Debt Ceiling Deal: From the New York Times: Senate Passes Debt Limit Bill, Staving Off a Calamitous Default-The final vote on Thursday night came after leaders put down a revolt by some senators who raised concerns that the debt-limit package would under-fund the Pentagon.
In a 63-to-36 vote, lawmakers agreed to suspend the nation’s debt limit and put caps on federal spending for two years.For The New York Times By Carl Hulse reporting from Capitol Hill
After weeks of political impasse, tense negotiations and mounting economic anxiety, the Senate gave final approval on Thursday night to bipartisan legislation suspending the debt limit and imposing new spending caps, sending it to President Biden and ending the possibility of a calamitous government default.
The approval by the Senate on a 63-to-36 vote brought to a close a political showdown that began brewing as soon as Republicans narrowly won the House in November, promising to use their new majority and the threat of a default to try to extract spending and policy concessions from Mr. Biden.
The president refused for months to engage with Speaker Kevin McCarthy but finally did so after the California Republican managed in April to pass a G.O.P. fiscal plan, spurring negotiations with the White House that produced the compromise last weekend.
On Thursday night, Mr. Biden cheered its passage, promising to sign it as soon as possible and address the nation from the Oval Office on Friday evening.
The agreement suspends the $31.4 trillion debt limit until January 2025, allowing the government to borrow unlimited sums to pay its debts and ensuring that another fight will not occur before the next presidential election. It sets new spending levels that will be tested as Congress begins to write its annual spending bills. Other policy changes on energy project permitting and work requirements on social benefits were also included.
Understand the Debt Limit Deal
Lifting the debt ceiling. The deal reached by President Biden and Speaker Kevin McCarthy would suspend the nation’s debt limit until January 2025. This would allow the government to keep borrowing money so it can pay its bills on time.
- Spending caps and cuts. In exchange for suspending the debt ceiling, Republicans demanded a range of concessions. Chief among them are caps on some spending over the next two years. The deal also claws back $10 billion in I.R.S. funding.
- Food stamps. The bill would place additional work requirements on older Americans who receive assistance through the Supplemental Nutrition Assistance Program, but it also would expand food stamp access for veterans and homeless people.
- Student loans. The legislation would officially end Biden’s freeze on student loan repayments by the end of summer. It would also prevent the president from issuing another last-minute extension, as he has done several times.
- Environmental impact. Both sides agreed to new measures to get energy projects approved more quickly. The deal includes a win for Senator Joe Manchin of West Virginia, a Democrat who strongly supports fossil fuels, by fast-tracking the construction of a contentious pipeline.
- The Senate vote came after an afternoon of closed-door talks to resolve a last-minute flare-up over Pentagon funding, ignited by Republicans who said the debt-limit package severely underfunded the military. Senate leaders resolved the dispute with a formal statement that the debt-limit deal “does nothing to limit the Senate’s ability to appropriate emergency supplemental funds to ensure our military capabilities.”
The statement came after a day of uncertainty as a handful of Republican defense hawks complained that the deal — negotiated without input from the Senate — would under-fund the military, and they demanded a commitment that their concerns would be addressed before it could be passed.
ImageSenator Lindsey Graham, wearing a dark suit and green tie, speaking to reporters in the Capitol.
Senator Lindsey Graham, Republican of South Carolina, had been a chief critic of the Pentagon spending levels.Credit...Kenny Holston/The New York Times
By evening, Senate officials and Senator Lindsey Graham, the South Carolina Republican who had been a chief critic of the Pentagon spending levels, said the pledge from the leadership was sufficient to reassure him and other critics to back the bill, clearing the way for final votes.
“It does not fix this bill totally, but it is a march in the right direction,” Mr. Graham said.
Democrats contended that the entire debt-limit episode should have never occurred and that Mr. McCarthy should not be rewarded for using the nation’s economy as a hostage to win spending cuts. But they said the prospect of a default needed to be avoided at all costs.
As in the House, Democrats carried the measure to passage in the Senate, with 44 of them and two independents joining 17 Republicans in support; 31 Republicans, four Democrats and one independent voted no.
The debt-limit agreement, which was approved overwhelmingly by the House on Wednesday night, increases Pentagon spending to $886 billion for next year, a 3 percent rise. But Republican backers of higher spending for the military noted that that would not keep pace with inflation, and argued that the package fell far short of what was needed.
“To my House colleagues, I can’t believe you did this,” Mr. Graham said earlier in the day, accusing the architects of the measure of undercutting the military at a time of rising threats from Russia and China. “This budget is a win for China.”
Mr. Graham and others insisted, at minimum, on a commitment that Congress would later act on an additional funding bill to beef up the spending, although this would in effect reduce the savings Republicans had hoped to achieve through their debt limit deal.
The opposition erupted almost immediately after Mr. Schumer opened the Senate on Thursday morning by warning that the chamber needed to move quickly and make no changes to the agreement to clear it for Mr. Biden’s signature by Monday. He admonished lawmakers not to engage in brinkmanship before the so-called X-date of June 5, when Treasury Secretary Janet L. Yellen said the government would default without action by Congress.
“Time is a luxury the Senate does not have if we want to prevent default,” Mr. Schumer said. “June 5 is less than four days away. At this point, any needless delay or any last-minute holdups would be an unnecessary and even dangerous risk.”
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A Senate clerk's hands are seen using a pencil to tally votes on long sheets of paper. The words "final passage" and "passed" are written on top.
The approval by the Senate on a 63-to-36 vote brought to a close a political showdown that began brewing as soon as Republicans narrowly won the House in November.Credit...Haiyun Jiang for The New York Times
Even as the deal migrated across the Capitol, the effects of the debt limit continued to pinch. The Treasury Department announced on Thursday that it would delay auctions of three-month and six-month “bills” — short-term debt that the government no longer has room to take on until the borrowing cap is suspended.
As part of the deal to move forward with final votes on the bill, multiple senators secured votes on proposed changes. Mr. Schumer was determined to defeat all of them, as any alteration would force the measure back to the House, where no action would be likely to occur before the default deadline.
After driving much of the legislative agenda the previous two years, the Senate left negotiating on the debt limit to Mr. Biden and Mr. McCarthy, whose demand for spending cuts and other policy changes brought the country to the brink of default. Nearly all Republican senators signed a letter backing Mr. McCarthy in the effort. As a result, senators had little influence over the negotiations and were forced to approve legislation they did not help shape. It was leaving some frustrated.
Here’s what’s in the deal, which economists gave a decent grade:
- Two years of federal spending limits in exchange for pushing future debt-ceiling discussions beyond the 2024 elections.
- An end to the Biden administration’s freeze on student loan payments.
- Stricter work requirements for public assistance programs, including food stamps, though Medicaid won’t be affected. (The requirements drew opposition from both sides of the aisle.)
- A streamlined approval process for energy projects — known as permitting — through the creation of a single agency to oversee the matter. The deal also includes approval for a multibillion-dollar natural gas pipeline through West Virginia, a win for Senator Joe Manchin.
Not included in the bill are any major commitments to reduce the $31.4 trillion national debt. But The Times calculates that nondiscretionary spending cuts could save $860 billion over the next decade, and the reductions aren’t expected to inflict much pain on the economy.
By Jim Tankersley for the NY Times: Why Spending Cuts Likely Won’t Shake the Economy-With low unemployment and above-trend inflation, the economy is well positioned to absorb the modest budget cuts that President Biden and Republicans negotiated.
The last time the United States came perilously close to defaulting on its debt, a Democratic president and a Republican speaker of the House cut a deal to raise the nation’s borrowing limit and tightly restrain some federal spending growth for years to come. The deal averted default, but it hindered what was already a slow recovery from the Great Recession.
The debt deal that President Biden and Speaker Kevin McCarthy have agreed to in principle is less restrictive than the one President Barack Obama and Speaker John Boehner cut in 2011, centered on just two years of cuts and caps in spending. The economy that will absorb those cuts is in much better shape. As a result, economists say the agreement is unlikely to inflict the sort of lasting damage to the recovery that was caused by the 2011 debt ceiling deal — and, paradoxically, the newfound spending restraint might even help it.
Mr. Biden expressed confidence earlier this month that any deal would not spark an economic downturn. That was in part because growth persisted over the past two years even as pandemic aid spending expired and total federal spending fell from elevated Covid levels, helping to reduce the annual deficit by $1.7 trillion last year.
Asked at a news conference at the Group of 7 summit in Japan this month if spending cuts in a budget deal would cause a recession, Mr. Biden replied: “I know they won’t. I know they won’t. Matter of fact, the fact that we were able to cut government spending by $1.7 trillion, that didn’t cause a recession. That caused growth.”
The agreement in principle still must pass the House and Senate, where it is facing opposition from the most liberal and conservative members of Congress. It goes well beyond spending limits, also including new work requirements for food stamps and other government aid and an effort to speed permitting for some energy projects.
What is the debt ceiling? The debt ceiling, also called the debt limit, is a cap on the total amount of money that the federal government is authorized to borrow via U.S. Treasury securities, such as bills and savings bonds, to fulfill its financial obligations. Because the United States runs budget deficits, it must borrow huge sums of money to pay its bills.
The limit has been hit. What now? America hit its technical debt limit on Jan. 19. The Treasury Department has begun using “extraordinary measures” to continue paying the government’s obligations. These measures are essentially fiscal accounting tools that curb certain government investments so that the bills continue to be paid. Those options could be exhausted by June 5.
What is at stake? Once the government exhausts its extraordinary measures and runs out of cash, it will be unable to issue new debt and pay its bills. The government may wind up defaulting on its debt if it cannot make required payments to its bondholders. Such an outcome would be economically devastating and could plunge the world into a financial crisis.
How can the government avert disaster? There is no official playbook for what Washington can do. But options do exist. The Treasury could try to prioritize payments, such as paying bondholders first. If the United States does default on its debt, which would rattle the markets, the Federal Reserve could step in to buy some of those Treasury bonds.
Why is there a limit on U.S. borrowing? Congress must authorize borrowing, according to the Constitution. The debt limit was instituted in the early 20th century so that the Treasury would not need to ask for permission each time it had to issue debt to pay bills.
But its centerpiece is limits on spending. Negotiators agreed to slight cuts to discretionary spending — outside of defense and veterans’ care — from this year to next, after factoring in some accounting adjustments. Military and veterans’ spending would increase this year to the amount requested in Mr. Biden’s budget for the 2024 fiscal year. All those programs would grow by 1 percent in the 2025 fiscal year — which is less than they were projected to.
The first back-of-the-envelope analysis of the deal’s economic impacts came from Mark Zandi, a Moody’s Analytics economist. He had previously estimated that a prolonged default could kill seven million jobs in the U.S. economy — and that a deep round of proposed Republican spending cuts would kill 2.6 million jobs.
Mr. Zandi wrote on Twitter on Friday that it was “Not the greatest timing for fiscal restraint as the economy is fragile and recession risks are high.” But, he said, “it is manageable.”
Other economists say the economy could actually use a mild dose of fiscal austerity right now. That is because the biggest economic problem is persistent inflation, which is being driven in part by strong consumer spending. Removing some federal spending from the economy could aid the Federal Reserve, which has been trying to get price growth under control by raising interest rates.
“From a macroeconomic perspective, this deal is a small help,” said Jason Furman, a Harvard economist who was a deputy director of Mr. Obama’s National Economic Council in 2011. “The economy still needs cooling off, and this takes pressure off interest rates in accomplishing that cooling off.”
“I think the Fed will welcome the help,” he said.
Economists generally consider increased government spending — if it is not offset by increased tax revenues — to be a short-term boost for the economy. That’s because the government is borrowing money to pay salaries, buy equipment, cover health care and provide other services that ultimately support consumer spending and economic growth. That can particularly help lift the economy at times when consumer demand is low, such as the immediate aftermath of a recession.
That was the case in 2011, when Republicans took control of the House and forced a showdown with Mr. Obama on raising the borrowing limit. The nation was slowly climbing out of the hole created by the 2008 financial crisis. The unemployment rate was 9 percent. The Federal Reserve had cut interest rates to near zero to try to stimulate growth, but many liberal economists were calling for the federal government to spend more to help bolster demand and accelerate job growth.
The Fight Over the Debt Limit
A First Test: The plan to raise the debt ceiling and set federal spending limits that President Biden and Speaker Kevin McCarthy agreed to on May 27 has begun its obstacle-laden route through Congress. Consideration by the House Rules Committee is the first crucial step.
In Pursuit of Consensus: The debt ceiling deal bolsters Biden’s commitment to bipartisanship — but it also comes at the cost of rankling many in his own party.
Food Stamps: The debt limit bill includes new work requirements for older Americans who receive food assistance but will remove some barriers for veterans and homeless adults.
Effect on the Economy: With low unemployment and above-trend inflation, the U.S. economy is well positioned to absorb the modest budget cuts the deal proposes.
The budget deal between Republicans and Mr. Obama — which was hammered out by Mr. Biden, who was then the vice president — did the opposite. It reduced federal discretionary spending by 4 percent in the first year after the deal compared with baseline projections. In the second year, it reduced spending by 5.5 percent compared with forecasts.
Many economists have since blamed those cuts, along with too little stimulus spending at the recession’s outset, for prolonging the pain.
The deal announced on Saturday contains smaller cuts. But the even bigger difference today is economic conditions. The unemployment rate is 3.4 percent. Prices are growing by more than 4 percent a year, well above the Fed’s target rate of 2 percent. Fed officials are trying to cool economic activity by making it more expensive to borrow money.
Michael Feroli, a JPMorgan Chase analyst, wrote this week that the right way to assess the emerging deal was in terms of “how much less work the Fed needs to do in restraining aggregate demand because fiscal belt-tightening is now doing that job.” Mr. Feroli estimated the agreement could function as the equivalent of a quarter-point increase in interest rates, in terms of helping to restrain inflation.
While the deal will only modestly affect the nation’s future deficit levels, Republicans have argued that it will help the economy by reducing the accumulation of debt. “We’re trying to bend the cost curve of the government for the American people,” Representative Patrick T. McHenry of North Carolina, one of the Republican negotiators, said this week.
Still, the spending reductions from the deal will affect nondefense discretionary programs, like Head Start preschool, and the people they serve. New work requirements could choke off food and other assistance to vulnerable Americans.
Many progressive Democrats warned this week that those effects will amount to their own sort of economic damage.
“After inflation eats its share, flat funding will result in fewer households accessing rental assistance, fewer kids in Head Start and fewer services for seniors,” said Lindsay Owens, the executive director of the liberal Groundwork Collaborative in Washington.
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The debt limit deal and climate action-By Manuela Andreoni and Brad Plumer for The New York Times. President Biden and Congress have wrangled a big political deal to raise the country’s debt ceiling.
Tucked into that deal are some changes to how the government approves new projects that bear on the country’s climate goals, whether pipelines or bus lanes. While these tweaks are fairly modest, they’re part of a broader push by many lawmakers for something known as permitting reform, which could affect how quickly the United States cleans up its climate pollution.
We want to break that down for you today, without the wonky jargon.
Trust us, this is not just a Washington political story. It affects you and your communities. Also foreign policy.
Behind the jargon: A way to get big things done.
Permitting reform refers to efforts to change the rules, including those under the National Environmental Policy Act, or NEPA, that govern how, and how quickly, federal agencies authorize big projects. That could be congestion pricing on cars in Manhattan or a big solar array on federal lands, or, hardest of all, transmission lines that can go through many state and city jurisdictions.
Those who want to build any of those projects have to first detail what the environmental impacts could be, and they have to seek public input. It’s, well, democracy.
The debt ceiling deal would surely speed up one thing.
That’s the Mountain Valley Pipeline. It’s a big win for the established oil and gas producers and their champion in the Senate, Joe Manchin III, a West Virginia Democrat. How polluting the pipeline would be is a matter of debate. But opponents say a new gas pipeline, which would operate for decades, defies the scientific consensus that the world needs to move quickly away from fossil fuels in order to slow down climate change.
So would renewable energy projects get built faster?
That’s unclear.
One section of the bill is designed to speed up energy projects of all kinds, polluting or not, by designating a lead agency to oversee environmental reviews and requiring that they are completed in one to two years. In theory, that could speed up oil and gas projects as well as renewables. But those deadlines could prove tough to enforce, and some experts say those changes would have only a modest impact.
It doesn’t resolve the most urgent question.
Most significantly, the bill leaves unsettled whether the permitting of new transmission lines will be accelerated.
Why are transmission lines so important? Because they can carry electricity from solar arrays and wind farms to the communities that need it. There aren’t nearly enough of them, as we explained in a recent article. The sheer volume of wind and solar projects that have been built recently “has overwhelmed the nation’s antiquated systems to connect new sources of electricity to homes and businesses.”
There’s also the need to make the electricity grid flexible enough to deal with higher demand when extreme heat or cold prompts us to crank up air-conditioners or heaters. Right now, our systems are often not fit for that purpose. It’s one of the reasons we’re seeing power failures during heat waves and winter storms, and that’s super dangerous.
A whole host of things stand in the way of new transmission lines, including permitting and arguments over who should pay for them.
So how did the debt ceiling negotiations address this? They didn’t.
Democrats had floated a proposal to encourage new transmission lines that would connect different parts of the country but that was stripped out. Instead, the bill mandates that the issue be studied. There have been many such studies already. So the debt ceiling deal may end up delaying efforts to modernize the grid.
While lawmakers say they will revisit transmission later, critics say this was a missed opportunity at a time when the United States needs to move far more quickly. Some worry that Congress may have missed its best shot to encourage new power lines. And the stakes are high: One study found that unless the United States speeds up the rate at which it builds transmission, more than 80 percent of the climate benefits of last year’s big clean energy law could be squandered.
How does this affect America’s global standing?
The Biden administration’s ability to show the world that it is serious about taking climate action rests not only on its bold promises to reduce its greenhouse gas emissions but also on its ability to keep its promises. Without grid modernization, that could prove extremely difficult.
Environmental campaigners have something new to weigh: Is faster better?
NEPA has been used to delay and block all kinds of big infrastructure projects, including oil and gas pipelines. Campaigners have become deft at stopping things, using environmental regulations.
Now, though, the United States needs to get much better at building new infrastructure quickly to meet its climate goals. That could be a new subway line or a bus-only lane to encourage city commuters to rely less on cars. Or it could mean an offshore wind farm, or those transmission lines that can get that wind energy to homes and businesses to reduce reliance on fossil fuels. The question now is whether the permitting process for those projects should be streamlined. And if it is, would that cause more environmental harm in the places where they are built and for the plants and animals that live there?
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By Peter Coy for the New York Times: Members of the ultraconservative House Freedom Caucus are unhappy that the debt ceiling deal wouldn’t significantly reduce federal budget deficits in coming years. One referred to the deal as a sandwich made of excrement, another called it “insanity,” and a third tweeted a barfing emoji. Classy stuff.
Realistically, though, there are two problems with the right wing’s position on deficits. One is that the rapid reduction in deficits those legislators call for would not be healthy for the economy, especially right now. The other is that while deficit reduction is important in the long term, right-wing Republicans are looking for balance in the wrong places.
On the first point, it’s lucky for the U.S. economy that the deal reached by President Biden, House Speaker Kevin McCarthy and their lieutenants is less aggressive than the House-passed Limit, Save, Grow Act of 2023, which the Congressional Budget Office estimated would reduce federal deficits by $4.8 trillion over 10 years.
Too much fiscal austerity too fast can harm the economy because the federal government takes money out of Americans’ pockets when it spends less (or taxes more). While the economy is running hot now, with unemployment in April matching the lowest since 1969, there are abundant signs that a recession is near. The Conference Board’s index of leading economic indicators declined in April for the 13th consecutive month, “signaling a worsening economic outlook,” the board, a business-supported research group, announced.
Even the cuts in the debt ceiling deal would be a mild retardant for economic growth. As reported by The Times, the deal would hold nondefense spending in 2024 at roughly its 2023 level and would increase it by 1 percent in 2025. An initial estimate by The Times predicts that the limits would reduce federal spending by about $650 billion over 10 years, assuming that spending grows at the anticipated rate of inflation after the caps lift in two years.
Economically speaking, reducing federal budget deficits is important but not urgent. By the International Monetary Fund’s calculations, Japan’s central government debt totaled 221 percent of its G.D.P. in 2021, compared with 115 percent for the United States, and Japan seems to be doing OK. (Those numbers are somewhat exaggerated because they include debt held by other parts of the government, not just debt held by the public.)
Eventually, though, something will have to be done. In February the nonpartisan Congressional Budget Office projected that by current law, U.S. debt held by the public (a narrower measure than the I.M.F.’s) will reach 195 percent of G.D.P. in 2053, double the level of 98 percent in 2023. At that point, an uncomfortably large portion of federal spending has to be devoted to paying interest on the debt. There’s no risk of default, because the government can always print more dollars to cover its debts, but too much money printing would make it hard to keep inflation under control.
That brings up the second thing that’s wrong with the right wing’s condemnation of the debt ceiling deal. Freedom Caucus members, along with other Republicans and a fair number of Democrats, have unwisely ruled out tax increases as a key component of fixing the government’s finances.
The drama around the debt ceiling deal, which is far from over, is intense because negotiators are trying to achieve something that is impossible. They are looking for all of their deficit reduction on the spending side, rather than a more reasonable mixture of spending cuts and tax increases.
Cutting Social Security and Medicare is tough because they are justly popular programs. They are lifelines for a large share of the public. They are growing because society is aging, not because older Americans are getting sweetheart treatment. Cutting defense is tough because the world is a perilous place (although I do think there’s some fat to be pared). And cutting discretionary spending other than defense is tough because it accounts for only about 15 percent of outlays and does many valuable things, from funding scientific research to helping the poor to guaranteeing food safety. It would take devastating reductions in key functions of government to make a significant difference in the outlook for deficits and debts.
That leaves higher taxes as the underexplored option. According to the Congressional Budget Office, by current law, total outlays by the federal government are projected to rise to 30.2 percent of G.D.P. by 2053 from 23.7 percent in 2023. That big increase in outlays is not matched by a corresponding increase in revenue, which the C.B.O. projects will edge up to 19.1 percent in 2053 from 18.3 percent in 2023.
To keep debt from soaring, one of two things needs to happen. Either outlays need to increase more slowly as a share of G.D.P. or revenues need to increase more rapidly. I think the revenue option is going to come to the fore eventually.
From the Financial Times: Germany’s economy is likely to shrink about 0.3 percent this year from 2022, a team of Deutsche Bank economists led by Stefan Schneider, the chief economist, wrote on Friday. Next year doesn’t look great, either, the team said. “With the expected U.S. recession weighing on German economic momentum toward year end and in early 2024, we have cut our annual forecast for G.D.P. growth in 2024 to 0.5 percent from 1 percent.”
From The NY Times: U.S. Job Growth Remains Strong Despite Economic Clouds-Employers added 339,000 workers in May, the Labor Department said, though the report also offered signs of shakiness. By Sydney Ember
American employers added an unanticipated barrage of workers in May, reaffirming the labor market’s vigor.
Defying expectations of a slowdown, payrolls grew by 339,000 on a seasonally adjusted basis, the Labor Department said on Friday. The increase, the largest since January, suggested that the job market was still piping hot despite a swirl of economic headwinds.
But below the surface, the report also offered evidence of softening. The unemployment rate, while still historically low, jumped to 3.7 percent, the highest level since October. In a sign that the pressure to entice workers with pay increases is lifting, wage growth eased.
The dissonance offered a somewhat muddled picture that complicates the calculus for the Federal Reserve, which has been raising interest rates for more than a year to temper the labor market’s momentum and rein in price increases. Fed officials have indicated that the jobs report will be an important factor as they decide whether to raise interest rates again.
President Biden hailed the report, saying in a statement that “today is a good day for the American economy and American workers.” The S&P 500 index rose more than 1.4 percent as the data portrayed an economic engine that was running strong but not overheating.
Looming over the report is the debt ceiling deal approved by Congress, though economists largely expect the spending caps and cuts to have only marginal impact on the labor market going forward.
The hiring numbers suggest that employers remain eager for workers even in the face of high interest rates and economic uncertainty. Many are still bringing on employees to meet consumer demand, especially for services. The only major sectors to lose jobs were manufacturing and information.
Editors’ Picks
Powering the job gains were professional and business services, including accounting and bookkeeping, which added 64,000 jobs. Leisure and hospitality businesses — buoyed by restaurants and bars — added 48,000 jobs, as Americans continue to dine out with relish. Government employment, which is still catching up to prepandemic levels, also rose significantly, predominantly at the state and local level.
In a surprise, the construction sector, which is sensitive to rising interest rates, grew by 25,000 jobs.
And: 48.3 billion-The record amount of gambling revenues racked up by Las Vegas casinos last year. Pricier hotel rooms and concert tickets, and smaller winnings at the blackjack table, are part of the new economics of the Las Vegas Strip.