We Have a Debt Limit Deal in Principle, It Doesn't Do Much

A House vote is expected this week on an agreement that will raise the borrowing limit for two years.

Biden, McCarthy Strike Debt-Ceiling Deal ‘in Principle’

The Wall Street Journal reports Biden, McCarthy Strike Debt-Ceiling Deal ‘in Principle’

Biden, in a statement, said that “the agreement represents a compromise, which means not everyone gets what they want.” He urged both chambers to pass the deal, saying it would prevent “what could have been a catastrophic default and would have led to an economic recession, retirement accounts devastated, and millions of jobs lost.”

But some conservatives said that they had wanted more. Rep. Dan Bishop (R., N.C.) tweeted that House Republicans on the call were “congratulating McCarthy for getting almost zippo” in exchange for what he said was a $4 trillion raise in the federal borrowing limit. The federal debt limit is currently $31.4 trillion.

The proposed deal isn’t likely to substantially alter the nation’s long-term fiscal trajectory, as both sides retreated from their initial positions, with Republicans once demanding steep spending cuts and Democrats proposing tax increases to address the deficit. The deal will only marginally affect spending that makes up less than one-third of the federal budget, with spending on mandatory programs such as Social Security and Medicare, as well as interest on debt, left untouched.

What’s in the Debt-Ceiling Deal?

  • Spending: The deal holds nonmilitary spending roughly flat for the 2024 fiscal year, which begins Oct. 1, and sets a 1% cap on spending increases for the 2025 fiscal year. After that, the deal includes spending targets that aren’t enforceable.
  • Military Spending: Military spending in fiscal 2024 would be roughly at the level of Biden’s fiscal 2024 budget request, according to two people familiar with the matter, which would amount to about a 3% increase.
  • Work Requirements: The White House agreed to a key GOP demand, tightening work requirements for federal aid, primarily by temporarily raising the top age threshold in the Supplemental Nutrition Assistance Program, or SNAP. But it does not apply to Medicaid.
  • Permitting of Energy Projects: The deal requires that a single federal agency take charge of a project’s environmental review, assuming responsibility for the review’s timeline. Right now, multiple agencies often perform their own, individual environmental assessments, which extends the review process. Both sides want this, hoping for fast approval of projects they want. I rather doubt it will work that way.

Hold Your Nose

As expected in this corner, we have a deal, and it does not do much but chip around the edges.

McCarthy sought to roll back spending levels to fiscal 2022 and then cap growth at 1% for a decade. Democrats had called those cuts a nonstarter.

There are no work requirements for Medicaid. There’s a big military spending increase, and the WSJ note that spending caps after fiscal year 2025 are not enforceable.

More accurately, all of these agreements are at the whims of future Congressional actions.

McCarthy cannot afford to lose more than four Republican votes, so this will likely be a joint hold-your-nose affair that Biden will sign.

This post originated at MishTalk.Com