The leadership of both the Democrat progressive wing and the Republican reactionary wing voted against passing the legislation to allow the debt ceiling to be raised. However, most of the progressive D’s held back their votes until it was clear that the deal would pass. Their vote was a symbolic protest vote. That was not true for the Rs opposing the settlement. They were prepared to hold another vote past Yellen’s claimed deadline.
In the end, the pragmatic legislators from both parties carried the victory of passing the settlement to allow the debt ceiling to be lifted. They may have studied history more than their right and left-wing caucuses. Polls from the Republican-driven shutdowns in 2011 and 2013 showed that over three-quarters of the population opposed a government shutdown, and certainly a default, over accepting something less than perfect in the budget.
Democrats rightly argued that when Congress passed all the appropriation bills in 2022, any negotiation would be a retreat from prior commitments.
However, those bills were passed with the Ds controlling the Senate and the House. If they had the votes, the Rs would have blocked appropriation bills until they were seriously compromised. It was inevitable that a vote to raise the debt ceiling would be contested after the November elections, considering that the Rs were expected to control at least one of the chambers.
So, who came out on top in this negotiation? First and foremost, the nation’s economy. Even though the Feds could have continued paying interest on their loans, they would have had to take drastic actions to shift cash from services to pay them. For instance, the Feds could close the national parks as people headed into them as summer begins. That would have been a black eye for the Rs if they were the lead party voting against raising the ceiling. But, McCarthy and mainline Rs did not want that hanging around their neck come the next election day.
More importantly, even if the Feds continued to pay interest on their loans, the capital market would dive, and future interest costs would jump since the US could not provide a dependable rate of return on their loans.
If the R’s House Freedom Caucus and the Progressives had gotten enough votes to kill the negotiated treatment, even without a default, the disruption would have been a repeat of the budget crisis in 2011. That is when just the threat of a government shutdown raised federal borrowing costs by $1.3 billion in 2011, according to the nonpartisan Government Accounting Office (GAO). That figure would have wiped out about 90% of what the negotiated settlement would have cut from Biden’s budget over the next ten years. However, this approach would have no budget cuts that the Rs could point to as a victory – it left them in a no-win situation.
Consequently, the Republicans did not have a winning strategy. But the Democrats had only a thin advantage because Biden’s Presidency would be seen as failing to negotiate a timely settlement. Speaker Keven McCarthy and President Joe Biden had to convince their respective parties that their agreement achieved their most critical priorities. Biden had to sway the Democrats that he was protecting their ambitious environmental, tax, and social benefits from massive cuts. Meanwhile, McCarthy had the heaver lift, since his right flank, under the leadership of the House Freedom Caucus, had set specific objectives that could only be met with massive cuts to Biden’s budget.
When comparing the two parties’ key objectives, the Democrats blunted the Republican’s fiscal attack with only minor cuts. The R’s right wing in the house clearly understood that they had failed to eviscerate Biden’s budget since 88 percent of the House Freedom Caucus voted against the negotiated deal. And while the Ds’ Progressive Caucus leadership opposed the agreement, only 34 percent of their membership voted against it. And in the Senate, only 17 of the 48 Republicans voted for the deal, while only five of the Democrats voted against it.
House Freedom Caucus member Representative Chip Roy tweeted a comparison of what the Rs wanted and what they got from the final settlement. He listed the Republicans’ demands passed in the House that McCarthy presented to Biden in their meetings.
Despite his inflammatory descriptions, Roy’s assessment of the settlement provides a candid appraisal of how far the Rs were from achieving their goals. The following were the Republican objectives that Biden parried.
R – Cut $131 billion to annual spending next year and shrink the Federal bureaucracy to pre-Covid growth for ten years.
Instead, they got a 2-year freeze in spending. But $22 billion of the supposed cuts affecting the IRS and social programs would be diminished by shifting unspent COVID reserve funds and additional revenues generated by an expanded IRS that received 80% of the increased funds Biden initially requested.
R -Require strong work requirements for social programs SNAP, TANF & Medicaid.
None were made to Medicaid. And the requirements for the other two programs were mitigated through exemptions, and the provision could be phased out. To the Rs’ surprise, their insertion in the agreement to impose work requirements on older Americans receiving food stamps was unlikely to save money. That’s because people experiencing homelessness, veterans, and some former foster youth were exempted. Thus, the food stamp rolls expanded by 78,000 people monthly and increased federal spending by $2.1 billion, according to CBO.
R – Rescind the $80 billion for allowing IRS to hire enough agents to make up for past reductions and focus on collecting past due money owed to the Feds from the wealthiest taxpayers.
The agreement reduced the IRS increase in funds to $60 billion. As a result, IRS retains 98% of its funding for expansion and future IRS spending. In addition, the Biden Administration can shift much of that $20 billion IRS cut to next year to discretionary spending, which funds many social programs, making them receive the same amount they get now.
R – Reclaim $50 billion in unobligated, unspent COVID funding
Only $22 billion is reclaimed.
R – Reduce energy permitting requirements
Permitting will be fast-tracked for IRA-subsidized energy and batteries. There has been bipartisan support for comprehensive permitting reform, including clean energy advocates wanting to give the Federal Energy Regulatory Commission more authority to site transmission lines to access renewables.
R – Cut Biden’s entire student loan bailout
Student loan forgiveness is retained, but loan repayments will no longer be suspended, requiring payments to be paid in two months.
Biden did not get the budget that Congress had previously approved. But he did manage to avoid a government shutdown and defaulting on government loans. The cuts to his budget will impact lower-income residents, worsen environmental conditions like air and water quality and continue a tax system that contributes wealth accumulation to a smaller portion of the population in the future.
Democrats are undoubtedly disappointed, but that is slight in comparison to the Republicans’ dissatisfaction with what they were hoping to achieve. The Ds will have concrete benefits to show voters in the coming elections. The Rs will have to lean again on framing an increased debt load as a burden on future generations. That will be a more challenging task, not providing visible, tangible advantages to voters today.