US politics and policies Washington Weekly: Next debt ceiling extension

If voters elect a divided government, another debt ceiling showdown is likely. If voters elect a more unified government featuring one-party rule, a showdown is unlikely. Voters in 2024 probably won’t list the debt ceiling as a top priority, but the choices they make collectively will determine whether the next debt ceiling fight is tame or contentious.

So, Will This Deal Stick? In 2011, President Obama and then-House Speaker John Boehner (R-OH) agreed to the Budget Control Act (BCA), which increased the debt ceiling (from a mere $14 trillion) in exchange for federal spending caps for a decade along with other measures. The BCA spending caps were relaxed over the subsequent years by Congress making the agreed-to spending restrictions far less impactful in reducing the budget deficit. While the current debt ceiling deal has some similarities to the BCA, it is fair to ask if history will repeat itself with Congress ignoring its own spending caps as time goes on. That may happen, however, one distinct difference is the length of the spending caps. The current deal is for only two years of spending caps versus the BCA that was supposed to last for ten years. The shorter duration in this package should help ensure that it will be adhered to as Republicans will maintain control of the House during that period (in contrast, the longer length of the BCA saw elected officials come and go, and they were less beholden to maintaining the caps). We expect Republicans will largely hold the line on spending issues through the 2024 election and keep this deal on track.

Act Two: Government Spending Shutdown Looms. It won’t be long before Congress is again embroiled in another deadline-focused showdown with the Biden administration—this time over the annual funding of government agencies and programs. The debt ceiling extension agreement puts limits on some general areas of federal spending, but in most cases it doesn’t specify an exact level of spending for federal agencies and programs. That is the job of Congress through the annual government funding bills. It must pass 12 separate funding bills covering all agencies each year to keep the government operating, though it has become a bad habit over the years to pass one large funding bill instead of passing 12 separate bills. In the current divided government, it is inevitable that there will be serious disagreements about funding levels for many programs, particularly with a scaled-back budget to work with. As we move toward 1 October, the start of the new fiscal year, there will very likely be a threat of a government shutdown. This debt ceiling extension includes a backstop to automatically fund government operations at 99% of current levels if these bills are not passed by 1 January, though many lawmakers will strongly resist that approach. Government shutdowns pose all kinds of serious problems but not on the scale of a default that we seem to be close to averting.

Small Piece of the Pie. The debt ceiling deal includes caps on federal spending for two years, but those caps only cover “discretionary” spending, which represents under 30% of overall government spending. It does not cover the other more than 70% of spending that is “mandatory” (e.g. Social Security, Medicare and interest on the debt). Hence, any cuts to spending will fall on a relatively small part of the overall spending pie. At the State of the Union earlier this year, President Biden stressed the need to preserve Social Security and Medicare, and the reaction that his remarks elicited from Republican lawmakers in the audience seemed to solidify a bipartisan commitment to save the programs from any reductions for the foreseeable future. Reflecting this reality, the debt ceiling deal doesn’t even include an independent commission to study and make recommendations about longer-term fiscal challenges. With even the discussion of potential changes to Social Security and Medicare continuing

For more, see Washington Weekly 2 June 2023.