Jose Luis Magana/AP Photo
House Speaker Kevin McCarthy (R-CA) speaks at a news conference after the House passed the debt ceiling bill, May 31, 2023, at the Capitol in Washington.
The Revolving Door Project, a Prospect partner, scrutinizes the executive branch and presidential power. Follow them at therevolvingdoorproject.org.
Now that President Biden has signed the Fiscal Responsibility Act, the Capitol Hill media is (of course) obsessing over who “won” the negotiation. The narrative has quickly landed on the intra-GOP fight, with Freedom Caucus members upset that the deal wasn’t a total Democratic capitulation. Unfortunately, this shift has left the important substance of the negotiations largely uncovered.
In fact, there’s been incredibly scant interest in what the deal actually means for federal funding going forward. A default was sidestepped, but only for now. Depending on decisions made by voters just a year and a half from today, we could well see a replay of exactly the same type of hostage-taking from congressional Republicans—only then, President Biden would have even less leverage than he had this time around. Indeed, 2025 will feature a Kilimanjaro-sized fiscal cliff, giving the 2024 elections even higher policy stakes. Provisions of the Affordable Care Act and most provisions of Donald Trump’s tax cuts are both set to expire in 2025, and at the same time the debt ceiling will unfreeze, and the spending caps instituted under the Fiscal Responsibility Act will expire.
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The White House faces an uphill battle to avoid default and pursue other fiscal priorities, like taxes on the wealthy and extending parts of the Affordable Care Act, while Republicans will likely be able to again hold the entire global economy hostage. The ransom this time around may well be even more drastic. The GOP, emboldened by their victory, could try to win extensions of spending and tax cuts along with kneecapping the Democratic agenda.
Democrats will have a hard time cutting a deal that doesn’t undermine the administrative state and the agencies that protect everyday Americans. Whether the White House will have the resolve to hold out is certainly a point of concern, especially as many key Biden advisers have a demonstrated disinterest in vigorously holding the powerful to account. From Jeff Zients to Merrick Garland to Steve Ricchetti, there are many who might urge the president to make serious concessions.
If 2023 has so far echoed 2011, then 2025 looks like it might echo 2013. Back then, a different Republican president’s tax cuts were set to expire at the same time that a debt ceiling loomed, alongside shrinking unemployment benefits and imminent automated spending cuts (the infamous sequestration). Having all of these deadlines coincide was supposed to be the savvy play, since it would force both parties to cut a deal, lest their prized policies go up in smoke. Instead, Republicans proved perfectly willing to throw the country over what was called the fiscal cliff if they didn’t get everything they wanted. Then-President Barack Obama ultimately acceded to most of the Republican demands, in a deal personally negotiated by then-Vice President Biden.
It would be a disaster if that plays out again in 2025. As deals with the devil go, President Biden got a decent one this time around. Unfortunately, its impermanence guarantees an even higher-stakes negotiation late next year. This time, Republicans forced cuts to federal spending, rammed through imbalanced energy permitting changes, added work requirements for some SNAP beneficiaries, and codified the restart of student loan payments. Next time, there will be a lot more on the table.
TRYING TO SCENARIO-PLAN IN DEPTH for the 2025 negotiations is a bit of a mug’s game, for at least one enormous reason. The national elections in November of 2024 will obviously shape how future debt ceiling negotiations will stack up. If either party wins a trifecta, they’ll of course just advance their agenda on party-line votes, the inevitable theatrics from each party’s deficit hawks aside.
A Democratic Congress with a Republican president is likewise unlikely to be notable; Democrats have built so much of their identity around being the responsible ones that calling any hypothetical bluff about holding the national debt hostage for, say, increased climate spending (or maybe eliminating the debt ceiling forever) would be a safe bet. Moreover, as recent history shows, Republicans are more than willing to throw the country’s creditworthiness off a cliff if it lets them demonstrate dominance over liberal politicians for a news cycle or two.
That leaves just the scenario where President Biden wins re-election, but Republicans win at least one chamber of Congress. Arguably, Biden would still find himself embroiled in these negotiations even if Democrats flip the House and hold the Senate; it’s entirely plausible that he could need to court moderate votes to offset a Manchin-type defection. Or Biden may not be able to get everything into a package that can make it through the Senate’s reconciliation process, in which case he would need 60 votes, something Democrats almost certainly won’t have on their own.
In any case, Biden would still be operating from a position of weakness in any negotiations. Negotiating at all on the debt ceiling sends the message that he either can’t or won’t use any executive authority to sidestep the entire issue. In short, if Biden follows the same playbook he used this time two years from now, the results could be pretty bleak.
The Biden administration has been at its best when using the administrative state to take on rapacious corporations and protect the public. This deal impedes that work.
The Fiscal Responsibility Act, like most bipartisan budget deals before it, mortgages the administrative state to kick the can down the road. As we at the Revolving Door Project have argued, even modest cuts and spending caps seriously hamper the ability of executive agencies to carry out their mandates. Much of the executive branch is still recovering from several decades of disinvestment. That, combined with expanding responsibilities and inflation curbing spending power, means that small cuts can have a big impact.
Should Biden try for a bipartisan compromise in 2025, one possible Republican demand will likely be extending the Trump tax cuts. Those cuts dramatically hampered the federal government’s already scant revenue—indeed, that was part of the point to the Republicans. Moreover, the tax cuts were Trump’s definitive legislative accomplishment, so they have enormous totemic value. Democrats have railed against the tax cuts to rack up campaign contributions for five years now. If Biden will give in to fiscal policy demands to avert a bigger debt fight, will he make this concession, breaking from his goal of raising taxes on the wealthy?
If Biden seeks to renegotiate a debt ceiling deal again in 2025, Kevin McCarthy (if he’s still Speaker) will probably demand presidential support for extending the tax cuts for the wealthy or on making them permanent. Between his desire to reach a deal to avoid default and the need to extend portions of the Affordable Care Act, Biden could be willing to make some drastic concessions that will continue to tamp down federal revenue and enrich the wealthiest at the expense of vulnerable communities who need reinvigorated appropriations for regulators to protect them. The White House’s Sisyphean desire to strike a deal—which resulted in keeping the debt ceiling around as a bargaining chip—massively increased the leverage Republicans will have in the next set of negotiations.
However, just because the platinum coin, trilemma, “definition of outstanding,” and 14th Amendment arguments didn’t get used this time around doesn’t mean they can’t be used next time. Indeed, Biden claimed that he found the 14th Amendment argument persuasive, but didn’t think he had time to litigate it (admittedly, a nonsensical claim from a man who’d already been served for litigation about the 14th Amendment). There’s plenty of time for the courts to consider the issue now (though without the threat of a global financial crisis, there’s not much leverage over the Supreme Court conservative majority). As long as Biden insists on trying for bipartisanship—as seems to be his nature—he is ceding power to set the agenda to Republicans, who oppose adequately funding the government.
The Biden administration has been at its best when using the administrative state to take on rapacious corporations and protect the public. This deal impedes that work. The next deal might see it grind to a halt. Looking at who the president trusted with negotiations doesn’t exactly cause a swell of optimism, either. One of the top negotiators Biden appointed was Steve Ricchetti, a former head of lobbying for pharmaceutical companies (among other industries). Ricchetti has a documented history of opposing labor interests and overt elitism and nepotism. Also heavily involved was White House Chief of Staff Jeff Zients, who has long been a key pathway for getting corporate preferences into policy. On top of that, Zients himself exemplifies the type of corporate tycoon that the full weight of regulatory power should be coming down on. Trusting either with the fate of regulatory agencies is letting the fox negotiate the strength of the henhouse.
In short, this round of negotiations was fought to a draw, but the White House backed itself into a corner before the next one even started. The White House may have won a reprieve from fiscal policy fights, but there’s a fiscal policy hurricane brewing.
