The House Passes a Bill regarding Debt Ceiling Negotiations

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The House passed a bill regarding the debt ceiling negotiations last night, with the Senate set to follow. This newsletter will evaluate President Biden’s handling of the issue.

Overall, many believe that President Biden both won and lost. Although he was able to negotiate a good deal for the Democratic Party’s priorities, he had to concede on his principled refusal to negotiate over the debt ceiling. Moving forward, Democrats will need to change their approach to this issue in future years to avoid repeating this experience.

Biden’s Win

Elections have consequences. With Democrats controlling the White House and Senate, and Republicans controlling the House, the two parties were destined to negotiate a budget this year. The bill that the House passed resembles what such a budget agreement would appear like.

However, the bill does not attempt to solve the country’s long-term fiscal challenges. It lacks significant cuts to domestic spending, merely curbing its growth by a few percentage points over the next two years. Republicans were able to insist on a few policy changes, including work requirements in anti-poverty programs, lower nonmilitary spending, less funding for the enforcement of tax laws, and approval of an Appalachian gas pipeline. Nonetheless, Democrats were successful in preserving their top goals, such as legislation on clean energy, health care, and infrastructure. President Biden may be able to reduce the impact of the bill’s spending cuts by reallocating funds from one program to another.

The plight of President Biden’s climate policies is particularly significant. The House bill does not only secure subsidies for clean energy enacted last year but also includes permitting reform, a bipartisan priority that could rid significant bureaucratic obstacles impeding major clean energy initiatives. Some climate advocates remain angry about the Appalachian pipeline but are failing to see the bigger picture. Matthew Yglesias notes this on his Substack newsletter.

Given the radicalism of today’s Republican Party, there was a real danger that these debt ceiling talks would create an economic crisis. Instead, political negotiations ensued, leaving many of Biden’s first-term objectives untouched. President Biden continues to establish himself as the most successful bipartisan negotiator in decades.

Biden’s Loss

Almost no country in the world has a debt ceiling, and politicians elsewhere consider it redundant. When creating a budget, politicians can debate taxes and spending, but they do not question whether to pay their country’s bills after passing the budget.

President Biden and his aides constantly made it clear that they would not negotiate over raising the debt ceiling. They maintained that doing so would encourage future ransom demands when the country approaches its debt limit. The White House officials suggested that Congress should pass a straightforward increase to the limit, allowing President Biden to negotiate over the federal budget.

Unfortunately, they abandoned this position and began negotiations with Republicans over the debt ceiling. While President Biden may not have had an option at the time, his surrender demonstrates that the Democrats (and the country) require a long-term solution to the debt ceiling. As long as it exists, it will cause economic uncertainty and give Republicans an opportunity to cut spending.

There are simple solutions available. Congress can repeal the debt ceiling or raise it so high that lawmakers do not have to discuss it for decades. Progressives such as Senator Elizabeth Warren favor this approach and pushed for it when Democrats controlled Congress early in President Biden’s term. However, other moderates, led by Senator Joe Manchin, opposed it to show concern about the deficit, although the debt ceiling is not fostering long-term deficit solutions.

Another way out of the debt ceiling problem could arise during a Republican presidency. Congressional Democrats raised the ceiling and asked for almost nothing in return when Donald Trump was in office. Imagine if they had said they would not act unless he agreed to raise much that the issue would be irrelevant for many years.

Until the debt ceiling goes away, financial turmoil will be a recurring feature of American politics. It is almost certain that the next standoff will occur in 2025.