Is President Biden Negotiating over the Debt Limit?

David Super

     President Biden insisted he would not negotiate about the debt limit.  Now we see Oval Office pictures of him and Vice President Harris with the four top congressional leaders, and he is cutting short his Asian trip to come back for more.  Does this mean he has already caved?

     Not really.  The country faces not one but two fiscal “High Noon” moments over the next few months.  It will reach the debt limit some time this summer, quite possibly in June, and the current annual appropriations bills will expire on October 1.  With the parties far apart on both, difficult negotiations will be needed on both.  And although the President has several alternatives to a bipartisan agreement on the debt limit, he cannot continue to operate much of the government without new appropriations legislation, which must move through the House.  So the President is negotiating with the House Republicans about Fiscal Year 2024 appropriations levels now rather than waiting for September; if those negotiations provided a vehicle for giving House Republicans something they want, they can more easily pass an increase on the debt limit without seeming to have backed down themselves.

     Whether the President is negotiating about FY 2024 appropriations caps or the debt limit therefore is a question of cosmetics at this point.  It will remain one even if the appropriations caps and debt limit get wrapped into the same legislative package:  that has often happened in the past and does not particularly exacerbate the hostage-taking problem if both sides like the legislation tied to the debt limit (as both did, for example, with disaster relief measures tied to a debt limit increase under President Trump).

     What would indicate whether the President submitted to House Republicans’ hostage-taking would be the terms of any compromise.  Absent the debt limit, House Republicans could plausibly win a full-year continuing resolution (CR) with a nominal freeze in appropriations – an inflation-adjusted five percent cut – come October 1.  A CR at a nominal freeze has long been the default when the parties cannot agree on appropriations bills.  If President Biden gives Republicans more than that – caps forcing nominal cuts in appropriations or cuts in “direct spending” programs not subject to annual appropriations – he will have submitted to debt limit hostage-taking. 

     News accounts of the negotiations are deeply unilluminating.  Even experienced reporters get drawn into the very familiar cadence of these negotiations.  First the parties argue about whether to negotiate at all, and on what terms.  If both are reasonably adept, they find a way to start talking without either party seeming to back down.  Check.

     Next, the parties express satisfaction about the progress of the negotiations.  Each side finds this important to seem “serious” about negotiating to reporters.  In the process, a few of the more bizarre proposals of each side get cast aside.  Check, although this time the Democrats did not bother to make such proposals. 

     Then both parties start looking for one or more position that polls well that they can cite later as the point of the other side’s “intransigence” to justify the inevitable breakdown in negotiations.  Each side also examines closely the wording of the other side’s declarations to separate the ones on which the other side it burning the bridges behind them.  Thus, for example, Treasury Secretary Yellen has called the $1 trillion coin option a “gimmick”, which is about the mildest condemnation you are likely to find.  This complaint is particularly amusing coming from someone currently engaged in “extraordinary measures” to avoid hitting the debt limit – a set of overt gimmicks (such as temporarily raiding some pension funds) that Treasury secretaries of both parties have long undertaken. 

     Following this, the parties will contrive to break off negotiations at least once, with each side trying out its messaging blaming the other side for the impasse.  Polling and focus groups conducted during these theatrical breakdowns will tell both parties who has the upper hand on this or that issue.  This is how President Clinton discovered that “Medicare, Medicaid, Education and the Environment” polled well and congressional Republicans learned that they did not have a winning rejoinder. 

     At this point, it seems Speaker McCarthy wanted to trigger a breakdown over President Biden’s Asia trip – which would not have interfered at all with substantive negotiations – but, once the President sacrificed that trip, has started leaning toward making the demand for phony “work requirements” (actually just the disqualification of people who are unable to find jobs) his justification for the first breakdown.  Republicans seem to believe this will work as a wedge issue, splitting Democrats that are happy to blame low-income people for their circumstances from those that understand how devastating it is to deny aid to people at the very time they lose their jobs.   

     Speaker McCarthy probably will want several cycles of acrimonious breakdowns and statesmanlike resumptions of talks before finally declaring the President hopelessly intransigent.  To allow time for that, look for a short-term extension until roughly the time voters tune out on political theater to take their August vacations.  None of the other leaders will dare object. 

     Reporters have to file stories every day so perhaps they have a vocational interest in taking seriously these wild swings between optimism and pessimism.  More useful, but less entertaining, is analyzing the dispute’s political fundamentals.  This can tell us whether an ultimate deal is likely – it is not – and what theater the major actors need to perform before this crisis finally ends.

     Speaker McCarthy likely would lose his gavel if he makes a deal that does not involve radical changes to the federal government.  The Freedom Caucus believes neither that a default would be particularly harmful nor that they would be blamed if one occurs – and they thoroughly disrespect the business leaders that persuaded Senator McConnell to let the 2021 debt limit increase to pass.  Any chance the Speaker had room to make plausible offers evaporated when former President Trump told congressional Republicans to “do a default.” 

     And President Biden likely would lose his re-election campaign if he agreed to a deal that did involve such radical changes.  And radical they are:  not even Republican appropriators have the faintest idea how to implement their proposed immediate 33% cut in annual appropriations outside of defense and veteran’s health care (and they will not even attempt to move appropriations bills in the areas they wish to cut).  Pulling this much money out of the economy so suddenly could trigger a recession – which would be particularly harsh if unemployed people are denied Medicaid and food assistance.

     These radically inconsistent interests strongly suggests that no deal is there to be had.  These negotiations, then, likely involve each side hoping to catch the other in a blunder or, more likely, maneuvering to put as much of the blame for the negotiations’ ultimate failure on the other side. 

     If Speaker McCarthy reaches a deal that does not fundamentally alter the course of the federal govern­ment, the Freedom Caucus will surely rise up against him.  He gave them several seats on the House Rules Committee in January; although he probably has enough loyalists on the Committee to move a bill to the floor with Democrats’ help.  Once on the floor, he could surely find the handful of votes needed to pass a deal with near-unanimous Democratic support (although that level of Democratic support likely would not be present if the deal involves anything like the deep cuts Republicans are demanding).  But relying on Democratic votes has become unacceptable in today’s Republican Party.  It cost John Boehner the speakership eight years ago in a significantly less extreme Republican caucus. 

     Part of the package of rules changes the Freedom Caucus won in exchange for allowing Rep. McCarthy to become Speaker was one allowing a single Member to force a vote on vacating the speaker’s chair.  Speaker McCarthy theoretically might survive such a vote if Democrats all abstained, but his leadership over the Republican Caucus at that point would be effectively over.  And nothing about the courage this scenario requires bears any resemblance to the Kevin McCarthy who has repeatedly condemned Donald Trump in private only to bow obsequiously to whatever he asks. 

     Conceivably Speaker McCarthy could reach a deal, let the Freedom Caucus defeat it, and then try to leverage that defeat to come back for more concessions.  More likely, however, his goal in these negotiations is to prepare to put the best face possible on their largely inevitable breakdown. 

     President Biden surely knows all this.  And having worked carefully during his 2020 campaign and since to accommodate the breadth of the Democratic coalition, he is unlikely to agree to a deal that would drive a million or more deeper into poverty by cutting off aid when people become unemployed.  He saw first-hand what President Obama’s capitulation to debt limit extortion did to his ability to accomplish much in his second term.  But continuing to negotiate so that Speaker McCarthy will face as much public condemnation as possible for the eventual breakdown is the best way to lay the groundwork for ending this extortion once and for all.