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The Budget Farce: A Travesty in Two Acts

On today's X-Date: Watch out for Act II, the annual budget process for
the new fiscal year that begins October 1, when Democrats will be
playing a weaker hand.

 

J. Scott Applewhite/AP Photo

By Robert Kuttner

**** Stage One of the manufactured crisis over the debt
ceiling is the fast-approaching June 1 X-date, when the Treasury no
longer has authorization from Congress to increase the public debt.
Stage Two hits next fall when Congress takes up the budget for fiscal
year 2024. The two deadlines are legally separate but politically
related in several ways, none of them auspicious.

The immediate risk is that President Biden bows to pressure from
Republicans, Wall Street, media hysteria, and Third Way types in his own
party to make a deal with House Speaker Kevin McCarthy to increase the
debt ceiling in June in exchange for severe budget cuts in October,
either explicitly or by formula.

Biden's message on this is decidedly muddled. He has insisted that he
will not engage in budget-cut bargaining as part of the debt ceiling
talks, and sources tell me he is resisting pressure to link the two,
both in talks with Republicans and in internal strategy discussions. But
on Sunday, Biden responded to press questions
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about the status of the debt ceiling by saying, "You know as well as I
do, it is never good to characterize a negotiation in the middle of a
negotiation."

According to published reports, those negotiations include
non-appropriations matters like rescinding unused COVID aid, imposing
stiffer work requirements for federal benefit programs, and enacting
permitting reforms. But caps for nondefense appropriations have also
been discussed, with White House staff wanting to limit them to two
years instead of ten. Any kind of October deal now would break Biden's
pledge.

To maintain his resistance, Biden will have to find another way to deal
with the debt ceiling. The most obvious way is to invoke the 14th
Amendment. But here again, Biden's public statements have been
muddled. He has said he might "consider" taking the 14th as a last
resort
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but he also suggested that such a course would take too long due to
litigation and court review
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Treasury Secretary Yellen has unhelpfully added to the mixed messaging,
terming the use of the 14th Amendment as provoking a "constitutional
crisis
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All of this is just plain wrong. Any lawsuit challenging this use of the
14th Amendment would get expedited Supreme Court review, probably within
a week. In fact, there is an active case in federal district court
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right now. Court-watchers hope that at least five justices, mindful of
the stakes
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would vote to uphold Biden.

Even if Biden does get through the June 1 debt ceiling deadline one way
or another, the October situation is worse. For now, Biden has the
stronger hand. By holding the debt ceiling hostage, Republicans look
like they are playing chicken with the entire economy. If their
intransigence causes the United States to default on its debt, they more
than Biden will reap the political damage.

**Read all of our debt ceiling coverage here**
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In October, the dynamics shift. Democrats have a slender majority in the
Senate, while Republicans have a narrow one in the House. In such
circumstances, it is inevitable for the annual budget to be a compromise
with some amount of cutting. That reality must be weighing on Biden's
mind as he considers whether to negotiate a budget deal now as part of a
debt ceiling deal and be done with it, or whether to have to go through
a game of chicken all over again in October.

And October will be a somewhat different game of chicken. If the debt
ceiling impasse is not resolved in the next two weeks, the consequence
is that the United States defaults on its debt, with dire consequences
for the whole economy.

But if there is a budget deadlock in October, the result is "only" that
the government shuts down while negotiations continue, and not an
economic collapse. And a straight-up budget showdown can work to the
advantage of the president. This has happened before.

In 1995 and 1996, when House Speaker Newt Gingrich forced a government
shutdown, for five days in November and then 21 days in December and
January over a budget deadlock, President Clinton played the impasse
more deftly and Gingrich took most of the political blame; in the end,
Gingrich got almost nothing. Similarly, in 2013 Ted Cruz led a 17-day
government shutdown in an attempt to repeal the Affordable Care Act;
again, Republicans took the blame and the resolution gave them zilch.

But in 2011, President Obama, overly eager to cut the recession-induced
deficit long before the economy was back to full employment, gave away
the store, specifically by conflating the debt ceiling with a budget
negotiation. The result was disastrous.

The Budget Control Act of 2011
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locked in caps on discretionary spending that reduced outlays by a
trillion dollars over a ten-year period, with a mandatory sequestration
process if Congress could not agree to specific cuts. To be more
precise, Obama's vice president gave away the store
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a fellow named Joe Biden. The vice president went around a livid Senate
Democratic Leader Harry Reid to cut this deal with his old Senate friend
Mitch McConnell.

Given his past, there are two ways to read Biden's likely actions
going forward. One is that his whole history suggests that Biden is too
eager to make a deal. The other is that this time his own hard-won
legacy programs will be on the chopping block, and that he will fight
hard to defend them, especially before a re-election that needs a good
economy for him to win.

Barring a total Biden capitulation, the October standoff is likely to
produce the risk of another government shutdown. The best that we can
hope is that Biden plays it as well as Clinton did in 1996 and not as
badly as Obama and Biden himself played it in 2011.

Either way, there will be deep budget cuts because of the divided
Congress. The best way to avoid more disabling cuts going forward would
be for Democrats to take control of both Houses of Congress in 2024.

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