On Sunday, President Joe Biden and House Speaker Kevin McCarthy announced they had reached a deal in principle to temporarily suspend the nation’s $31.4 trillion debt limit and avoid the first-ever default of U.S. government obligations. This agreement will still have to be approved by the U.S. House and Senate, however.
The U.S. Treasury previously set a default deadline of June 5, 2023, so averting this default is good news for Alabamians and the country in the short run. The effects could have been devastating to the economy, leaving tens of thousands of Alabama residents facing unemployment and financial uncertainty.
But the proposed debt limit agreement will not solve the fundamental spending and debt issues that the U.S. government faces. Rather, it merely delays those decisions until after the 2024 presidential election.
So, what’s in the Biden-McCarthy debt limit deal?
Under the agreement, the debt limit would be suspended until Jan. 1, 2025, leaving the next president to face another potential crisis early in his or her term. And by suspending the debt limit, rather than raising it by a dollar amount, the federal government has virtually untapped borrowing authority over the next 18 months.
In exchange for the debt limit suspension, Biden agreed to impose discretionary spending caps for the next six years, though those caps would only be enforced by automatic across-the-board cuts during the first two years of the agreement. Discretionary spending includes things like national defense, veterans’ programs, and other day-to-day functions of federal agencies. It does not include programs such as Medicare, Medicaid, and Social Security.
The agreement would essentially hold all non-military and non-veteran-related spending flat through the end of fiscal year 2025. It also includes a provision that will automatically cut spending by 1% if lawmakers fail to enact all appropriations legislation before the October 1 deadline in 2023 and 2024.
The deal would also strengthen work requirements for the Supplemental Nutrition Assistance Program and Temporary Assistance for Needy Families program, the hope being that the requirements will get more Americans out of federal assistance programs and into the workforce.
While essentially freezing discretionary spending increases and strengthening work requirements is a win for citizens, it’s troubling to see what the agreement doesn’t do. Republican-proposed Medicaid reforms did not make it into the deal. No reforms to Medicare and Social Security were included in the final agreement.
Mandatory spending and interest payments on the national debt in 2022 accounted for 73.5% of federal spending, according to the Congressional Budget Office. Combined, spending on those programs is projected to grow by 64.5% in the next decade. The debt limit agreement reached this week does nothing to address the primary drivers of the nation’s debt and federal spending growth. It does little to rein in out-of-control federal spending. It targets little more than a quarter of the U.S. budget.
The debt limit has been suspended eight times and raised by a set dollar amount twice since 2011. It has done nothing to control federal spending growth, which increased by 74.1% from 2011-2022. Instead, the nation finds itself back in the same “crisis” situation every two years.
While some Alabamians may dismiss the actions of Washington and assume it has little impact on their lives, it does. For example, the record inflation of the past few years was largely fueled by trillions of dollars in federal COVID-19-related spending and historic amounts of government borrowing.
The refusal of Congress and the White House to address Social Security has put the program on a path to insolvency, i.e., incoming receipts won’t cover benefits due, by 2034. Medicare faces a similar fate by 2028. Either Alabamians will see their benefits reduced substantially, or we will all pay higher taxes to cover the shortfall.
The growth of federal spending has also led to less autonomy for states. Last year the federal government pumped an estimated $60.8 billion into Alabama’s economy, contributing to more than a quarter of the state’s GDP. Federal dollars almost always come with strings attached, forcing Alabama’s government to adapt to the policy agenda of Congress and whoever controls the White House.
Defaulting on the national debt would not be good for Alabama. However, the threat provided an opportunity for Congress to make meaningful reforms. Instead, they did nothing to address long-term spending growth, simply delaying the debate until another day. If that day doesn’t come soon, we will all pay the price.
Justin Bogie serves as Fiscal and Budget Reporter for 1819 News. The views and opinions expressed here are those of the author and do not necessarily reflect the policy or position of 1819 News. To comment, please send an email with your name and contact information to: Commentary@1819News.com.
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