Potential Debt Ceiling Deal Would Barely Change Federal Spending Path

House Republicans have stuck to a clear message as the country comes close to a catastrophic default due to debt-restriction talks with President Biden. They must force changes in what they call the country’s “unsustainable” spending pathways.

But in a meeting with Mr. Biden, House Speaker Kevin McCarthy and his aides said the budget, known as non-defence discretionary spending, would include money for education, environmental protection, national parks, domestic law enforcement, and more. focused almost entirely on reducing a small portion of region. That budget is less than 15% of the $6.3 trillion the government is expected to spend this year. By historical standards, it’s not oversized. As a share of the economy, it is already projected to shrink over the next decade.

And that has nothing to do with the safety net programs Social Security and Medicare, which are the big drivers of the expected spending increases in the next few years. They face increasingly large payments as the American population ages.

These politically popular programs are considered off-limits in this round of talks by Republicans, which will raise the retirement age for these programs and make other changes to curb future spending. Even such entertaining changes have come under fire from Mr. Biden.

Republicans have also rejected cuts in military spending on the same scale as non-defense discretionary spending. As a result, the negotiations were all but certain to fail to reach a deal with Mr. Biden that would dramatically change the direction of federal spending over the next decade.

Instead, it will focus budget cuts on education, environmental protection and many other government services, which fiscal experts say are far from being the main sources of increased spending over the next few years.

For example, even if Republicans somehow managed to convince Mr. Biden to accept the full range of discretionary spending cuts included in the fiscal bill passed by the House last month, it would change the trajectory of spending across the nation for the next decade. would be of little use to These cuts could reduce federal spending by about $470 billion in 2033, saving about $100 billion in borrowing costs in the same year, according to the Congressional Budget Office.

In that case, total government spending would be just under 24% of the economy, about the same as it is today.

These cuts may not have a big impact on the overall budget, but many Americans still feel that way. White House officials and independent analysts estimate that many popular government programs could shrink by up to 30% in that scenario, as the cuts would be limited to certain segments.

“The cuts proposed by the Republicans will have serious implications for education, public safety, parenting, veterans’ health care and more,” White House Budget Director Shalanda Young said in a memo last week.

For months, Republicans have cited rising federal spending and debt as reasons for refusing to raise the nation’s borrowing cap, citing a risk of default unless Mr. Biden agrees to cut spending.

Louisiana Rep. Garrett Graves, one of McCarthy’s chief negotiators, said this week that spending was the biggest gap with Biden administration officials. “My interpretation of their position is that they fail to recognize or see through the fact that we are currently on an absolutely unsustainable spending trajectory,” he said. .

Federal spending first surged under President Donald J. Trump and Biden as lawmakers provided trillions of dollars in aid to businesses, citizens, state and local governments during the COVID-19 pandemic. continued under When measured as a share of the economy, this remains above historical norms. This is the easiest way to track spending patterns as prices increase over time.

The Congressional Budget Office estimates that total spending from 1980 to 2019, just before the pandemic hit, was just under 21% of average gross domestic product. It surged to over 30% in 2020 and 2021. It is expected to be just over 24% this year, and although it will decline slightly over the next few years, it began to rise again in the last few years of the decade, reaching over 25% in 2020. 2033.

However, the share of discretionary spending in the economy is expected to decline over the next decade. Military spending (which Republicans have so far refused to cut as part of talks with Mr. Biden’s team) should drop slightly from 3% of the economy. Non-military discretionary spending, currently at 3.6%, is expected to fall to 3.2% by 2033.

Conversely, Social Security and Medicare are expected to grow rapidly over the next decade as retiring baby boomers qualify for health insurance and retirement benefits. The Budget Office plans to increase Social Security spending from 4.8% to 6% of the economy over that period, and Medicare from 3.9% to 5.3%.

Analysts say these programs are the main reason budget projections, even before Mr. Biden took office, have long indicated higher federal spending over the next few decades.

“The increase in overall federal spending on GDP over time can be explained by growth in major federal health programs (Medicare, Medicaid, ACA) and Social Security,” study Charles P. Brahaus. He gave written testimony before the Senate Budget Committee earlier this month about federal spending and debt at the Mercatas Center at George Mason University.

Conservative groups have criticized Republicans for not including safety-net programs in their debt demands. “The current debt ceiling negotiations are mainly curb the discretionary part Any serious proposal to address the new debt and deficit crisis should also address the largest mandatory spending programs of Social Security and Medicare in the budget,” said an economist at the Tax Foundation promoting tax cuts. said Alex Durante. wrote on wednesday.

Liberal groups and the White House have accused Mr. McCarthy and his team of ignoring the other side of the fiscal ledger: the country’s tax system. After a brief spike in tax revenues last year, the budget office expects to return to historic levels this year, stabilizing about 18% of the economy. Mr. McCarthy, citing last year’s figures, falsely claimed that tax revenues are now near record highs.

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