Composed of a debt ceiling and budget framework, the deal between Republicans and Democrats could be expressed more simply than the 99-page bill’s details.
Let’s give it a try.
The Debt Ceiling
We can shift our worries to January 1, 2025, when the debt ceiling suspension expires. Still, even without a debt limit, spending will be constrained by a budget framework.
During 1917, the Congress said that it wanted more control over U.S. spending. So, when government spending exceeded its revenue, to borrow past a specified amount, the Congress had to approve. As we’ve noted in the past, we borrow by selling securities (e.g., bonds) to you, me, businesses, and governments.
During December 2021 the Congress said borrowing could not be more than $31.4 trillion. Now we’ve touched that limit because of accumulated spending from Presidents Bush, Obama, Trump, and Biden. The last time we had an annual budget surplus was under Bill Clinton in 2001:
Contrary to media reports, the U.S. has NOT run out of money. Even if the ceiling were not raised, we just would not have enough to cover ALL obligations. Then, the Treasury would have made some choices. It might have cared, for example, about the real definition of default. Referring only to debt, for the U.S. to default, it would have to miss an interest or principal payment. Technically, it is not a default when the government skips a Social Security payment.
The Budget Framework
The current budget talks focused on the turquoise area of the following graphic. For example, they decided to spend less on the IRS and streamline environmental documentation. But VA health care spending would go up by 16 percent and defense, by 3 percent. Essentially though, they did not touch mandatory spending, just tweaked discretionary programs, and established a two year non-defense spending cap.
Again, we can return to the two “halves” of the budget. Dominated by Social Security, Medicare, and Medicaid, the majority of spending is mandated by law. The other part of the federal budget is discretionary. The current budget talks focused on the turquoise area of this graphic:
Our Bottom Line: Tradeoffs
The tradeoffs, though, appeared to be crucial. While the debt ceiling would be suspended temporarily, spending would also remain very close to current levels. At the same time, Republicans got changes that included less for the IRS and extended work requirements for certain government programs. Skimming the 99 page documents, I saw no mention of the word “taxes.”