Reflections on the debt ceiling compromise

I’m just beginning to exhale. For the past several weeks, I’ve been somewhat paralyzed by my concern that Congress would fail to raise the debt ceiling, thereby putting the world economy in jeopardy; and while the critical legislation has yet to pass, by all accounts, it looks like we’re poised to dodge a bullet — this time.

Truth be told, some of the more dire predictions may be overstating what might happen if the debt ceiling were left as is; but nonetheless, the apparent disregard of the possibility of the cautioned-about chaos — even now — by some who’ve been elected to steer the ship of state seems astonishingly irresponsible.

The compromise arranged between President Biden and Speaker McCarthy notwithstanding, from what I’ve been able to gather thus far, much of the detail spelling out exactly which discretionary programs will be most impacted is still yet to be determined, but the broad outlines of the compromise suggest a meeting in the middle. This outcome necessarily means that if the agreement is enacted, those holding the most extreme wish lists on both sides of the budget debate will suffer some measure of disappointment.

Whatever may have been “decided” under the compromise, it’s important to realize that nothing is set in stone. Virtually all the agreed upon provisions are subject to change, in time. As has been amply demonstrated by the negotiations pertaining to this current legislative initiative, Congress always maintains the prerogative to revise and rescind earlier legislative appropriations. In the meantime, however, this legislation — like every other — has winners and losers; but in this instance, those populations affected at the margin seem to have largely been contained.

Going into these negotiations, my biggest concern was that the resulting spending cuts would end up being too severe, imposing a contractionary fiscal policy that would likely push us into an unnecessary and unwarranted recession. It appears, however, that the scale of the reductions seems likely to fall well short of my fears. That’s not just a win for the Democrats. That’s a win for America.

To my mind, what the Democrats gave up on most was their plan to collect higher taxes from corporations and high net worth taxpayers. Foregoing these incremental tax revenues gives lie to the claim that both parties have any genuine concern about the level of the debt — the issue that purportedly motivated the threat of not lifting the debt ceiling in the first place. Given this “concern,” it’s interesting that not a single Republican voiced any willingness to agree to any tax increases, despite accommodating to the fact that a fair portion of their desired tax cuts weren’t going to be realized. Oh well, I guess the size of the debt isn’t all that unsustainable, after all. And the fact that the Democrats didn’t hold fast to the idea of at least a token compromise in this area is equally telling.

On the one hand, I take some solace in the fact that Biden and McCarthy managed to find some common ground to agree upon. What’s disappointing to me, on the other hand, is that, institutionally, Congress seems totally unable or unwilling to take the necessary steps to preclude the parties from having to negotiate under threat of mutual destruction in the future. It looks like we’re likely to end up with a reasonable and understandable outcome this time around. Next time, we may not be so lucky.