X-DATE: Taking Debt Ceiling Negotiations Seriously

The Senate Budget Committee held a hearing yesterday on the Limit, Save, Grow Act, the House Republican–passed debt ceiling-for-conservatives’ wish list exchange. Committee chair Sheldon Whitehouse (D-RI), who is getting a workout with stem-winder speeches lately, laid out the bill as representing a meager choice: “Default on our financial obligations, cause widespread pain and wreck our economy. Or gut basic federal programs essential to our economic strength, cause widespread pain and wreck our economy.”

Senate Democrats have taken to calling the House Republican bill the “Default on America Act,” or DOA. Just a few days of default, according to the estimates of economic analyst Mark Zandi, would cost a million jobs; a longer one would cost seven million, and increase borrowing rates for decades. Meanwhile, the across-the-board spending cuts and rollbacks of already-passed programs in the DOA bill would cost 790,000 jobs and a recession. “We’re supposed to choose between 790,000 and nearly a million jobs lost, and choose between recession and a $141 billion hit to the economy,” Whitehouse said. “Pick your poison.”

Sen. Chuck Grassley (R-IA), the ranking Republican on the committee, was unmoved by this appeal. “It’s time for President Biden and Biden’s Senate Democrats to come to the realization that their reckless and irresponsible strategy of delay has failed and begin negotiations in earnest.”

Democrats didn’t solve this problem when they had full control of the government. Unless the executive branch takes extraordinary actions they seem reluctant to take, or a bondholder sues Janet Yellen over their imminent loss of money, negotiations are a distasteful but likely next step. Biden is meeting with House and Senate leaders next Tuesday.

Recognizing that the answer should be “nothing,” what possible concessions could be made that would allow House Speaker Kevin McCarthy to save face and get enough Democrats and Republicans to pass that bill?

Here’s the text of the Limit, Save, Grow Act. There isn’t that much to it, really. There are the discretionary spending limits, known as “1 percent caps,” which would magnify over time. There is the rescission of unobligated funds from the American Rescue Plan and other COVID relief bills. The Inflation Reduction Act’s green-energy investment tax credits and IRS funding are reversed. The administration’s student debt cancellation plan is eliminated. There are work requirements for Medicaid, and enhanced ones for food stamps and Temporary Assistance for Needy Families. The House Republican permitting reform bill, along with the REINS Act (which basically requires a congressional veto for all regulations), is also included.

What would Democrats be able to live with on that list? Not very much. The discretionary spending cuts would put the nation in a permanent state of austerity. Reversing any part of the IRA would be unthinkable given the two-year struggle to pass it. The REINS Act nullifies much of the work of the executive branch; no Democratic president would ever sign that. Student debt cancellation is a big enough priority, and in the midst of an active Supreme Court case, that I don’t see much interest in that. Work requirements are kind of a perennial thing that Democrats and Republicans fight about (though it would be a lot easier to reject if Democrats didn’t just put work requirements into their signature child care bill). You could not get more than a couple of conservative Democrats for that.

That leaves two things that I could see any shot at Democrats grudgingly accepting: the rescission of unobligated COVID funds, and the permitting reform. The Congressional Budget Office looked at the rescission measures, and found that it would reduce outlays by only $30 billion over the next decade. That’s in a bill that contains $4.8 trillion in deficit reduction. Another $316 billion is unexpended but is “already subject to legally binding financial obligations,” so there wouldn’t really be any way to just rescind that.

The permitting bill, meanwhile, has an even more negligible fiscal effect. It would reduce direct spending by $10 billion in the ten-year budget window, but also reduce revenues by $6 billion. So that’s a net $4 billion in deficit reduction, and added to the rescission piece, you’re talking about the result of the debt ceiling bill being a measly $34 billion in deficit reduction? There’s no way I see Republicans going for that.

There are other reasons to enact permitting reform, of course, though the Republican and Democratic visions for that are starkly different. The Republican permitting reform is mostly about accelerating production of fossil fuels, while the soon-to-be-introduced Casten-Levin bill is mostly about speeding up approvals for clean-energy projects, with a particular focus on transmission lines.

Sen. Joe Manchin (D-WV) has reintroduced his permitting reform bill that failed last year, which you could maybe put somewhere in the middle, albeit tilted toward getting one particular natural gas pipeline in West Virginia through. Maybe you could cobble together some groups of Democrats and Republicans to advance this, though it didn’t work last year. And a debt ceiling-for-permitting reform swap doesn’t seem like it would be at all robust enough.

So then you get into the usual Washington gimmickry. You could set up something like the Budget Control Act of 2011, which was the model for passing the debt limit under divided government the last time there was a Democratic president. That put in place sequestration cuts that would be waived if a special deficit reduction panel came up with a solution. The panel predictably failed, and the cuts went into effect. Over time, they were mitigated by congressional action. The sequestration cuts that did get done were quite damaging, and rerunning this move would be unpalatable.

Biden put $3 trillion in deficit reduction into his own budget, but nearly all of it comes from raising taxes and deepening the drug price negotiations to lower costs to Medicare. McCarthy would probably lose his speakership if he agreed to any of that, which is what will drive his every decision in this negotiation.

Finally, there’s the idea of extending the debt ceiling to October 1, to align it with budget talks. That way, the negotiations could be seen to be over the budget, which would be more reasonable than holding the economy hostage. I guess that’s possible, but you’re also asking in that scenario for McCarthy to give up his leverage.

I think the end result of this analysis is that there is no real solution available. The reason that there hasn’t been much interest in gaming out a negotiation is that there’s nothing to game out. Either McCarthy accepts a cosmetic solution, an unlikely scenario, or Biden sells out his party and ushers in an economic downturn before his re-election campaign, also an unlikely scenario. The reason there’s been interest in an executive action, a legal fight, or some other resolution outside of Congress is that there doesn’t seem to be any resolution available inside it.

Here’s some further reading:

Conservatives don’t even believe the Yellen X-date number

There aren’t even that many congressional work days on the calendar to deal with this

Politico’s gaming-out of negotiations was much more charitable to Republican options