The debt ceiling deal brokered last week between Democrats and Republicans staved off potential economic disaster. But experts say the bill will have long-term consequences for those on the lower rungs of the economic ladder.
There is also growing concern about the nation’s mounting debt and what that means for the many federal programs that millions rely on.
“We know those effects would have been felt deeply, very deeply by people who are the least economically secure,” says Shannon Buckingham, Senior Vice president at the Center on Budget and Policy Priorities, speaking about the potential consequences of a default.
“Sixty-five million Social Security beneficiaries could have seen their benefits delayed, six million veterans and their survivors could have had their benefits held up. Families could have seen their monthly rental assistance, food assistance, childcare delayed,” Buckingham said.
Without a deal we could have seen a loss of 7-8 million jobs and a spike in unemployment. Buckingham spoke with reporters Friday during an Ethnic Media Services press briefing, one day ahead of President Biden signing the deal, extending the debt limit through 2025 and ensuring the US avoids a first-ever default.
Increased hunger, poverty for older adults
Buckingham called out Republicans for using the debt ceiling as a hostage to force deeply unpopular and harmful policies that they could not pass when they held full control of Congress.
“We saw the extreme nature of their demands in the bill that (the Republican-controlled House) passed a few weeks ago. Fortunately, the ultimate agreement that was reached avoided much of the damage that that bill would have inflicted,” she said.
The bipartisan deal, which passed despite resistance from far-right GOP lawmakers in the House, has some bad news for people who struggle to make ends meet. For example, a work reporting requirement for low-income older adults who receive SNAP benefits will increase hunger and poverty for people, age 50-54. Buckingham said many people in that age group are in poor health and can no longer do the physically demanding jobs they once held. “And so many will lose the basic assistance that they count on to buy groceries,” she says.
People can get a medical waiver, but the process is notoriously laden with red tape and just doesn’t work, Buckingham added.
“We applaud Congress’s willingness to avoid default,” says Rachel Snyderman, Senior Associate Director of business and economic policy for the Bipartisan Policy Center in Washington.
The deal targets discretionary spending – about one quarter of the federal budget – and Snyderman says we have seen political brinkmanship surrounding the debt limit intensify in the last decade.
“We’ve started to see the debt limit be kind of a hostage-taking device. It’s the only time when both parties come together to have fruitful, meaningful discussions about fiscal policy,” she says.
‘Time to act’ on debt
“The interest on our debt is going to outpace our spending on Medicaid next year. It’s going to become the largest federal expenditure within the next 30 years,” Snyderman warned.
She then listed things the government won’t have money to pay for when interest payments become the nation’s largest expense. They include critical social programs that millions of American families rely on, spending for defense in our military, and foreign aid investments in clean energy, and education.
“It’s time to act now,” she says.
The national debt of $31 trillion amounts to about one third of the total sovereign-debt market.
“Before we’re even talking about default, we’re seeing a reflection of increased risk aversion among global investors holding and buying our debt,” says Snyderman.
Increased yields that investors demand on treasury notes only drive up our costs to borrow, but those are then paid for by taxpayers. If we were to default, there would likely be a rapid decrease in demand for US securities and negative shocks to economies around the world.
Two years from now Republicans could force another game of political brinkmanship to cut back social programs like Social Security and Medicare.
Eliminating the debt ceiling
Could the debt limit be suspended for a longer period of time or eliminated altogether?
“The answer is absolutely one hundred percent,” says Lindsay Owens, Executive Director of the Groundwork Collaborative, a left-leaning think tank in Washington.
“There is no sort of glory in the fact that it is bipartisan. You know, we should not be in a position where the American government is getting within a week of defaulting on its obligations.”
Owens stressed that the debt ceiling isn’t about future spending. It’s about paying bills on spending that’s already been incurred.
“So, this lifting the debt ceiling has absolutely no bearing on fiscal matters moving forward,” she says. As a structural matter, the budget and talking about fiscal matters is mostly unrelated to the debt ceiling, she says.
“It’s because a contingent of Republicans in Congress insisted on tying a budget fight to the debt ceiling elimination, right? So, the pairing of these two things is strictly artificial and strictly a political construction, not a requirement of lifting the debt ceiling.”
Getting our fiscal house in order
The IRS budget cuts of $21.4 billion over ten years included in the bill actually results in a net increase to the deficit, Owens says.
“That’s because it results in foregone revenue collection by the IRS. So that’s just a really important piece of the deal,” she says.
The deal freezes discretionary funding for one year and increases it by 1% in the second year. But if you consider inflation is running about 5%, Owens says it means less housing assistance, fewer slots for toddlers to go to Head Start, less services for seniors, and the like.
Denmark does a better job than the U.S. handling its debt, Owens notes, adding that while these are politically motivated discussions, there is a way forward. “We have to have the political courage to get our fiscal house in order.”
While we fault other countries for their sluggish economies, the U.S. continues to live beyond its means.
“As the world’s strongest economy, we’re leaving default on the table for purely political reasons, not because we don’t have access to the to capital markets, which differentiates us from the crises that we’ve seen in Greece and Argentina and Venezuela, for example,” Owen says.