A bipartisan deal to avoid a government default this week featured modest cuts to a relatively small portion of the federal budget. It was, at best, a small step forward in curbing the country’s growing debt burden of $31.4 trillion.
It also showed how difficult, perhaps impossible, it would be for lawmakers to quickly agree on a major breakthrough to visibly reduce the country’s debt burden.
There is no clear economic evidence that current debt levels are hurting economic growth. Some economists argue that rising debt levels will hamper growth. Businesses find it difficult to borrow moneysome say future government borrowing costs could skyrocket cause rapid inflation.
But Washington is back to pretending to care about its debt, which is expected to exceed $50 trillion by the end of 2010, even taking into account the newly passed spending cuts.
Such a pretense creates the reality that the fundamental thrust of American politics is all about increasing America’s debt, not reducing it.
A bipartisan deal passed by the Senate on Thursday to suspend the debt ceiling for two years would effectively set the overall level of discretionary spending for that period. According to the Congressional Budget Office, the deal effectively freezes some of the money expected to grow next year, and then caps spending growth at 1% in 2025, reducing federal spending to 1 trillion over 10 years. $500 billion savings.
But even with these savings, the deal provides clear evidence that the country’s overall debt burden will not be reduced anytime soon.
Republicans cited the growing debt burden as the reason for refusing to raise the cap, citing the risk of default or financial crisis unless Mr. Biden agrees to future deficit reduction measures. But negotiators in the White House and House Republican leadership could only agree to find significant savings in non-defense discretionary spending.
It is part of the budget that funds Pell grants, federal law enforcement agencies, and a wide range of national programs. Its share of the economy is well within historical levels and is projected to decline over the next few years. Basic discretionary spending now accounts for less than one-eighth of the $6.3 trillion government spends each year.
The deal does not include a drastic reduction in military spending, which is larger than non-base discretionary spending. Early in the talks, both parties denied changes to Social Security and Medicare, the two biggest drivers of increased federal spending over the next decade. The cost of these programs is expected to skyrocket within a decade as retiring baby boomers qualify for benefits.
Republicans were hesitant at first when Mr. Biden accused him of wanting to cut these politically popular programs, but soon came to blame the president for taking them off the table.
Asked by Fox News on Wednesday why Republicans didn’t target the entire budget for cuts, Chairman Kevin McCarthy replied, “Because the president cut off all other budgets.”
“The main driver of the budget is mandatory spending,” he said. “It’s Medicare, Social Security, interest on debt.”
McCarthy’s negotiators effectively cut off the other half of the debt equation: revenue. Both parties have rejected Biden’s proposals to raise trillions of dollars in new taxes on corporations and high-income earners, hoping they will ultimately make more money by cracking down on tax fraud. agreed to cut funding to the Internal Revenue Service that had been deferred.
Instead, Republicans have attempted to frame the growing national debt as simply a spending problem, not a tax revenue problem, even though tax cuts by both parties this century have increased the debt by trillions of dollars.
Republican leaders now appear poised to introduce new tax cuts, a move likely to be financed by debt, a move Democrats criticized during the House debate over a debt ceiling deal.
Wisconsin Democrat Rep. Gwen Moore said Wednesday just before the final vote on the so-called Fiscal Responsibility Act: “Before the ink on this bill is dry, it will push for $3.5 trillion in business tax cuts. ‘ said. .
The comments reflect lessons Democrats have learned since 2011, when Washington leaders last made a big show of pretending to care about debt in a bipartisan deal to raise the borrowing limit. The deal, signed between President Barack Obama and Chairman John Boehner, capped the growth of discretionary spending for a decade and helped reduce the deficit for years.
Many Democrats now believe that these deficit reductions have given Republicans the fiscal and political space they need to pass a tax cut package in 2017 under President Donald J. Trump. . The Congressional Budget Office estimates that the national debt will increase by nearly $2 trillion. They came to believe that Republicans would be happy to repeat the same thing in a future budget deal, putting deficit concerns aside and effectively turning budget savings into new tax cuts.
At the same time, both parties have become more wary of cuts to Social Security and Medicare. Mr. Obama was willing to reduce future retirement growth by changing the link between retirement benefits and inflation. Not so with Mr. Biden. Trump, unlike past Republican lawmakers, promised to protect both programs when he was elected to the White House, and now, as he seeks the presidency again, sees potential cuts to the programs. He severely criticizes his rivals.
During that time, total federal debt has more than doubled from just under $15 trillion in 2011 to $31.4 trillion. This increase has had no noticeable impact on economic performance. However, growth is projected to continue over the next decade as retired baby boomers receive more government benefits. The U.S. Budget Office estimated last month that the share of public debt in the economy will be nearly 20% higher in 2033 than it is today.
Even under most of the new accord, which assumes that Congress effectively locks in two years of spending cuts throughout the decade, growth is only a few percentage points lower.
Groups advocating Washington’s debt relief have hailed the deal as a first step toward a greater compromise to reduce America’s reliance on debt. But neither Mr. McCarthy nor Mr. Biden are interested in the combination of deep cuts in retirement plans and increased tax revenues that these groups want.
McCarthy hinted this week that he would soon set up a bipartisan committee to review the entire federal budget “to find waste and make real decisions about how to truly deal with this debt.”
The 2011 Debt Agreement established a similar kind of committee to make recommendations on politically painful steps to reduce debt. Lawmakers discarded them. There is no evidence that they do anything else today.