Running down the details of the debt ceiling agreement
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As Deals Go, This Is One of Them

An X-Date special: Running down the details of the debt ceiling
agreement

 

 

Susan Walsh/AP Photo

By David Dayen

**** The second that Joe Biden agreed to negotiate
with House Republicans on the debt ceiling, the results were going to be
bad. The people who benefit most from government action-the poor and
the vulnerable-were going to be hurt, and those who benefit most from
a weakened government-the rich and the powerful-were going to be
aided. The only question was the degree.

With one potentially major exception, the relative harm and help was
kept to a minimum in the final agreement. It will only be a little bit
easier to commit wage theft, or to sell defective or poisoned products.
It'll only be a little harder to get rental assistance or tuition
support. Only a few people will be freer to pollute the environment;
only a few will find it more difficult to get food. The Internal Revenue
Service will only be a little worse. A lot of things will stay the same.
Almost nothing will get any better.

That's the broad strokes of a deal that the White House and House
Republicans are selling to their respective bases right now. (House
Republicans held a meeting immediately after the agreement was made last
night; the White House isn't holding anything for Democrats until this
afternoon, after the bill text is supposed to be posted.) It will
dictate federal spending on domestic discretionary programs for two
years, and it will raise the debt ceiling for two years. After that,
depending on the composition of Congress, we'll all be here again. The
stakes for the 2024 election just got even higher.

Imagine a world where we were a normal country with no debt ceiling, but
everything else was exactly the same. Thanks to gerrymandering and the
malpractice of the New York Democratic Party, Republicans still have the
House, and the budget for the current fiscal year still expires on
September 30. Republicans and Democrats would still have to negotiate
that budget, and one likely outcome of that would be that negotiations
fall apart, that there's just no way to reconcile what both sides
want. In that case, either the government shuts down or a continuing
resolution is struck, which means that the government would operate at
the current funding levels for a period of time. Maybe we'd live under
a CR for the entire two years of this Congress.

That's approximately what happened in this agreement. The funding
levels for fiscal year 2024 on the non-defense discretionary side are at
FY2023 levels. House Republicans are saying they clawed things back to
FY2022, but a number of funding shifts-most prominently the return of
tens of billions of dollars in unspent COVID aid-backfill the
non-defense discretionary budget to get it to around FY2023. (The IRS
money from last year's Inflation Reduction Act also adds to this
backfill, but while some reports
<[link removed]>
still list that as a $10 billion fund shift, others put it as low as
$1.9 billion <[link removed]>,
which is a little more than 2 percent of the total $80 billion outlay).
This cap then rises by one percent in FY2025.

The goal here was to allow both sides to say contradictory things to
their members. Republicans can say they achieved the target of the
Limit, Save, Grow Act to limit discretionary spending to FY2022;
Democrats can say they only froze spending at current levels. And both
are sort of right.

Meanwhile, military spending, which is magic and has no impact on the
federal budget, actually rises in FY2024 to the level in the Biden
budget. (House Republicans wanted it even higher.) Veterans spending has
similar privilege, and rises as well. Mandatory spending, like Social
Security and Medicare, isn't touched as well.

You'll hear a lot about a spending "freeze," but if you don't
increase spending at the rate of inflation, in real terms you're
cutting. Given that inflation will run around 4-5 percent this year and
maybe 3 percent the next, if you do the math you're talking about
approximately a 5 percent cut
<[link removed]>
to domestic discretionary programs over the next two years, maybe more
depending on inflation's persistence. (Republicans are claiming it's
a six-year deal, but after the first two years there are only
non-binding appropriations targets. This is another way each side can
say different things at once.)

The New York Times estimates
<[link removed]>
that this will cut $650 billion in spending over ten years, but only if
spending rises at the rate of inflation after the caps lift. That's
highly uncertain: a Democratic government could restore all the cuts,
while a Republican government could cut further.

In macroeconomic terms, the near-term cuts will be offset by the
increases to defense and veteran programs, plus the fact that the
IRA's energy tax credits, none of which were touched by this deal, are
being used at about three times the rate of what was previously
expected. Macro estimates so far are relatively negligible
<[link removed]>. What this
deal really does is hurt the government's capacity. Clean air and
water, consumer product safety, labor laws, public lands, agricultural
conservation-most of the stuff we think of as "the government"
will be hit by this. "'Flat spending' implies a further reduction
in real government funding per person after a decade of Obama-Boehner
austerity, followed by Trump's assaults on the administrative
state," wrote Jeff Hauser
<[link removed]>
of the Revolving Door Project.

These are just topline numbers in the deal. They have to be translated
into appropriations bills. As I wrote on Friday
<[link removed]>,
there is a mechanism if those appropriations don't pass in time to
snap in an automatic continuing resolution. That auto-CR would be at
FY2023 levels, meaning lower levels for defense and veterans. That's
supposed to be the hammer that gets the appropriations bills done. But
there's still going to be tons of strife to enact these cuts, and a
kind of opportunity for anyone who doesn't think America needs to
spend $886 billion on its military.

**Read all of our debt ceiling coverage here**
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Click to Support The American Prospect <[link removed]>

Here are the other aspects of this deal:

TANF/SNAP work requirements: This became a Republican red line. Both of
these programs already have work requirements; they're being made
stricter. For TANF (Temporary Assistance for Needy Families, or
welfare), they appear to be somewhat optional for the states, which
means red states will tighten their eligibility.

SNAP (the Supplemental Nutrition Assistance Program, sometimes called
food stamps) was one of the last things decided
<[link removed]>.
There are two SNAP work requirements
<[link removed]>: one limits
able-bodied adults without dependents (ABAWD) from getting benefits for
more than three months over a three-year period. That previously cut off
at age 49; it will now increase to age 54. That could affect close to 1
million Americans
<[link removed]>;
the Congressional Budget Office has said this would cut the SNAP rolls
by about 275,000 people per month. That change sunsets in 2030. On the
flip side, all work requirements for homeless individuals and veterans
will be lifted
<[link removed]>. If you're
a 52-year-old woman without children with stable housing who didn't
happen to serve in the military, you deserve food assistance less, is
the implication here.

The bigger issue is that all of these things require forms that people
must know how to fill out. All the evidence shows
<[link removed]>
that making SNAP harder to navigate won't increase work; it's just a
way to take some people's food away
<[link removed]>, at some
level based on whether they know about the new form. Maybe it will give
food to others (particularly homeless individuals and vets), but that
depends on whether they apply; it would be nice to sign up all eligible
unhoused people for SNAP, but the newly constrained federal government
certainly doesn't have the resources to do so. Maybe our
philanthropists can pitch in.

Permitting: The hopes of a grand bargain on permitting large energy and
infrastructure projects mostly dissolved into nothing
<[link removed]>.
There are minor changes to the National Environmental Policy Act (NEPA)
that mostly just write down what the Biden administration was
implementing anyway. These include things like designating a single lead
agency for federal environmental reviews, and faster timelines for
writing those reviews. (Environmental impact statements will need to
take two years; environmental impact assessments, one year.) Large
projects are supposed to be expedited by codifying the "Fast-41"
approach that's already an executive order. The scope of the law, and
the timelines for public challenges, remain the same. There's supposed
to also be an agreement in some way speeding up approvals for
transmission lines, to connect them to renewable energy, but apparently
it's only a study of some techniques to do so. Kyrsten Sinema came in at
the last minute
<[link removed]>
to try to make transmission reform friendlier to monopoly utilities,
huzzah.

Republicans are calling this "the first significant reform to NEPA
since 1982," which shows you the level of honesty in their talking
points.

Keep in mind that the agencies who conduct these reviews are having
their funding cut in real terms, while simultaneously being told they
have to complete the reviews faster. That's a solid approach: tighter
deadlines with less money. There was $700 million in the IRA, under the
mandatory spending budget so not affected by the caps, for
"environmental reviews." But that bucket won't last forever.

Essentially this fight got deferred. We could still see permitting
reform later in the year.

Student debt: While we await a Supreme Court decision on the Biden
administration's student debt cancellation plan, the Education
Department announced that they would restart payments 60 days after that
decision
<[link removed]>.
The deal puts that promise in writing, while retaining flexibility to
reimpose loan forbearance if there's some emergency down the road.

This will probably create the biggest macro effect, as millions of
people will have to start repaying their student loans again,
potentially many more if the Supreme Court denies debt relief. The White
House has been readying a newly generous Income-Driven Repayment
program, which is at the Office of Management and Budget and should be
finalized before the payment pause is lifted. This program would
effectively have everyone pay a percentage
<[link removed]>
of their income, and those making $30,000 a year or less would pay
nothing. If done right, it would transform the student loan system.

[link removed]

But it will have to be finalized, which leads us to...

Administrative paygo: This was a surprise, not mentioned in the leaks of
the agreement, and not mentioned by the White House in their talking
points. House Republicans proudly touted it, but their version of events
is unreliable. So it's unclear what the scope of this is right now.

However, administrative paygo is the nickname for a 2005 executive order
<[link removed]> from George W.
Bush, which was strengthened in 2019
<[link removed]>
by Donald Trump. To summarize, any time a federal agency proposes an
action that would increase mandatory spending, it must also propose
reducing mandatory spending by the same amount. In the above example, if
a new income-driven repayment system would increase Education Department
spending (really reducing loan revenue), it would have to somehow take
action to offset it by an equivalent amount.

Right now this is an executive order. The deal would make it statutory.
That means that failing to offset mandatory spending at the agency level
would violate the law, not just an administrative directive. Republican
administrations aren't likely to create costly regulations; Democratic
administrations are. This could be a tool that poses enough threat to
Democratic-led agencies that they shrink from taking action.

Former and current regulators have expressed alarm to me that this would
be included. "This would be VERY VERY VERY bad for anyone that wants
new regulations to protect the public," tweeted
<[link removed]> Public
Citizen's Amit Narang, "and VERY VERY VERY good for corporations
that want another talking point against regulations that hold them
accountable for not endangering the public." A lot more reporting has
to be done to see what's actually in the bargain.

That's basically the agreement. Freedom Caucus Republicans are already
mad about it; to them, it looks too much like a normal agreement and
nothing like their ambitions. Democrats really got nothing out of
it-the worst was just mitigated somewhat-so progressives have no
real motivation to endorse this. But the White House can sell it. They
avoided the worst, protected most of the core programs, and can say
that, if Democrats win full control of the government again in 2024,
they'll reverse the bad parts. The House vote will be Tuesday; I
imagine it will get done, albeit with some agita. This is the kind of
deal that passes the Senate with 80 votes.

Keep in mind that this only extends federal borrowing for two years,
after which we have to do this all over again. The 2024 election, if it
wasn't already consequential, becomes much more so from a fiscal
perspective. Depending on the makeup of Congress and the White
House-and remember the upcoming Senate map is terrible for
Democrats-the future of domestic discretionary spending as the cap
lifts, the ability to hijack the debt limit, and the fate of the Trump
tax cuts, which expire in 2025, are all up in the air.

Janet Yellen pleaded
<[link removed]>
to get the debt ceiling solved in 2022, when Democrats controlled the
government. The slings and arrows in this agreement are the result of
that failure. It generally makes things a little bit worse. That this is
seen as progress is a sad commentary on Washington.

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