A Prospect newsletter about the debt limit
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Taking Debt Ceiling Negotiations Seriously

On today's X-Date, looking at what could actually be accomplished in
bipartisan talks yields few answers.

 

 

Francis Chung/Politico via AP Images

By David Dayen

**** The Senate Budget Committee held a hearing yesterday on
the Limit, Save, Grow Act, the House Republican-passed debt
ceiling-for-conservatives' wish list exchange. Committee chair Sheldon
Whitehouse (D-RI), who is getting a workout
<[link removed]> with
stem-winder speeches lately, laid out the bill as representing a meager
choice: "Default on our financial obligations, cause widespread pain and
wreck our economy. Or gut basic federal programs essential to our
economic strength, cause widespread pain and wreck our economy."

Senate Democrats have taken to calling the House Republican bill the
"Default on America Act," or DOA. Just a few days of default, according
to the estimates of economic analyst Mark Zandi, would cost a million
jobs; a longer one would cost seven million, and increase borrowing
rates for decades. Meanwhile, the across-the-board spending cuts and
rollbacks of already-passed programs in the DOA bill would cost 790,000
jobs and a recession. "We're supposed to choose between 790,000 and
nearly a million jobs lost, and choose between recession and a $141
billion hit to the economy," Whitehouse said. "Pick your poison."

Sen. Chuck Grassley (R-IA), the ranking Republican on the committee, was
unmoved by this appeal. "It's time for President Biden and Biden's
Senate Democrats to come to the realization that their reckless and
irresponsible strategy of delay has failed and begin negotiations in
earnest."

Democrats didn't solve this problem
<[link removed]>
when they had full control of the government. Unless the executive
branch takes extraordinary actions they seem reluctant to take, or a
bondholder sues Janet Yellen
<[link removed]>
over their imminent loss of money, negotiations are a distasteful but
likely next step. Biden is meeting with House and Senate leaders next
Tuesday.

Recognizing that the answer should be "nothing," what possible
concessions could be made that would allow House Speaker Kevin McCarthy
to save face and get enough Democrats and Republicans to pass that bill?

**Read all of our debt ceiling coverage here**
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Here's the text
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the Limit, Save, Grow Act. There isn't that much to it, really. There
are the discretionary spending limits, known as "1 percent caps," which
would magnify over time. There is the rescission of unobligated funds
from the American Rescue Plan and other COVID relief bills. The
Inflation Reduction Act's green-energy investment tax credits and IRS
funding are reversed. The administration's student debt cancellation
plan is eliminated. There are work requirements for Medicaid, and
enhanced ones for food stamps and Temporary Assistance for Needy
Families. The House Republican permitting reform bill, along with the
REINS Act (which basically requires a congressional veto for all
regulations), is also included.

What would Democrats be able to live with on that list? Not very much.
The discretionary spending cuts would put the nation in a permanent
state of austerity. Reversing any part of the IRA would be unthinkable
given the two-year struggle to pass it. The REINS Act nullifies much of
the work of the executive branch; no Democratic president would ever
sign that. Student debt cancellation is a big enough priority, and in
the midst of an active Supreme Court case, that I don't see much
interest in that. Work requirements are kind of a perennial thing that
Democrats and Republicans fight about (though it would be a lot easier
to reject if Democrats didn't just put work requirements into their
signature child care bill
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You could not get more than a couple of conservative Democrats for that.

That leaves two things that I could see any shot at Democrats grudgingly
accepting: the rescission of unobligated COVID funds, and the permitting
reform. The Congressional Budget Office
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looked at the rescission measures, and found that it would reduce
outlays by only $30 billion over the next decade. That's in a bill
that contains $4.8 trillion in deficit reduction. Another $316 billion
is unexpended but is "already subject to legally binding financial
obligations," so there wouldn't really be any way to just rescind
that.

The permitting bill, meanwhile, has an even more negligible fiscal
effect. It would reduce direct spending by $10 billion in the ten-year
budget window, but also reduce revenues by $6 billion. So that's a net
$4 billion in deficit reduction, and added to the rescission piece,
you're talking about the result of the debt ceiling bill being a
measly $34 billion in deficit reduction? There's no way I see
Republicans going for that.

There are other reasons to enact permitting reform, of course, though
the Republican and Democratic visions for that are starkly different.
The Republican permitting reform
<[link removed]>
is mostly about accelerating production of fossil fuels, while the
soon-to-be-introduced Casten-Levin bill
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is mostly about speeding up approvals for clean-energy projects, with a
particular focus on transmission lines.

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Sen. Joe Manchin (D-WV) has reintroduced his permitting reform bill
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that failed last year, which you could maybe put somewhere in the
middle, albeit tilted toward getting one particular natural gas pipeline
in West Virginia through. Maybe you could cobble together some groups of
Democrats and Republicans to advance this, though it didn't work last
year. And a debt ceiling-for-permitting reform swap doesn't seem like
it would be at all robust enough.

So then you get into the usual Washington gimmickry. You could set up
something like the Budget Control Act of 2011, which was the model for
passing the debt limit under divided government the last time there was
a Democratic president. That put in place sequestration cuts that would
be waived if a special deficit reduction panel came up with a solution.
The panel predictably failed, and the cuts went into effect. Over time,
they were mitigated by congressional action. The sequestration cuts that
did get done were quite damaging
<[link removed]>,
and rerunning this move would be unpalatable.

Biden put $3 trillion in deficit reduction into his own budget, but
nearly all of it comes from raising taxes and deepening the drug price
negotiations to lower costs to Medicare. McCarthy would probably lose
his speakership if he agreed to any of that, which is what will drive
his every decision in this negotiation.

Finally, there's the idea of extending the debt ceiling to October 1,
to align it with budget talks. That way, the negotiations could be seen
to be over the budget, which would be more reasonable than holding the
economy hostage. I guess that's possible, but you're also asking in
that scenario for McCarthy to give up his leverage.

I think the end result of this analysis is that there is no real
solution available. The reason that there hasn't been much interest in
gaming out a negotiation is that there's nothing to game out. Either
McCarthy accepts a cosmetic solution, an unlikely scenario, or Biden
sells out his party and ushers in an economic downturn before his
re-election campaign, also an unlikely scenario. The reason there's
been interest in an executive action, a legal fight, or some other
resolution outside of Congress is that there doesn't seem to be any
resolution available inside it.

Here's some further reading:

Conservatives don't even believe the Yellen X-date number
<[link removed]>

There aren't even that many congressional work days on the calendar to
deal with this
<[link removed]>

Politico's gaming-out of negotiations was much more charitable to
Republican options
<[link removed]>


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