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Klobuchar: Biden should sit down with McCarthy but negotiate on budget, not debt
01:58 - Source: CNN

Editor’s Note: Lanhee J. Chen, PhD, is a regular contributor to CNN Opinion and the David and Diane Steffy Fellow in American Public Policy Studies at the Hoover Institution. He was a candidate for California State Controller in 2022. Chen has played senior roles in both Republican and Democratic presidential administrations and been an adviser to four presidential campaigns, including as policy director of Romney-Ryan 2012. The views expressed in this commentary are his own. View more opinion on CNN.

CNN  — 

Congressional leadership and President Joe Biden met this week and took small steps toward an agreement to avert a disastrous default on the federal debt before June 1. While congressional negotiators expressed optimism about the direction of the talks earlier in the week, the dramatic developments on Friday (the talks were off, then back on) make it clear that an agreement remains some distance away.

Lanhee J. Chen

The two sides remain far apart because the debt ceiling increase has become a vehicle to debate federal fiscal policy — which Republicans and Democrats approach differently. House Republicans approved a debt ceiling increase that would be tied to reducing discretionary spending, dismantling some of Biden’s signature initiatives and introducing work requirements for able-bodied recipients of Medicaid, the health care program targeted primarily at low-income Americans. Biden has generally wanted a “clean” increase without any associated conditions, but he appears to have backed away from this position recently. 

There should be room for compromise. Americans don’t want the federal government to default on its debts, a recent CBS/You Gov poll reveals. But the majority of Americans also say the US government is spending too much, according to an AP/NORC poll. Nearly all economists agree that defaulting on the nation’s debt will have catastrophic impacts on the US and global economy.

But there might not be enough time at this point to hash out a compromise that meets both GOP demands on spending and the need to raise the debt ceiling. The best option then may be a temporary suspension of the debt ceiling before the June 1 deadline, which could improve the chance that Biden and congressional Republicans reach a budget agreement later this year that restrains spending without risking default.

A temporary suspension shouldn’t be about giving the negotiators more time to procrastinate. After all, we’ve known for months that the debt ceiling was approaching — Biden demanded Congress raise the debt ceiling in his February State of the Union address — and yet the president only began meeting with congressional leaders in recent weeks. Thus, a delay could just reduce the urgency both sides are now finally displaying.

But a temporary suspension that expires soon after October 1, the start of the next fiscal year, could incentivize both parties to make a substantive deal. That’s the date when funding for nearly all discretionary spending programs, which Congress must approve each year, is set to expire. If there is no agreement on spending by October 1, a government shutdown would be triggered. Thus, pushing the debt ceiling deadline until after October 1 creates an action-forcing mechanism to avoid both a shutdown and a debt ceiling default.

The suspension would shift the focus of our much-needed spending debate to where it belongs: the annual budget and spending process. By April 15 each year, Congress is supposed to pass a budget resolution, or statement of policy and spending priorities, and then appropriate funds to be spent across federal agencies by October 1.

Of course, the process is rarely followed. There have been years-long stretches where Congress failed to even pass a budget resolution, and recently Congress has simply relied on what is known as a “continuing resolution” to fund government operations rather than follow the normal appropriations process.

The appropriations process, which plays out over the next several months, is when House Republicans have the best opportunity to vote on a budget that reflects their spending priorities and fiscal demands. Biden would no longer be able to object and say that Republican demands are unrelated to the debate at hand; the budget itself would be the debate. Shifting the conversation to this process would also force Senate Democrats — who have largely been absent during the debt ceiling debate — to offer their own ideas.

Of course, a government shutdown is an event that would have its own substantive and political consequences. Agencies can’t spend money that Congress hasn’t appropriated and thus, monthly spending (and deficits) would fall.

The Congressional Budget Office (CBO) estimated that the partial shutdown of 2018–2019 temporarily reduced discretionary spending by $18 billion during the five-week shutdown. But that was a partial shutdown that only accounted for one-fourth of all discretionary spending. Given current projections, a full shutdown could reduce monthly federal spending by over $150 billion a month. These spending reductions, alone, would help to avert a debt ceiling default should budget negotiations drag on past October 1.

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A shutdown would hurt both the economy and politicians’ political fortunes, but unlike a hypothetical debt ceiling default, we know what to expect. Government workers wouldn’t be paid. The Washington Monument would be shuttered. But Social Security checks would still be mailed. Medicare providers would still be paid. And, most importantly, the nation’s creditors would be kept whole.

The political costs of a shutdown are real, too. Historically, Republicans have been blamed for shutdowns. But both parties would be at risk if a shutdown were paired with a much more damaging debt ceiling default. And because all discretionary spending has the potential to be impacted — including defense and social program spending — Republicans and Democrats would have significant incentives to compromise quickly.

The state of US fiscal policy demands more attention from the public and policymakers alike. The debt ceiling debate has brought that much-needed attention. But the risks of engaging in this discussion now, as a default looms around the corner, are high and largely unknown. Shifting the order of the debate would ameliorate the risks while still ensuring those seeking a better fiscal condition for America have leverage to extract genuine spending reforms.