Debt Deal Disappointment

I think of myself as a pragmatic conservative.

I focus on facts and data rather than emotions.

I understand that in the world we live in that compromise is necessary. You are never going to get what you believe is right when you must work within the political process.

I also know that the primary motivation of any politician is survival. Almost all of them talk a big game about what they are going to do for you. However, their basic instinct is going to be to protect their power first and foremost.

Donald Trump is about the most non-politician of any politician there is. That is the major reason he was elected in 2016,

However, even he was not immune from valuing his survival higher than doing what he knew he should do during the pandemic.

It was self evident a short time into the Covid pandemic that Dr. Anthony Fauci should have been fired and replaced. He was not serving the best interests of either Trump or the American people with his advice.

Trump knew that instinctively.

However, he never touched Fauci because he knew the media and the Democrats would bludgeon him continually if he took that step. Trump took the path of least resistance for his own survival rather than doing what was necessary.

We are seeing this play out again in the debt ceiling limit deal negotiated between Speaker Kevin McCarthy and Joe Biden.

I had argued in a blog post last week "There Will Be No Debt Default" that I applauded the House Republicans for attempting to use their leverage on the debt ceiling to do something about the disastrous fiscal path the country is on.

However, I predicted that in the end it would likely be of little value in producing tangible benefits even in the best case.

I stated that the Republicans would be much better served by asking Biden and the Democrats for simple measures the average American understands rather than arcane budget reforms.

I would much rather have seen the Republicans tie its border security bill to the debt ceiling limit. Add in cutting back on those 87,000 new IRS employees that the Democrats passed into law last year.

They need to put Biden and the Democrats on the defensive with proposals the average American understands and supports.

Would Democrats really want to shutdown the government because they are unwilling to secure the border and double the size of the IRS?

Now that I see what Speaker McCarthy and his GOP team "got" in these negotiations I can't help but wonder...

"What were they thinking?"

It appears that they were only thinking of their survival in power.

I don't say that lightly as I understand the need to compromise and I stressed in my earlier blog post that the Republicans should remember that "discretion is the better part of valor" considering the slim majority  they have in the House of Representatives.

However, when I look at the specifics of what they got in this "deal", it is not easy justifying a vote for this package.

Let's look at some of those specifics that the House is scheduled to vote on today.

The House-passed bill to raise the debt limit provided for a $1.5 trillion increase in the debt ceiling limit.

At current rates of spending, this would have probably meant that the debt ceiling would have had to be reconsidered again next Spring. This would have given the GOP additional leverage next year for other parts of their agenda.

However, the McCarthy-Biden proposal has no dollar-denominated debt ceiling limit.

Instead, it allows the federal government to borrow as much as it needs or wants until January 1, 2025.

This will mean that the debt ceiling could go up another $2 trillion, $3 trillion, $4 trillion or higher without  requiring additional Congressional approval.

If we were to face a recession in the next 18 months there is no telling what the debt limit might end up being.

Notice as well that the debt ceiling limit will expire after the 2024 elections but before a new Congress will be sworn in during the first few days of January, 2025.

This means the next debt limit ceiling discussions will occur during a lame duck session of Congress and what could also involve a lame duck President.

You also have to wonder what would stop the Biden administration Secretary of Treasury from issuing as many debt obligations as they could right before the January 1, 2025 deadline?

None of this is conducive to being in the best interests of the American people.

On the other hand, it is all rather convenient for the politicians involved don't you think?

Speaker McCarthy is working to sell the compromise by arguing that it will restrain discretionary spending that is largely feeding the federal bureaucracy.

That is supposed to be accomplished by freezing this spending at 2023 budget levels for the next two years.

However, this is after massive Covid spending already got baked into the federal budget over the last several years.

2023 discretionary spending is up 56% from President Obama's 2016 budget.

In other words, McCarthy is claiming credit for "saving" billions of dollars of spending.

However, are we really "saving" anything?

The federal government is currently spending over $6 trillion per year.

The portion of the budget subject to the "freeze" (discretionary spending minus the defense budget and VA benefits) is only about 10% of the total.

Let's assume that this $635 billion of discretionary pending would have gone up 5% each year when the 2024 budget and 2025 budgets were formally approved without the McCarthy-Biden deal.

That would be about $65 billion in potential additional spending that has been curtailed as a result of this deal. That is out of projected spending over the next two years of $13 trillion---that represents a cut of about .005 ( half of one percent).

Yes, it's something.

However, this is being portrayed as a major budget breakthrough.

I don't think so.

Even giving the benefit of the doubt to McCarthy, that means he essentially got $65 billion in cuts by providing Biden and the Democrats with what might be $4 trillion of additional debt capacity.

Does that sound like a good deal?

The Republicans also went into the negotiations with the objective of making sure that Biden's student debt cancellation plan would clearly be outlawed by the Congress.

What did they get instead?

Nothing on rebuking Biden's executive order by statute. Instead, they have effectively punted the issue to the Supreme Court decision that is expected later this month.

The deal does include a provision to require all student loan borrowers to start paying on their loan again at the end of August (all student loans have been in forbearance for over three years by executive order). However, this was already the date repayment on loans were supposed to resume now that the Covid emergency it was based on is no longer in place. In effect, all this does is prevent Biden from again using an executive order to further delay the restart of payments.

In effect, it makes it unlawful for Biden to do something that is already unlawful.

House Speaker McCarthy also made a big show that he was going to repeal the $80 billion in additional funding for the Internal Revenue Service to be used to hire 87,000 new IRS employees over the next decade.

Source: https://www.msn.com/en-us/news/politics/kevin-mccarthy-pledges-87-000-irs-agents-losing-their-jobs-on-day-one-if-republicans-take-majority/ar-AA1393bR

The House Republican bill that passed the House would have deleted this funding.

What is in the deal with Biden?

IRS funding is going to be cut by just $1.9 billion---less than a 3% haircut.

The IRS keeps $78.1 billion of the total funding.

I guess this only allows for 84,000 new IRS employees to be hired.

I am all for compromise.

However, is this a compromise or a surrender?

McCarthy says that the Democrats did not get one thing in this deal.

Senator Ted Cruz has a different take.

The consensus view from many Democrats is that the deal is much better than they expected.

A sampling of some views.

Unfortunately, this is what I expected when I wrote my previous blog post on this subject.

If the GOP wanted to get something tangible and hold the Democrats' feet to the fire they should have insisted that their border security bill (already passed by the House with no Democrats voting in favor) be the quid pro quo.

For good measure, they should have stated they also wanted the IRS funding cut. In the spirit of "compromise" they would be willing to accept less than a full repeal and allow $20 billion ( a 75% reduction) to be retained by the IRS for technological updates.

Of course, that is not the strategic path Speaker McCarthy chose in the debt ceiling negotiations.

I would expect the McCarthy-Biden deal will get the votes needed to pass.

There will be defectors from both parties who will vote no.

Democrats who don't want to curtail any spending. Republicans who understand that this is more a "show vote" than onc of substance.

However, Biden and McCarthy will get the votes they need some how and some way.

In the end, the politicians will prevail.

They will kick the can further down the road.

They will cling to their power a bit longer.

In the meantime, we travel further into a debt-fueled disaster that will consume us all at some point.

Why couldn't we at least get a secure border out of this?

Why should we want to share the inevitable misery that lies ahead with so many other people who are not supposed to be here anyway?

Isn't that inhumane?