May 31: Debt Default Crisis May Soon Give Way to a Government Shutdown Crisis
In reviewing the Biden-McCarthy debt limit deal, it became apparent to me that a lot of disputes were delayed more than resolved, as I pointed out at New York. Don’t get too comfortable just yet.
Since the federal government will be unable to meet its debt-servicing obligations as early as June 5, per Treasury Secretary Janet Yellen, the political world is understandably focused on Congress ratifying the debt-limit deal reached between negotiators representing President Biden and House Speaker Kevin McCarthy. Despite the deep desire of many members of Congress in both parties to vote against this deal, it will likely be enacted after some significant yelling and screaming. But it’s important to understand that the deal is by no means self-implementing. Its crucial agreements on federal spending have to be enacted via the entirely separate congressional appropriations process. To a considerable extent the dealmakers have simply kicked the can down the road until autumn when actual funding decisions are made.
Moreover, the provisions of the deal that constrain the appropriations process reflect a House Republican obsession that didn’t get a lot of attention during the debt-limit negotiations: demands for a return to so-called “regular order,” in which the federal government is funded by 14 distinct appropriations bills. The last time Congress actually completed all of these appropriations bills was in 1996; more typically, big chunks of federal spending are appropriated through catchall “continuing resolutions” or “omnibus appropriations bills” that (according to conservatives) protect liberal spending priorities and associated policies. But it’s supposed to happen prior to the September 30 end of the current fiscal year when FY 2023 appropriations expire.
There will probably be plenty of partisan fighting over the contents of these appropriations bills. The debt-limit deal specifies some of them (e.g., funding levels for defense and veterans’ benefits backed by both parties). But others will be worked out in the House and Senate Appropriations Committees, on the House and Senate floor, and ultimately through House-Senate conferences and potential veto battles with the White House. If any of these appropriations aren’t settled by October 1 and aren’t addressed in stopgap spending deals (which, again, House Republicans tend to oppose as a matter of principle), the portions of the federal government affected will be shut down. And in the details of the debt-limit-deal legislation is a final, powerful inducement to regular appropriations: At the end of the calendar year, any appropriations contained in a stopgap spending bill will automatically be cut by one percent (via the “sequestration” process employed to enforce the spending caps enacted during the previous big debt-default agreements in 2011 and 2013) above and beyond any cuts already enacted.
This means it will be impossible under the debt-limit deal to paper over partisan and House-Senate differences on spending levels for individual federal programs by just tossing them into a stopgap spending bill that ultimately gets extended until the end of the fiscal year, after which the whole process begins again. So the odds of at least partial government shutdowns beginning in October and extending to the end of December are very high. Moreover, if Congress cannot somehow regain the ability to enact 14 appropriations bills for the first time this century, the cuts in appropriated programs will go deeper than previously expected via the mindless across-the-board cuts inflicted by sequestration.
We have learned during the prior 21 federal-government shutdowns that these interruptions in the normal functioning of agencies are deeply annoying but tolerable, especially compared with a debt default that could throw the national and global economies into recession. And the cuts we will ultimately see in nondefense programs that aren’t specifically protected in the debt-limit deal will be preferable to a debt default triggering a recession that forces even deeper funding cuts by increasing future debt-service requirements and reducing revenues. All in all, the debt-limit deal could have been worse, and the alternatives could have been disastrous.
But let’s not pretend the deal has resolved anything other than avoiding a default; the one big fight over the debt limit will give way to a thousand battles over appropriations. And don’t forget: The even bigger act of kicking the can down the road reflected in the debt-limit deal is the understanding that spending levels beyond FY 2025 will be determined by the results of the 2024 elections. If either party wins a trifecta, it could be in a position (subject to the Senate filibuster) to impose its spending priorities on the minority party. If, as is more likely, divided government continues beyond the next election, the sort of interminable battles over the size and shape of the federal government that produced the current debt crisis and the imminent government-shutdown crisis will continue for the foreseeable future. American voters really do owe it to their country to give somebody effective control of Washington next year. Otherwise, the shadow show of agreements now to disagree later could become the annual game in Washington.