The Debt Ceiling Fight in Historical Perspective: In the absence of a fiscal rule imposing a budget constraint, the most likely outcome of budget negotiations for 2024 is business as usual

House Speaker Kevin McCarthy (R-CA) and his Republican colleagues refuse to negotiate an increase in the debt ceiling without a reduction in federal spending. They propose capping discretionary spending in 2024 back to 2022 levels. This would require a reduction in discretionary spending of $133 billion.

There is broad support within the Republican caucus that the spending cuts should be in non-defense programs.

President Biden and his Democratic colleagues say that raising the debt ceiling automatically without negotiations over federal spending is “not negotiable.” For Democrats, the idea that discretionary spending should be reduced significantly and that the spending cuts should only be in non-defense programs is a non-starter in the current budget negotiations. Who will win the Biden-McCarthy debt ceiling battle?

The fatal flaw in these budget negotiations is that there is no effective budget constraint. What Republicans and Democrats are really fighting over is not a budget, but rather a spending program. Congress is required by law to enact a budget resolution prior to approving expenditures, but Congress passes continuing resolutions that allow it to spend funds even in the absence of a budget resolution. Separate committees propose budgets for 12 different federal programs that is then the basis for negotiation over an Omnibus bill. There is no single legislative body responsible for the entire budget, and no effective constraint on the growth in federal spending.

Theoretically, the debt limit imposes a cap on the amount that Congress can borrow and spend. But Congress routinely increases the debt limit to accommodate the borrowing and spending that has already occurred, and they will likely do so in the current negotiations as well.

A LITTLE BIT OF RECENT HISTORY:

A budget constraint was imposed in the 2011 Budget Control Act (BCA), which was the outcome of a compromise between Republicans and Democrats to increase the debt ceiling that year in exchange for spending constraints over the following decade. The debt ceiling was increased by $1.2 trillion, contingent on Congress reducing spending by an equal amount over the decade.

The BCA created the Joint Select Committee on Deficit Reduction, charged with coming up with a plan to reduce deficits by at least $1.2 trillion over 10 years. The Joint Committee failed to agree on spending reductions, but provided a fallback mechanism to reduce deficits, sequestration: across the board reductions in spending. The reductions in spending were to be achieved by imposing discretionary spending caps and automatic reductions in mandatory spending. The spending caps imposed by BCA were based on the “parity principle” requiring equal reduction in defense and non-defense spending. Funds could be shifted between government programs, but BCA prohibited the reallocation of funds between defense and non-defense programs.

END RESULT?

Over the past decade, five difference pieces of legislation have altered the BCA because Congress could not live with the fiscal constraints imposed by BCA. Each of these five pieces of legislation increased the spending caps and postponed or modified the sequestration mandated by the BCA. Legislation also suspended the debt limit, which means that during the suspension periods there was not an effective constraint on debt. In 2022 Congress allowed the most important provisions of the BCA, statutory caps on discretionary spending, to expire. So, for the foreseeable future there is no longer an effective statutory constraint on the growth in federal expenditures.

.... So ... Basically the Government is dead set on setting the example to the world that the United States believes that it its not important to take fiscal budgets seriously then demand that the rest of the world does take their spending seriously before we will give them free money which we will borrow to give to them ....

..... Ya .... Makes total sense to me.

It’s clear from the article that the debt ceiling will be raised as it always has been, and the Federal deficit will get bigger as a result. Then what? Do they want all of us in the private economy to cut them a check and give it all back? That would destroy businesses and jobs and plunge the nation into a permanent depression just so the accountants at the CBO can balance their books. Is that what people want?

What matters are two things. The inflation rate and the unemployment rate. If inflation is increasing, the government is spending too much money. If anyone that wants a job is unable to find one, they are not spending enough money in the right places.

The deficit just counts the number of shares in America that have been created to benefit its citizens. Shares get added, traded, and occasionally bought back, but only a fool would just return their shares to the issuing corporation.

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