The Anti-Democratic Debt Limit Fiasco

The entire debacle is about forcing policies on the public that it does not support

Last Thursday, Treasury Secretary Janet Yellen announced that the United States government had hit the $31.4 trillion debt limit and that the Department was taking “extraordinary measures” of using money sitting in other federal accounts (like the assets of federal retirees) to pay our debts. After a few more months of this Ponzi-scheme activity, there will be no money left to manipulate and, if Congress does not raise the debt ceiling, the United States will default and possibly send the global economy into a tailspin.

We hit this unfortunate milepost for two reasons:

First, at the insistence of Senate Minority Leader Mitch McConnell, the prior Congress did not include a debt limit increase in its bipartisan year-end omnibus spending and policy package. It is worth noting that Kevin McCarthy begged Senate Republicans to refrain from working with Democrats to pass this package and instead wait until House Republicans took the majority in January to decide how to fund the government for the next year. McConnell refused, supposedly because he did not want to open the new year with a potential government shut-down and, presciently, did not believe McCarthy would be able to control his new, unruly majority. So, McConnell avoided a government shut-down but insisted on leaving the debt limit problem unresolved, which seems a bit like child-proofing your kitchen cabinets while leaving a loaded revolver on the dining room table.

It is possible that Democrats could have used a legislative process to pass the debt limit increase with just Democratic votes – but leadership decided not to exercise that option.  Perhaps they didn’t have the votes. Perhaps they thought the chaos around the debt limit would reflect poorly on the GOP.  It remains to be seen if this was a critical error.

The debt limit is also the most urgent topic of discussion in Washington because the new House Republican majority has not only announced that it will use this manufactured crisis to leverage sweeping changes to US fiscal policy, but House Republicans institutionalized this tactic in the new rules it adopted after the prolonged showdown on Kevin McCarthy’s election as Speaker. These rules, and other side deals cut during the Speakership battle, provide the most extreme, anti-government members of the House Caucus substantial power to block any debt limit increase that does not meet their preference for massive government spending reductions. The reductions this narrow band of House Republicans are calling for are so large that the Democratic controlled Senate and President Biden could not possibly come to an agreement with them. So, the risk of default is higher than it has ever been.

There are many issues to untangle about the debt limit debate. I will highlight two for now, but cover others in future posts.

First, this possible demonstration of American political dysfunction is coming at just the wrong time.

2022 marked a huge turning point away from the narrative that both America and liberal democracy were inexorably in decline. Recall that just a year ago, China hosted a successful Olympics highlighting what it thought was its superior approach to handling the pandemic over the rest of the world. Xi and Putin signed a compact expressing their friendship with “no limits” and pledged to replace the American-led “liberal order” with a set of governing principles tolerant of authoritarianism and accommodating to China and Russia’s interests. Putin was massing troops on the Ukrainian border, with the intention of reestablishing Russia’s empire, dashing a budding Ukrainian democracy, and dividing the western economic and security alliance. At home, polls showed that huge swaths of voters still believed in conspiracy theories about the 2020 election and election deniers lined up to run for offices, like secretary of state, to take control of state election apparatuses. 

2022 turned out to be the year that democracy struck back.

Russia’s invasion was thwarted by scrappy Ukrainians who decided that freedom from Russian tyranny was something worth fighting for. Opposition to Putin’s aggression unified the trans-Atlantic alliance and caused previously neutral Sweden and Finland to seek the protection of NATO’s security umbrella. The collapse of the over-leveraged Chinese real estate market strained the Chinese economy and then China’s zero-COVID policy imploded in the face of mass protests. Instead of easing out of zero-COVID, China removed all restrictions and let the virus run rampant. Now,  one firm is estimating that China will experience a tragic 36,000 deaths per day over the coming Lunar New Year and over one million COVID deaths this year. In the U.S., 44% of the voters in the midterm election reported that the future of democracy was their primary concern, which produced electoral defeat for the vast majority of election deniers at the ballot box.

Although 2022 was a good year for democracy, democracy and liberal values are still under considerable strain around the world and here at home. What we surely do not need in 2023 is a demonstration of political dysfunction in America that could inflict substantial damage on both the domestic and global economies. Like the American initiated financial crisis of 2008-09, such an episode would erode confidence in both the United States and the liberal world order it supports.

My second point about the debt limit controversy is that use of this tactic is inherently anti-democratic.  Its proponents are trying to use the threat of economic calamity to leverage policy outcomes that the public does not want and could not be achieved through the normal legislative process. 

If House Republicans want to reduce federal spending and bring the budget into balance, there is a democratic way to do so. The House can pass a budget resolution that sets the levels of discretionary spending, taxes, and entitlements like Social Security and Medicare; pass a reconciliation law that makes the policy changes necessary to meet these targets; and then pass appropriation laws that meet the new discretionary spending targets. If they could pass such legislation through the House, they will have demonstrated at least some level of political backing for their fiscal policies. Democrats would have an obligation to enter into good faith negotiations to try to find a path forward during this period of divided government.

However, it is not at all apparent that the fractious House Republicans Caucus, with a majority that can withstand only 5 defectors on any vote, could pass any of this legislation. The House GOP is divided on key budget issues. Some want to see defense cuts, others large defense increases. Some want to extend the Trump tax law, others seek to reverse big tax increases in the Trump bill on residents of New York and California. The most ardent anti-government faction of the House GOP wants a budget that balances in 10 years. Others understand that doing so would require huge cuts in health care, Social Security, and programs popular with their constituents like farm subsidies, transportation, support for law enforcement, and many others.

Instead of transparently laying out a budget plan that shows the voting public what programs will be funded, what retirement benefits be cut, and whose taxes will be raised and lowered, the House debt limit gambit is designed to circumvent all the messy work of democracy. What the House GOP wants to do is force President Biden and Democrats into a backroom deal on a spending cap that neither they or their constituents would otherwise support in order to protect the full faith and credit of the U.S. Treasury. This is how hostage-takers operate, not constitutional officers in a democracy.    

The reason House Republicans want to achieve a spending cap without engaging in a transparent democratic budget process is because the policy outcomes they are seeking to achieve are wildly unpopular. For example, the agreement that Kevin McCarthy struck to achieve the votes to be elected Speaker commits him to advance a budget plan that freezes discretionary spending for 10 years at last year’s level.  However, keep in mind that 18 Republican Senators supported the recent omnibus spending package that raised spending this year by over $140 billion, and these Senators then bragged about the $76 billion increase in defense spending they obtained. To go back to last year’s spending level, would require either abandoning this hard fought defense increase in 2024 or cutting other domestic programs by 18%. This is just one demonstration of how unpopular the House GOPs views are even among members of their own party, let alone Senate Democrats or actual American voters. 

One blueprint being touted by the Freedom Caucus seeks $10 trillion in cuts over 10 years. The plan would cut $4 trillion in health care spending and another $2 trillion from programs like Medicaid, food stamps, disability insurance, and child nutrition – ravaging the social safety net on which our most vulnerable citizens rely. The plan would also repeal Obamacare, which the GOP could not accomplish even when they had control of both the Congress and Executive branch.  It would also cut $1 trillion in payments to Medicare health care providers, which would lead to a reduction in health care services for the elderly.  Any political party that ran on this specific platform – which Republicans emphatically did not do in this past election other than vaguely promising to “end runaway spending” – would almost certainly face an electoral disaster. When asked where cuts would come from to achieve the Freedom Caucus’ balanced budget goal, Rep. Chip Roy pointed to “funding for woke & weaponized bureaucrats.”

Thus, what we are experiencing with this debt limit episode is a party that controls one chamber of one branch of government using the threat of economic disaster to achieve policy outcomes that it did not run on, that even many of its own members do not support, and almost certainly would be rejected by the voters if they had any say in the matter. Such is the state of our democracy as we launch into 2023.