With the House passing a debt ceiling bill last night and the Senate likely to follow, I want to use today’s newsletter to assess President Biden’s handling of the issue.
Here’s my simple summary: Biden both won and lost. On policy grounds, he negotiated a good deal for Democratic Party priorities — but at the cost of abandoning what he had claimed was his principled refusal to negotiate over the debt ceiling. For Democrats to avoid a repeat of this experience, they will have to change their debt-ceiling strategy in future years.
How Biden won
Elections have consequences, as politicians like to say. Last year’s midterm elections left the country with died government in which Democrats control the White House and Senate while Republicans control the House.
Even if the country had no debt ceiling, the two parties would have had to negotiate a budget this year. And the bill that the House passed yesterday — based on a compromise negotiated by Biden and Kevin McCarthy, the Republican speaker of the House — looks a lot like what a budget deal probably would have.
It is a short-term bill that lacks any attempt to solve the country’s long-term fiscal challenges through tax increases or changes to Medicare and Social Security. It also lacks major cuts to other domestic spending, instead reducing its growth by a few percentage points over the next two years.
Republicans were able to use their control of the House to insist on several policy changes, including lower nonmilitary spending; work requirements in anti-poverty programs; less funding for the enforcement of tax laws; and approval of an Appalachian gas pipeline. Democrats protected their biggest policy goals, including recent legislation on clean energy, health care and infrastructure. Biden may also be able to minimize the impact the bill’s spending cuts (like those related to tax enforcement) by later moving money from one program to another.
The fate of Biden’s climate policies seems especially important. The House bill not only protects all the clean energy subsidies passed last year, but also includes a bipartisan priority known as permitting reform that has the potential to remove some of the bureaucratic obstacles to major clean-energy projects.
I know some climate advocates are nonetheless angry because of the Appalachian pipeline, but I think they’re missing the big picture. Presidents do not have magical powers, and Biden has demonstrated that climate change is a top priority for him. “This is the thing the Climate Left keeps not acknowledging,” Matthew Yglesias wrote in his Substack newsletter this week.
Given the radicalism of today’s Republican Party and its tolerance for political chaos, there was a real risk that these debt ceiling talks would cause an economic crisis. Instead, they led to a classic political deal that left untouched the major accomplishes of Biden’s first term. It is a reminder that he is the most successful bipartisan negotiator to occupy the White House in decades.
How Biden lost
Almost no other country in the world has a debt ceiling. Legislators elsewhere see it as redundant. Politicians can argue about taxes and spending when writing budgets, but once they pass those budgets they don’t debate whether to pay their country’s bills.
If you think of it in terms of a family budget, you can see why the rest of the world scoffs at the idea. A family should have a serious discussion over whether it can afford a new car or house. But once it has bought the car or house, there isn’t much point in arguing over whether to pay the bill. Reneging on it will only worsen the family’s finances.
This background helps explain why Biden and his aides insisted — publicly and privately — that they would not negotiate over increasing the debt ceiling. Doing so, they explained, would encourage future ransom demands when the country again approached its debt limit. Congress should pass a straightforward increase to the limit, White House officials said, and Biden would then be happy to negotiate over the federal budget.
Instead, they abandoned this position and started negotiating with Republicans over the debt ceiling.
To be fair, Biden may not have had a choice. Had he refused to negotiate, a financial crisis could have ensued, and Biden might have taken the blame. But his surrender shows that Democrats (and the country) would benefit from a longer-term solution to the debt ceiling. As long as it exists, it will create economic uncertainty and give Republicans an extra opportunity to cut spending.
There is a straightforward solution, too. At any point, Congress could repeal the debt ceiling or raise it so high that it would be irrelevant for decades.
Some Democrats, including both progressives like Senator Elizabeth Warren and moderates like Senator Michael Bennet, favor this approach and pushed for it when their party controlled Congress early in Biden’s presidency. But other moderates, led by Senator Joe Manchin, blocked it, apparently out of a desire to show concern about the deficit. (Again, the debt ceiling isn’t actually fostering long-term deficit solutions, as Ezra Klein explains.)
Another scenario for solving the debt ceiling problem could come during a Republican presidency. When Donald Trump was in office, congressional Democrats raised the ceiling and asked for almost nothing in return. Imagine if they had said they would not act unless he agreed to raise it by so much that the issue would be irrelevant for many years.
Until the debt ceiling goes away, unnecessary economic turmoil will be a recurring feature of American politics. The next standoff is likely to occur in 2025.
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