Home Politics The Debt-Limit Deal Suggests Debt Will Keep Growing, Fast – UnlistedNews

The Debt-Limit Deal Suggests Debt Will Keep Growing, Fast – UnlistedNews

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The Debt-Limit Deal Suggests Debt Will Keep Growing, Fast – UnlistedNews

The bipartisan deal to avoid a government default this week included modest cuts to a relatively small part of the federal budget. As a brake on the growth of the nation’s debt load of $31.4 trillion, it was a minor advance, at best.

It also showed how difficult, perhaps impossible, it might be for lawmakers to agree anytime soon on a breakthrough to demonstrably reduce the nation’s debt burden.

There is no clear economic evidence that current debt levels are dragging down economic growth. Some economists argue that rising debt levels will hurt growth in making it harder for businesses to borrow money; others say that future rising costs of government borrowing could trigger rapid inflation.

But Washington has once again pretended to care about the debt, which is poised to surpass $50 trillion by the end of the decade, even after factoring in recently passed spending cuts.

With that pretense comes the reality that all the fundamental drivers of US policy aim for the US to borrow more, not less.

The bipartisan agreement to suspend the debt ceiling for two years, which was approved by the Senate on Thursday, effectively sets the general levels of discretionary spending during that period. The deal cuts federal spending by $1.5 trillion over a decade, according to the Congressional Budget Office, essentially freezing some funds that had been projected to increase next year and then capping spending at 1 percent growth in 2025.

But even with those savings, the deal offers clear evidence that the nation’s total debt burden won’t be reduced any time soon.

Republicans cited that growing debt burden as a reason for refusing to raise the limit, risking default and a financial crisis unless Biden agreed to measures to reduce future deficits. But White House negotiators and House Republican leaders could only agree to find significant savings in discretionary non-defense spending.

That’s the part of the budget that funds Pell grants, federal law enforcement, and a wide range of national programs. As a part of the economy, it is within historical levels and is expected to fall in the coming years. Currently, basic discretionary spending accounts for less than one-eighth of the $6.3 trillion the government spends annually.

The deal did not include major cuts in military spending, which is larger than core non-defense discretionary spending. Early in the talks, both sides ruled out changes to the two main drivers of federal spending growth over the next decade: Social Security and Medicare. The cost of those programs is expected to skyrocket within 10 years as retiring baby boomers qualify for benefits.

While Republicans initially balked when Biden accused them of wanting to kill those politically popular shows, they quickly switched to blaming the president for taking them off the table.

Asked on Fox News Wednesday why Republicans hadn’t targeted cuts across the entire budget, Chairman Kevin McCarthy responded: “Because the president blocked everyone else.”

“The majority driver of the budget is mandatory spending,” he said. “It’s Medicare, Social Security, the interest on the debt.”

McCarthy’s negotiators effectively isolated the other half of the debt equation: revenue. They rejected Biden’s argument to raise trillions of dollars in new taxes on corporations and high income earners, and both sides ended up agreeing to cut funding for the Internal Revenue Service, which was expected to raise more money by cracking down. against tax cheats.

Instead, Republicans tried to frame the growing national debt solely as a spending problem, not a tax revenue problem, even though tax cuts from both parties have added trillions to the debt since the turn of the century.

Republican leaders now appear poised to introduce a new round of tax cut proposals, likely to be financed with borrowed money, a move that Democrats denounced during the debt ceiling deal debate.

“Before the ink dries on this bill, they will push for $3.5 trillion in business tax cuts,” Rep. Gwen Moore, D-Wisconsin, said shortly before the final vote on the Fiscal Responsibility Act, as reported. He calls her on Wednesday. .

Those comments reflected a lesson Democrats learned from 2011, when Washington leaders made a big show of pretending to care about debt in a bipartisan deal to raise the debt limit. That agreement, between President Barack Obama and President John Boehner, limited the growth of discretionary spending for a decade, helping to reduce budget deficits for years.

Many Democrats now believe those lower deficits gave Republicans the fiscal and political space they needed to pass a 2017 tax cut package under President Donald J. Trump that the Congressional Budget Office estimated would add nearly $2. trillions to the national debt. They have come to believe that Republicans would happily do the same thing again with any future budget deal, setting aside concerns about the deficit and effectively turning budget savings into new tax breaks.

At the same time, both parties have grown more cautious about cuts to Social Security and Medicare. Obama was willing to reduce the future growth of retirement benefits by changing the way they were linked to inflation; Mr. Biden is not. Trump won the White House after vowing to protect both programs, breaking with former Republicans, and is currently criticizing his rivals for possible cuts to the programs as he seeks the presidency again.

Meanwhile, the total amount of federal debt has more than doubled, to $31.4 trillion from just under $15 trillion in 2011. That growth has not had a discernible effect on the performance of the economy. But it is projected to continue to grow over the next decade, as retiring baby boomers reap more government benefits. The budget office estimated last month that the debt held by the public would be nearly 20 percent higher in 2033, as a share of the economy, than it is today.

Even under a generous new deal score, which assumes Congress will effectively block two years of spending cuts for the full course of a decade, that growth will only fall by a few percentage points.

Debt-reduction groups in Washington have hailed the agreement as a first step toward a greater commitment to reduce America’s dependence on borrowed money. But neither McCarthy nor Biden have shown any interest in what those groups want: a combination of significant cuts to retirement programs and increases in tax revenue.

Mr. McCarthy suggested this week that he would soon form a bipartisan commission to look at the entire federal budget “so that we can find the waste and we can make the real decisions to really deal with this debt.”

The 2011 debt deal produced a similar type of commission, which issued recommendations on politically painful steps to reduce debt. Lawmakers ruled them out. There is no evidence that they would do otherwise today.

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