Shutting Down the Government Won’t Help the Republicans

The Biden-McCarthy debt limit deal of early June was limited in its reach and ambition, but one modest point in its favor was its promise of a more orderly appropriations process through the 2024 election. Now even that minimalist upside is in doubt as a few House GOP rebels want to force Speaker Kevin McCarthy to negotiate a different agreement, with lower spending targets, and then also, by some miracle, to get the Biden administration and congressional Democrats to accept it. That the demands of this group will never be met should be obvious. What is still in question is whether their push leads to a government shutdown when the current fiscal year ends next month — an outcome that is more likely to hurt the GOP politically than the Democrats.

The dispute is mainly focused on the central provisions of the recent agreement — officially the Fiscal Responsibility Act, or FRA — that paved the way for raising the statutory limitation on total government debt. In return for providing more room for borrowing, both sides consented to the imposition of statutory caps on appropriations for fiscal years 2024 and 2025, with separate top lines for defense and nondefense accounts. Any spending above those limits — aside from emergencies and exceptions that both sides embrace — will be eliminated through automatic across-the-board cuts.

Because the new caps are set at levels below what the Congressional Budget Office (CBO) projects would otherwise occur (owing in part to an inflated baseline coming out of the pandemic), the FRA is expected to reduce future deficits by $1.5 trillion over ten years.

With total spending for the twelve annual appropriation bills now settled for two years, the expectation had been that the process of writing and approving these measures would run more smoothly than it has recently. And by smoothly what is meant is the avoidance of a backroom deal covering all twelve bills emerging on or about Christmas Eve with no possibility of amending it before the full House and Senate must vote on it.

The price paid to break from this unhappy ritual was deferment until after the next presidential inauguration of further discussion, and thus also progress, on the central matters in dispute in partisan budget fights, i.e. tax hikes and entitlement spending cuts. The expected deficit reduction from the FRA is welcome but small relative to the size of the problem (and perhaps ephemeral if side deals are approved that undo the savings). Over the next ten years, with the FRA in place, CBO expects the federal government to borrow an additional $18.7 trillion. The only way to make real headway in lowering the debt burden over the medium and long-term is to raise taxes and restrain the growth of the largest spending programs, including Social Security and Medicare. Short-term cuts to appropriations can be modestly helpful but are often overridden by later spending hikes and, in any event, will never be large enough to make other tougher calls unnecessary.

Even these limited budgetary benefits of the FRA were only possible because neither side gained much ground toward their larger policy objectives. The president has a slew of domestic initiatives he wants to advance, financed mainly with higher taxes on wealthier households. Most of what he wanted did not make it into the FRA. The GOP would like more spending restraint, including through the imposition of tighter rules for many programs. Those priorities were also mostly set aside during the negotiations. In other words, the absence of significant policy changes in the June compromise was all but inevitable, given the practical realities of a divided government.

What was not entirely clear when the deal was struck is that it may not be fully consistent with one or more verbal commitments that McCarthy is said to have made to a few GOP members. Some who are reported to have been on the receiving end of those alleged promises, centered around budget restraint, are now insisting on deep cuts to secure their votes for appropriations bills even though it is abundantly clear there are large bipartisan majorities in both chambers opposed to what they are trying to achieve.

The break with the June deal that the holdouts are seeking is clear from a comparison of the 302(b) allocations approved by the House and Senate appropriations committees (these are the sublimits on spending agreed to for each of the twelve measures needed to fund the government). In the Senate, the committee — on a bipartisan basis — approved total spending authority of $1.590 trillion, which essentially tracks with the caps in the Biden-McCarthy deal. In the House, where McCarthy is now (at least temporarily) attempting to accommodate the demands of a handful of the unhappy members, appropriations spending is limited to $1.471 trillion, or $119 billion less than the Senate. That’s a reduction of 7.5 percent.

While the lower House target might not seem impossible to reach on paper, when politically untouchable programs are removed from the list of targeted programs, what’s left are deep cuts for everything else. For instance, in the various bills the House committee approved in recent weeks, there is a 77 percent reduction compared to 2023 for the title I education grant program for lower-income students and an 18 percent cut for the Centers for Disease Control and Prevention (CDC).

Having picked this fight, it seems unlikely to end well for the members who welcomed it. For good or ill, there is broad bipartisan support in the Senate for sticking to the original Biden-McCarthy deal (and also to approve even more spending with side deals for defense and military support of Ukraine, among other things), and no interest in making concessions to the lower targets approved by House appropriators. And it is not even clear that the House can pass the bills the holdouts forced their chamber’s appropriations committee to write. A planned effort to take up the Agriculture bill was abandoned at the last minute because it was clear the bill lacked the votes to pass. A similar fate is likely for the other measures the committee approved before the recess.

It is also probable that the stalemate now brewing will force McCarthy and Senate leaders to buy time with a continuing resolution. One must hope that such a measure can pass without unnecessary drama and thereby allow for the time needed for all concerned to realize that the only full-year bills that make it to President Biden are ones that are consistent with his June agreement with the House Speaker.

There is a real need to impose much more restraint on federal spending and to limit future borrowing to levels that will be tolerable for future generations. However, the focus of a major fiscal course correction should be on reforming the big entitlement programs and not on securing relatively insignificant cuts to scores of small discretionary accounts. The annually-funded programs are much safer targets politically, but squeezing them will deliver only insignificant fiscal benefits. Most importantly, the small chance that additional cuts could get approved does not justify taking on the very substantial political risks associated with threatening a government shutdown.