AP Photo/Susan Walsh, File
President Joe Biden talks with reporters on the South Lawn of the White House in Washington, Friday, May 26, 2023. Biden and House Speaker Kevin McCarthy reached an “agreement in principle” to raise the nation’s legal debt ceiling late Saturday.
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 still list that as a $10 billion fund shift, others put it as low as $1.9 billion, which is a little more than 2 percent of the total $80 billion outlay). This cap then rises by one percent in FY2025.
What this deal really does is hurt the government’s capacity.
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 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 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. 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 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, 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.
The hopes of a grand bargain on permitting large energy and infrastructure projects mostly dissolved into nothing.
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. There are two SNAP work requirements: 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; 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. 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 that making SNAP harder to navigate won’t increase work; it’s just a way to take some people’s food away, 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. 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 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.
Keep in mind that this only extends federal borrowing for two years, after which we have to do this all over again.
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. 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 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.
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 from George W. Bush, which was strengthened in 2019 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 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 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.
