to households without children headed by people under the age of 50. The deal raised the age for SNAP work requirements to 54 which will place an additional burden on thousands of economically struggling households and individuals, but at the same time they created three new exemptions for the work requirements: 1) veterans, 2) the homeless, and individuals rising out of the foster care system. The CBO recently estimated that the new exceptions outnumber the new burdens, and the net result of the deal will be an increase in SNAP spending.

The White House does not want to be seen as gloating over the debt ceiling negotiations so we will use this obscure Substack post to do it for them. When the Freedom Caucus complains that Kevin McCarthy got them next to nothing in the debt ceiling negotiations, they are mostly right about that. Joe Biden ate Kevin McCarthy’s lunch.

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