Today's episode is all about the debt ceiling. Wait, wait. Don't fall asleep on me. This is a big deal. And there was actually some positive news on this over the last week.
Sen. Chuck Schumer
We may be a little tired, but we did it. So we're very, very happy.
Late Thursday night, the Senate came together and passed a bill that will stave off the first ever U.S. default. Just days ahead of the deadline, experts had said a default would have been truly catastrophic for the U.S. economy. Lawmakers from both sides of the aisle seemed to agree with that. But if you look under the hood, it seems like that's where the good feelings end. My guest this week is CNN's senior writer Tami Luhby. We're going to go under that hood. Today, what's in the deal and why? It has lawmakers from both sides of the aisle asking "why do we manage the country's finances like this?" From CNN, this is One Thing, I'm David Rind.
So, Tammy, I acknowledge that this story has been simmering on and off since January. You and I are talking now on the last day of May. But for folks who would like to be caught up now, what is the debt ceiling?
Well, the problem is, is that the U.S. doesn't bring in enough revenue to pay all of its bills. So it has to borrow to be able to make all of its payments. And actually, interestingly, the debt ceiling was created over 100 years ago, and it was originally designed to make it easier for the federal government to borrow. So that way, the government didn't have to continuously come back to Congress to ask for borrowing ability. So Congress has actually modified the debt ceiling more than 100 times since World War Two.
And oftentimes, you know, lawmakers of both parties came together and said, okay, this is an opportunity for us to look at the debt ceiling, look at our budget, look at our spending, and come up with some bipartisan compromise. But in more recent decades, especially in the last 12 years, it's become much more contentious.
Right, with one side saying basically, sure, we'll raise the debt ceiling, but in return, X, Y, and Z. Is that right?
And particularly that side is usually the Republicans. When the Democrat is in the White House.
In Washington, they are gearing up for a major fight over raising the nation's borrowing cap.
So our debt ceiling is $31.4 trillion. And in January, Janet Yellen told Congress, particularly House Speaker Kevin McCarthy, that we had hit the debt ceiling and so the U.S. could no longer borrow, but it was able to continue paying the bills.
The Treasury Department has warned that it will start taking extraordinary measures.
Treasury was able to continue paying the bills for several months because it has cash on hand. The government is always taking in money, tax revenue, and it also deployed these extraordinary measures which were really these behind the scenes accounting maneuvers that allowed Treasury to continue having enough funds to pay the bills. So since Yellen's warning in January, not much had happened. There had been one meeting between President Biden and House Speaker Kevin McCarthy. But the Republicans did pass a bill that said what they wanted to do or how they would have addressed the debt ceiling.
House Speaker Kevin Mccarthy
They haven't dealt with it. Unfortunately. The president has waited 97 days without ever meeting.
And then all of a sudden, fast forward to May on May 1st, Janet Yellen says, hey, you know what, You guys may only have a month to actually work this out because of weaker tax revenue. Treasury may not be able to make all of the payments in full and on time in early June, as soon as June 1st.
I made clear during our meeting that default is not an option. Repeated that time and again, America is not a deadbeat nation.
And when Yellen said that, that prompted President Biden to call a meeting for the following week with the congressional leaders, the negotiating teams were set up. They were negotiating, you know, day and night. And over Memorial Day weekend, they came up with a deal.
House Speaker Kevin Mccarthy
It doesn't get everything everybody wanted. But that's in a divided government. That's where we end up. I think it's a very positive bill.
And the next day they released a 99 page bill outlining, you know, how they would raise the debt ceiling or in this case, actually suspended until the beginning of January in 2025, and also make some changes to the budget.
And what do those changes look like?
So as I said, they would suspend the debt ceiling until January 2025, which would be after the presidential election, which is something that Biden, the Democrats wanted because they didn't want to revisit this next year. But it seems each side is claiming a win on this. And as usual, what happens in politics, it's, you know, somewhat complicated to tease out. So the Republicans are saying that the bill cut discretionary spending, non-defense discretionary spending back to fiscal 2022 levels, which is what they had been pushing for a long time. They wanted to cut discretionary spending. It will also protect veterans medical care, which has been something very important to both sides. Another very controversial piece of the bill was expanding work requirements. This is something that the Republicans were adamant about in their debt ceiling bill that they passed in April. They wanted to expand work requirements in the food stamps program in the Temporary Assistance for Needy Families Program and introduce it for the first time in Medicaid. In the end, they're temporarily expanding work requirements in the food stamp program for certain adults, but they're also providing more exemptions for other adults. The bill will also claw back some COVID 19 relief funds. It will actually cut IRS funding. You may remember that the IRS got an $80 billion boost last year under a Democratic bill. So about $20 billion of that 80 billion will be shifted to discretionary spending. It will restart student loan payments at the end of the summer. As you may know, student loan payments have been paused since the pandemic in March of 2020. And it will also actually maintain another thing that the Republicans really wanted to cut were a lot of the clean energy and climate provisions in the Inflation Reduction Act from last year. So those actually those credits will remain, but there will be some changes to permitting. And as I said, it will suspend the debt ceiling until January 2025.
Yeah, and that's interesting to me. If it's suspended for two years, meaning we just kind of ignore it altogether. Why don't they just do that permanently so we aren't bumping up against the ceiling every couple of years?
Right. So this is, again, something that two sides, two opinions on this. You know, some people really want us to, you know, basically get just get rid of the debt ceiling. They say that it's a symbol of the United States's budget dysfunction, that other countries don't operate this way, that, you know, it puts us on the brink every several years. It threatens our credit rating. It can hurt the stock market. There's you know, there's all these reasons why not to do it. It's not good government. But on the other side. There are other people who say this is the only opportunity that we have to really look at our budget and add our deficits and debt that's been accumulating.
Otherwise, what would stop us from spending like $100 trillion?
This is the stick that allows us, in theory, to keep our budget and our debt in check, which doesn't really work that well that way. But I guess some people think it's better than nothing.
I guess my question is, does this actually reduce spending like Republicans have said they want?
A lot of experts say this is really just tinkering around at the edges. So the Republicans, as I said, can say that they've reduced spending, the non-defense discretionary spending back to 22 levels. But with these agreed upon adjustments, it's actually going to be roughly the same. So this will not have a huge impact on reducing spending and our debt.
Yeah, like many of my colleagues, I think it was a bad idea to negotiate under threat of default.
Sen. Lindsey Graham
The people who negotiated this, I wouldn't let them buy me a car.
So neither side is happy with this deal, particularly the extremes on either side. You've got the progressive Democrats and the very conservative Republicans are not happy because this deal contains elements of things that they do not want or not enough.
Rep. Ralph Norman
I thought he got out, negotiated.
The Republicans are saying there's not enough work requirements, there's not enough spending cuts. And the Democrats are saying there's too many work requirements, there are too many spending cuts.
Rep. Barbara Lee
Again, the Biden administration did the best they could, but it wasn't good enough because so many people, especially black and brown women on the work requirements, when you look at elderly black and brown women, when you look at women with children, to impose these work requirements is despicable, it's immoral and it's wrong.
But there's enough in the middle. There are enough moderates on on either side. And there's a recognition that this has to be done and that this is the best deal that they're going to get under the circumstances.
So, Tammy, like you were saying, despite calls from some to just get rid of the debt ceiling altogether, it doesn't seem like that's going to happen. And these fights will continue when there's divided government in Washington. But I'm curious to past debt ceiling deals. Give us any clues as to how this debt ceiling deal will shake out financially for the government?
So the last time this happened with a Democratic president and Republicans in the House was in 2011 under Obama, and that was actually probably the biggest fight that we've had over the debt ceiling in our country's lifetime.
As an in pass over tax increases continues, President Obama illustrated a nightmare scenario where Social Security payments stopped going out. If the U.S. fails to raise the debt ceiling by August 2nd.
And we were only days away from defaulting on our obligations.
And despite almost daily White House meetings with leaders from both parties, there's still no deal.
Fmr. House Speaker John Boehner
House Republicans have a plan.
Then Speaker John Boehner was adamant again about deep spending cuts.
Fmr. President Barrack Obama
If they show me a serious plan, I'm ready to move, even if it requires some tough decisions on my part.
President Obama at the time, you know, did not want to capitulate to that, but also wanted to avert a fiscal calamity. The stock market was down, borrowing costs were up. We were actually the country was downgraded by S&P. It was, you know, a very tense situation. So in the end, he actually agreed to $2.1 trillion in spending cuts to end that debt ceiling crisis in 2011.
Fmr. President Barrack Obama
The result would be the lowest level of annual domestic spending since Dwight Eisenhower was president.
But when it came down to it, it was actually difficult for the Republicans. And, you know, of course, the Democrats to make those deep, deep cuts.
Because it's easy to say that you want to cut money, but when you actually have to, you know, make changes to the budget and decide what programs are going to be cut or what programs are going to receive less funding, that makes it harder. And there are a lot of lobbying interests for every group out there under the sun. And they come to Congress and say, if you do this, this, this is who we are going to hurt. So it's actually a lot more difficult to cut spending.
So it could be a sign of things to come with this deal.
Right. And in the end, in 2011, they did curtail spending. I mean, by about $1.5 trillion out of the total 2.1 trillion, according to Brian Reidel, who was a staffer for a senator and who was one of the negotiators at the time. But this deal is a little bit different because it doesn't have the same type of structure of spending cuts. It's only for two years. And as I said, in the end, with these adjustments, the discretionary, the non-defense discretionary spending will not be cut by that much.
And so I know this, like congressional back and forth can feel pretty insidery, beltway conversation. Does any of this impact the wider economy? The average person like it seem? We got right up to the cliff here. But is is there still impacts that will be felt?
Well, in this case, a lot of people both, you know, the investment world and others felt that Congress would come to a deal. So there wasn't a mass freak out if we started missing payments, that would be a major issue for individual Americans, for the national economy and for the global financial markets. So, I mean, you know, one of the first things might have been that 66 million might have started missing their Social Security payments. You would have had federal workers and the military not getting their paychecks, which again, hurts them and hurts the communities they live in because they wouldn't have money to spend. Federal contractors would not have gotten paid again, hurting them, potentially requiring them to temporarily lay off their workers. There's a, you know, a chain reaction, but also borrowing costs. We already saw borrowing costs for short term treasuries rise because people were afraid to hold onto the treasuries or to buy the treasury securities that were maturing in June. In case, you know, it would be possible that Treasury wouldn't have been able to pay them out.
I don't think something's going to happen, and I think it's going to be really, really bad and just I have no confidence in the economy.
I'm scared for my mom because she's my mom. I mean, she's she was a veteran.
It's a problem for people. I mean, they realize that, you know, Social Security recipients, the elderly were a growing concern, people who depend on federal payments or have federal jobs. They were worried.
Got Social Security. And she has her KPER's now. If they don't if they don't have it, Social Security doesn't get in. What's going to happen to her?
CNN was already hearing from people. We asked people to tell us their stories and we got a lot of responses of people who said either that they were worried and that they really can't live without these federal payments or federal paychecks.
You cannot reward tantrums. And we've been rewarding tantrums for a long time.
Or that they're just tired of the government, you know, going to the brink every several years over this and not being able to figure this out in advance.
Don't wait till the last minute and put people in jeopardy like this. This is not right.
One Thing is a production of CNN Audio. This episode was produced by Paola Ortiz, Eryn Matthewson and me, David Rind. Matt Dempsey is our production manager. Faiz Jamil is our senior producer. Greg Peppers is our supervising producer. And Steve Lickteig is the executive producer of CNN Audio. Special thanks this week to Alica Wallace. If you're liking the show, leave us a rating and a review on Apple Podcasts. Be sure to follow the show so it pops up in your feed every week. That's all I got. We'll be back next Sunday. Talk to you then.