The debt ceiling crisis may soon be over. Just a few days ago, President Biden and House Speaker McCarthy struck a deal to suspend the debt limit and freeze federal spending over the next two years, and the House is set to vote on, and likely pass, this deal this evening.
But while the US may narrowly avoid a default, we don’t think this deal is cause for celebration. Both parties have pitched the agreement as “good news” for the economy and broader public, but unfortunately that’s just not the case. It’s a bad deal, and we want to take today’s Closer Look to explain why the “it’s a win-win deal” argument we’ve seen from both parties is wrong.
We’ve seen a significant amount of spin claiming that this deal is a good thing because it avoids the catastrophic effects of a default that would crash the global financial system and result in no fewer than 8 million Americans losing their jobs. But default or deal were not the only two options. It’s true that this agreement is not as bad as what Republicans were demanding, but it’s much worse than a clean increase, which Biden had the authority to accomplish through the 14th Amendment.
The bill cuts nondefense discretionary spending for 2024 and limits discretionary spending growth to just 1% in 2025. Part of the “savings” come in the form of new work requirements on older recipients of the Supplemental Nutrition Assistance Program (SNAP, formerly known as “food stamps”) and the Temporary Assistance for Needy Families Program (TANF, formerly known as “welfare”). Under current law, recipients between the ages of 18 and 49 with no dependents are subject to work requirements; this new legislation would gradually raise the age limit to 54 over the course of three years.
As we discussed last week, studies have shown that work requirements do not boost the labor participation, or the earnings of social benefit recipients (most of whom are already working!). Instead, these rules simply throw hundreds of thousands of needy individuals off desperately-needed benefits due to the burden of navigating bureaucratic red tape.
On top of the new work requirements, Biden and McCarthy’s deal also rescinds $21.4 billion of the $80 billion in funding allocated to the IRS as part of the 2022 Inflation Reduction Act. ($1.38 billion will be rescinded immediately, while the remaining $20 billion will be repurposed for other discretionary spending in 2024 and 2025.) This funding clawback might not hurt the agency’s services and operations in the short term, but it will undoubtedly cripple its ability to go after wealthy tax cheats with complex income sources and hidden wealth in the long run. And it certainly won’t be able to raise $1 trillion over the next ten years, which one study estimates that the $80 billion in IRS funding would potentially raise. (That’s right: the centerpiece of the debt ceiling deal is a change that will actually increase the national debt. Once again, here comes the myth of the Republicans being the party of fiscal responsibility.)
“Hypocritical” doesn’t even begin to describe how this move reflects on McCarthy and the GOP. Republicans never miss an opportunity to rail about our national debt, but when it came time to make a deal, their #1 priority was making a change that will increase the debt. This decision – along with the Bush and Trump tax cuts for the wealthy and corporations, which together added $10 trillion to the debt – goes to show that Republicans’ talk about debt and deficits is nothing but hot air.
They will hold the economy hostage over purported concerns about excessive spending, and then, without skipping a beat or batting an eye, give trillions in handouts to the rich. It’s no exaggeration to say that their only guiding principle – their north star, if you will – is that rich people shouldn’t have to pay taxes. Why else would they be looking to pass a tax package, right after they give a free pass to wealthy tax cheats in this bill, that will make many of the Tax Cuts and Jobs Act cuts permanent (at a cost of $3.5 trillion)?
Democrats, on the other hand, should have stood firm and refused to budge on IRS funding. Biden himself has said on numerous occasions how desperately the IRS needs additional funding to ensure that rich people start paying what we rightfully owe the country in taxes. For the President to even entertain – let alone agree to – the idea of clawing back IRS funding in debt limit negotiations is beyond the pale.
Unfortunately, while the GOP is clearly the party that caused the entire debt ceiling crisis in the first place, we can’t let Democrats off the hook. Biden and his aides simply blew it on the debt ceiling. They should not have agreed to “negotiate” with McCarthy and his cronies in the first place. You should not try to reason with people willing to hold the entire global economy hostage, because it sets a dangerous precedent for future Republicans to do the same. You especially shouldn’t do it while loudly proclaiming that you’re not going to use the other option available to you, the 14th Amendment, thus removing any and all leverage you might have had in negotiations. Now, we’re paying the price for Biden’s lack of forethought. While poor seniors are poised to lose food and financial assistance, wealthy tax cheats are being given another green light to keep breaking the law.
The June 5th default deadline is fast approaching, and this agreement seems to be all but a done deal. We believe there’s a better way forward: President Biden can still invoke the 14th Amendment to honor the country’s debts without undermining tax enforcement and hurting poor seniors. But all signs are pointing toward enough Democrats voting for this deal for it to pass through Congress. This is certainly a better outcome than a default, but it’s not one that we should celebrate.