At the outset of the debt-ceiling fight, Joe Biden drew two lines in the sand: He insisted, first, that the United States would not default on its debt and, second, that he would not negotiate over legislation to prevent such a cataclysm. After all, both parties were ostensibly opposed to a default. And raising the debt ceiling merely enables the Treasury Department to finance the spending Congress has already authorized. Democrats did not owe Republicans any concessions in exchange for their cooperation in preventing a financial calamity. The two parties would eventually need to reach a compromise on the federal budget in order to keep the government funded. But the GOP had no right to use the threat of economic sabotage to secure more leverage in fiscal negotiations.
Now, the United States is at risk of defaulting on its debt within weeks if not days. And Biden has accepted the House GOP’s premise that it is owed deficit reduction in exchange for a debt-ceiling increase. Further, he seems to have acquiesced to pursuing deficit reduction entirely through spending cuts (as opposed to tax increases) and concentrating these cuts on non-Defense discretionary programs. The president has reportedly offered to freeze spending on such programs, which, given inflation, amounts to a five percent cut in real terms. He has also entertained tightening work requirements on aid to needy families and clawing back unspent COVID funds at the expense of public health and housing for the poor.
And House Republicans say that this is not nearly enough. If Biden fails to offer steeper cuts, then they will let the global market for U.S. Treasuries implode. The administration has claimed that it has unilateral authority to prevent a default should it come to that — but also that it has no such authority.
This series of developments raises a question: Did Uncle Joe screw the pooch on this one?
On one level, the answer is clearly yes. The Democratic Party boasted unified control of the federal government for Biden’s first two years in office. If it had appended a large debt-ceiling increase to Biden’s American Rescue Plan or the Inflation Reduction Act (as some farsighted pundits advised), the current debt-ceiling showdown would not be happening. What’s more, after Republicans won control of the House last fall, Democrats could have used a reconciliation bill to raise the debt ceiling before Kevin McCarthy’s caucus came to power. And they declined to do so.
True, Biden’s Senate majority was razor-thin in 2021 and 2022. It’s entirely possible that Joe Manchin or Kyrsten Sinema opposed raising the debt ceiling on a partisan basis. Moderate lawmakers tend to have an aversion to voting “to increase the debt limit,” since that can sound bad in a 30-second TV spot; it’s one thing to vote for a popular, deficit-financed social program, but another to vote for (what sounds to the typical low-information voter like) “more debt” in and of itself.
But there’s little evidence that Biden even tried to defuse the debt-ceiling bomb while he had the chance. Had the newly elected president pushed for a debt-limit increase during his honeymoon period, it’s plausible he could have gotten one passed as part of his COVID-relief package.
In any case, it is clearly suboptimal to announce that you will not negotiate over a policy only to then negotiate over that policy. Doing so merely undermines the credibility of any further red line you draw in such negotiations. Given Biden’s manifestly strong preference for raising the debt limit through legislation (as opposed to circumventing it through unprecedented executive action), it is unclear why he believed that his “no negotiations” position was tenable.
It’s possible that Biden had presumed that (1) Republicans would propose cuts to Medicare and Social Security, (2) this would trigger a public backlash, and (3) in response, the House GOP would back down and consent to a clean debt-ceiling hike. Certainly, the president’s initial messaging on the debt fight, beginning with his State of the Union, evinced eagerness for a debate over entitlement spending.
To be fair to Biden, his presumption that Republicans would propose entitlement reform was not unreasonable. The GOP had more or less promised to do as much in the lead-up to last year’s midterm elections. And without cuts to Social Security and Medicare, the House GOP’s position is incoherent.
The official rationale for McCarthy’s debt-ceiling brinkmanship is that the national debt is unsustainably large and massive deficit reduction is needed posthaste. And yet the GOP is also committed to making the Trump tax cuts permanent (under existing law, many of those cuts will begin to expire in 2025). Extending today’s low tax rates would by itself increase the deficit by $2.8 trillion over a ten-year span, according to the Committee for a Responsible Federal Budget. The GOP’s proposed cuts to discretionary spending, meanwhile, would yield only $2.38 trillion in savings over a decade. Which is to say: The GOP is ostensibly committed to a fiscal agenda that will increase the federal deficit. In the long term, it is difficult to see how Republicans could possibly reconcile their position on taxes, ostensible opposition to entitlement cuts, and purported concern for the deficit. Either they are lying about their lack of interest in slashing Social Security and Medicare, or they are lying about their commitment to reducing the deficit.
But Republicans have no problem with lying about their fiscal priorities. McCarthy recognized that a fight over entitlements would favor the president, and so the House GOP retreated to a less politically toxic position: spending caps (which are usefully vague about what precisely, they will cut) and work requirements (which are ineffectual but do tend to poll well).
If it is clear that Biden should have sought to raise the debt limit while Democrats still controlled Congress, and that he should not have forsworn negotiations in the absence of a plan to avoid them, it is not yet clear how badly he is maneuvering around the trap he made for himself.
Many House Democrats and liberal commentators believe that Biden is bungling the negotiations. In their account, the president is leading his party toward a lopsided agreement by failing to enter talks with hard-line positions. “When someone’s demanding only cuts, that’s when you introduce demands for revenue generation or the corporate tax rate, rescind the Trump tax cuts,” one Democratic lawmaker told the Washington Post, adding that Biden should have thrown in demands for gun control and other issues so as to reset expectations for what a compromise would look like.
Biden’s Democratic skeptics have also faulted him for failing to press the case against the GOP’s position more aggressively in public and refusing to state unequivocally that he has the authority to avert a default through unilateral action, should it come to that.
The notion that Biden could have secured a better deal if only he’d adopted a more aggressive opening stance — and/or messaged the fight better — is plausible but not obviously correct. The White House has gone on “offense” in some areas during negotiations, proposing the closure of various tax loopholes dear to the GOP donor class. But there is no indication that this has caused McCarthy to moderate his demands. Asked what House Republicans were prepared to give Democrats in exchange for their support of a debt-ceiling increase, McCarthy’s top negotiators said Wednesday, “The debt ceiling [increase].”
It’s unlikely that the contours of a final deal will be determined by where Biden sets “the Overton window” in private deliberations. More decisive is the leverage each side has. Republicans seem to believe that they have the bulk, since a debt default would redound to their political benefit. After all, many voters pay scant attention to congressional negotiations and tend to blame the sitting president for any adverse economic events that happen on his watch.
This strikes me as a plausible read of the politics. The big question, though, is whether the GOP is actually willing to stomach the adverse economic implications that a default would have for many of its core constituencies, including well-heeled investors. It is quite possible that the House GOP is bluffing and that, faced with a binary choice between default and a clean debt-ceiling hike, they would blink. But this is difficult to establish in advance.
Such uncertainty complicates the case for Biden threatening unilateral action. On the one hand, it makes intuitive sense that the president could secure greater leverage in negotiations if he could credibly threaten to walk away. If Biden made it clear that his administration is prepared to avert default by “minting the coin” or issuing “consul bonds” or invoking the 14th Amendment, then he could presumably tell the GOP, “Push me any farther and you’ll get nothing.”
On the other hand, it seems possible that the GOP would actually prefer a scenario in which (1) the United States averts default without House Republicans needing to vote for a debt-limit increase, and (2) the GOP can proceed to attack Biden as a tyrant who’s shredding the constitution to sustain his spending spree with the mainstream media largely echoing its claims. Should Republicans have such a preference, then Biden might actually undermine his negotiating position by making it clear that the GOP doesn’t need to cut a deal in order to avoid default.
Biden’s public messaging on the debt-limit fight could surely have been stronger. The president has done little to press the point that the GOP does not actually have a plan for reducing the deficit (thanks to its support for extending the Trump tax cuts) and is therefore lying about either its commitment to fiscal probity or maintaining Social Security and Medicare as we’ve known them. That said, whether better messaging would actually change the debt-ceiling fight’s fundamental political dynamics is far from clear; the vast majority of Americans find this entire saga deeply boring and are paying little attention to it.
Ultimately, the wisdom of Biden’s approach to negotiations will be determined by the content of the final agreement. Once Republicans won control of the House last November, some significant concessions to their fiscal priorities were inevitable. Even in the absence of a debt-ceiling showdown, House Republicans would still wield the threat of a government shutdown. A deal that merely freezes federal spending levels for a year or two, while advancing permitting reform, would not be dramatically worse than what one might have expected to emerge from a shutdown fight.
A deal that remotely resembles what Republicans are presently demanding, by contrast, would be a disaster. Biden must not consent to such an agreement. There are risks to trying to call the GOP’s (hypothetical) bluff on the debt limit. And there are also risks to taking unilateral action to avert default in the event that Republicans refuse to blink. But these risks must be weighed against the harms that aggressive cuts to federal spending would inflict on America’s most vulnerable and the hazards of incentivizing future Republican extortion.
As Matt Bruenig persuasively argues, should Congress fail to raise the debt ceiling, it will effectively leave Biden with no choice but to subvert one act of legislation or another: Either the president facilitates further borrowing in defiance of the debt-limit law, or he must nullify congressionally mandated appropriations. The Supreme Court has already ruled that it is unconstitutional for the president to exercise a “line item veto” — which is to say, to veto some provisions of a piece of congressionally passed legislation without vetoing the whole bill — even when Congress explicitly authorizes the president to use such discretion. It is therefore difficult to see how it could be constitutional for the president to choose not to fund certain legislatively mandated programs in the absence of congressional permission to do so. And yet this is precisely what the president would need to do if (1) Congress refuses to raise the debt limit and (2) Biden chooses not to take unilateral action to circumvent it.
For this reason, there is a strong argument that subverting the debt limit by financing government operations through the minting of a trillion-dollar coin or the sale of bonds with no face value would be the least unconstitutional option at the president’s disposal in the event of a debt-ceiling breach. It is, of course, unclear whether the Supreme Court’s conservative majority would allow this. But the Court’s incentive to avoid taking ownership of a global financial crisis, combined with the plausibility of the administration’s case, would give Biden decent odds of success. Should the Court uphold the constitutionality of Biden’s unilateral action, the debt limit would effectively be abolished in perpetuity.
The president has good reason to avoid gambling on the Roberts Court’s reasonableness. Even if the court ultimately ruled in Biden’s favor, this would take time. And in the intervening period, uncertainty about the legality of new U.S. debt could produce a variety of adverse economic consequences. But this would still be preferable to allowing House Republicans to legislate as though they control the entire government.
For now, the White House is reportedly resisting McCarthy’s most aggressive demands, noting that any agreement will ultimately need to win the assent of a large number of House Democrats (since much of McCarthy’s caucus is uninterested in any compromise whatsoever) along with that of the Democratic Senate majority.
If Biden holds to that line, and eventually secures a reasonable deal or takes unilateral action, then his handling of the debt-ceiling fight will prove neither good nor catastrophic. Should he consent to large reductions in non-Defense discretionary spending and onerous work requirements on core social-safety-net programs, however, then his calamitous crisis management will go down as a defining feature of his presidency.