With only weeks to go before the federal government reaches its borrowing limit, the Republican-led Congress has passed a bill that will avert the crisis. This bill falls far short of directly solving the problem of constantly rising debt. However, it is a reasonable compromise necessary to pull together widely varying fiscal positions held within the Republican caucus. It ties an increase in the debt ceiling to spending cuts.
President Biden and Senate majority leader Schumer refuse to support the bill. Despite the fact that it provides the necessary debt ceiling increase to avoid a credit default, the Democrat leadership will not agree to any of the significant spending cuts in the bill. President Biden has stated he has no interest in negotiating with Republicans on this bill.
Irrespective of what the news media says, Republicans are the ones holding all the cards and are in control of the current situation. Constitutionally, President Biden and the Democrat-controlled Senate can’t do anything regarding the debt ceiling without the Republican-controlled Congress acting first.
As is usually the case with a divided government, this comes down to a game of “chicken” to see which side gives in first. Historically, the Republicans have always been the ones who cave in on this standoff. Then Senate majority leader Mitch McConnell famously did so the last time this situation arose. Despite what appears to be a good start for the House Republicans this time around, we predict the same thing will happen again.
Democrats have a lot going for them. They know the news media will amplify any ginned-up narrative that blames Republicans for not raising the debt ceiling and putting the country at risk of default1. They know that most Americans don’t have the attention span to go beyond the headlines on this topic. They also believe most people can be convinced that this is an easily solved problem fixed with a simple stroke of a pen. It can be kicked down the road for another day.
Mostly though, the Democrats know the Republicans are scared to death of being blamed and will always submit in the end. President Biden is bad at a lot of things, but he is very good at invoking “old school” politics and tactics. He knows there is no reason for him to enter into negotiations with Republicans on the debt ceiling because he will get what he wants in the end anyway. He has nothing to lose.
House Speaker Kevin McCarthy and the current Republican Congress need to stand firm and not compromise on the bill they’ve just passed. They have fulfilled their obligation to ensure the US does not default on its debt payments for at least another year. Their position from here on in should be unambiguous – the Democrat Senate and President Biden have now been handed the Constitutional power to raise the debt ceiling and prevent a default. If that is not done, it will be because Biden and the Senate made a conscious choice not to do so. There is no imagined outside “force” compelling Biden to dismiss negotiations and veto this bill. The simple fact is that he and most Democrats value continued over-budget spending more than they value responsible management of the national debt. He is threatening to maintain this position even to the point of driving the nation into default. If that happens, Biden and Schumer will have knowingly put the country in financial jeopardy by their own actions.
This is what we mean when we say the Republicans hold all the cards. Their position is sound and strong. Regretfully, based on past history, it is a near certainty they will squander this strong position and end up passing a much weaker bill. They will cede most, if not all, of their strength on this issue over to Biden and the Democrats. Biden and Schumer will then demagogue to the media proclaiming that the Republicans finally came to their senses. Once again, a false reality will be reinforced that it was McCarthy and the Republicans who irresponsibly almost put the nation at great risk. Rinse, repeat.
There is a hard reality with the debt ceiling, and the federal budget in general, that a future Congress and President will be forced to address. In a nutshell, the national debt has risen so large that the interest payment on that debt is the government’s fourth largest expenditure. It now tallies at well over half a trillion dollars. It sits just behind Healthcare (Medicare, Medicaid, Obamacare, VA), Pensions (Social Security, government pensions, welfare) and Defense, in that order. Since Biden has been President, this interest payment has risen proportionally even higher because of the rise in interest rates resulting from his fiscal policies.
The money the government takes in from taxes is no longer enough to cover even just these four spending categories. You read that right – if you eliminate all other government spending, including education, transportation, the salaries of all non-Defense government employees, and every other department and office, it is still not mathematically possible for the government to stay within its budget.
The Democrat solution to this has always been a combination of two things – borrowing more money (making the debt interest problem even worse) and raising taxes. However, we are now at a point where everyone’s taxes, not just those of the wealthy, would have to be raised by more than 30% to balance the federal budget. Also, it is no longer possible to increase taxes only on the “rich” to fix this problem. There simply isn’t enough personal income available from that group to tax. That is true even if the wealthiest people in the country were taxed at 100%.
Republicans talk a lot about lowering government expenditures to get closer to a balanced budget and eliminate the need for frequent debt ceiling increases. But they have never been able to execute that solution. Despite all the talk, recent Republican administrations have had to borrow money and raise the debt ceiling just as Democrats have. Responsible action from either side on this problem has been put off for so long, cutting only discretionary spending can’t fix it anymore. The amounts of money involved are too large. As a practical matter, cost reductions in the entitlement programs (Healthcare and Pensions), which account for 60% of all government expenditures, must be on the table.
Unfortunately, cutting costs in the Healthcare and Pension programs is another area where Republicans fail miserably in articulating a solution. They need to hammer home the fiscal reality of this situation. Then they must offer a realistic plan to reduce the cost of these entitlement programs and give no quarter in doing so. They must not allow the expected relentless attacks by liberals, casting Republicans as uncaring and insensitive to the old and the sick, to deter them.
The inability of the Republican party to be aggressive and go “all-in” to fix problems such as this is what has driven so many of its constituents to a person like Donald Trump. They want the party, and especially its leader, to have a backbone and to show a genuine willingness to “go to the mat” on tough problems like this. Even if that means breaking glass in the process and enduring the mindless rage of progressives.
The debt ceiling bill just passed by Congress does not touch the entitlement programs or Defense. The items it does cut spending on are sure to make news headlines. But in the bigger budget picture described above, those cuts are far too small to be of any consequence in a lasting solution. With that in mind, we would still love to see Speaker McCarthy and the Republican Congress stand their ground. It would finally establish a line in the sand on which to work this critical issue in the future. Our fear however, is that we will be watching a slow-motion Republican train wreck over the next few weeks and the debt ceiling problem will just get kicked down the road a little bit further.
1 We must reiterate, there is no risk of default inherent in the Republican bill. The bill contains an increase to the debt ceiling that will last about a year. The only risk of default is if Senate Democrats and the President, in their zeal to maintain high levels of government spending, don’t pass this bill because of the spending cuts it includes.