Winners and losers of the debt ceiling crisis: A boon for Biden and a blow for Trump

Republican congresswoman Nicole Malliotakis quoted a song by the Rolling Stones on Wednesday to defend the agreement to raise the debt ceiling that Republican House Speaker Kevin McCarthy reached with U.S. President Joe Biden. “You can’t always get what you want,” she told Congress.

While Republican hardliners opposed the deal, the rest of the party seemed resigned to supporting the law, which suspends the debt ceiling (set at $31.38 trillion) until 2025 in exchange for spending cuts of about $140 billion, among other measures. It’s an important early victory for Biden ahead of the 2024 presidential elections.

McCarthy tried to sell the deal as a win for the Republicans, as Biden was forced to sit down to negotiate. But the fact that this was considered one of Biden’s main concessions is an indication of how well the president has come out of the struggle. Biden has a clear financial horizon for the remainder of his term, he has not offered major trade-offs, and he can boast that the agreement was supported by both parties. This, in turn, allows him to position himself in the center, and call out former U.S. president Donald Trump as an extremist.

Few could have imagined such a happy outcome for the president at the beginning of the year. When Republican hardliners repeatedly boycotted the election of Kevin McCarthy for Speaker of the House (he was elected on the 15th vote), one of the most important points to the group was the debt ceiling. To raise it, congress members from the Republican Freedom Caucus faction called for huge spending cuts and got McCarthy to support that demand.

Now they feel betrayed, speaking of the deal in terms of surrender and failure. They feel this was a missed opportunity. The debt ceiling was the Republican Party’s main too to pressure Biden. They will not have anything like it in the two years of his term. And they have let it go, largely in exchange for Biden agreeing to sit down to negotiate.

“Washington is broken. Republicans got outsmarted by a president who can’t find his pants,” South Carolina Rep. Nancy Mace said at the beginning of a Twitter thread.

The Democrats presented the Republican position as blackmail, or rather as a kidnapping, and their negotiating proposals as a ransom note. Biden wanted Congress to raise the limit without conditions, just as it had done multiple times under other presidents, including Donald Trump. When he was vice president under Barack Obama, the Republicans decided to use the debt ceiling as a negotiating weapon. Biden recalled that the 2011 negotiations did not advance until the deadline, so this time, he remained firm for months. Raising the debt ceiling is an obligation of Congress, he insisted, while his teams prepared. When he finally agreed to meet with McCarthy, there was no time to lose. By limiting the duration of the negotiations, he avoided unnecessary wear and tear.

In February’s State of the Union address, the president somewhat informally wrested a compromise from Republicans, when they vociferously denied wanting cuts to Social Security: “So folks, as we all apparently agree, Social Security and Medicare is off the books now, right?” he said, drawing laughter and applause from Democrats.

Republicans, meanwhile, managed to rally around an aggressive proposal for spending cuts that repealed some of the flagship measures of Biden’s first half of his term, including his energy transition incentives. It had no chance of being approved in the Senate, which is controlled by the Democrats, but it captured Republican ambitions and made the hardliners happy.

When the negotiation began, Biden’s team sought to find unexecuted spending items in the budget (that showed no sign of being used in the future) which McCarthy could present to his people as wins. That mixed bag included a large fund to deal with the pandemic, as well as the small remnants of other programs that had been cancelled. The negotiators also found a way to present the cuts so that they appeared bigger than they were. The congressional budget office, an independent body, evaluates the effects of the policies in 10 years, but the cuts have only been approved for two years, and they remain below 0.5% of gross domestic product (GDP).

McCarthy took the floor to defend the deal on Wednesday, raising the issue of public spending as a “moral issue.” He mentioned the spending cuts, but focused more on the fact that the Republicans had forced Biden to negotiate. “We have stopped the Democrats from writing a blank check to spend more, after the biggest spending binge in American history. We have used the power we had to force the president to negotiate,” he said.

While the Republicans have a majority in the House, the bill received more support from Democrats. Biden and his team were worried that McCarthy would not be able to get his people to approve the deal. On Monday, he told journalists on the South Lawn of the White House: “One of the things that I hear some of you guys saying is, ‘Why doesn’t Biden say what a good deal it is? Why would Biden say what a good deal it is before the vote?’ You think that’s going to help me get it passed? No. That’s why you guys don’t bargain very well.”

Biden has managed to preserve social security and health care, incentives for the energy transition and the student loan relief plan (which is pending on a Supreme Court ruling). He also granted the Republicans an increase in defense spending, which is useful given the war in Ukraine.

What have been his biggest concessions? Apart from sitting down to negotiate, Biden agreed to three points that have upset some Democrats. He agreed to expediate permits to build a gas pipeline in Appalachia, which is opposed by environmentalists. The president, however, made this commitment last year to win Democrat Senator Joe Manchin’s support for the Inflation Reduction Act (IRA). Biden also agreed to make cuts to the Internal Revenue Service (IRS), the U.S. tax agency, and to impose new work requirements for food aid.

In the first case, the IRS was set to receive $80 billion to replace officials, digitize service and make other improvements while increasing surveillance against large business and high-level income fraud. The Republicans falsely argued that this money was to hire an army of inspectors and did not want the agency to receive a single cent. Instead, just $20 billion has been cut from the package, leaving the IRS with $60 billion to spend. “The IRS has the resources it needs in the near term to improve customer service and go after wealthy and corporate tax evaders,” Deputy Treasury Secretary Wally Adeyemo tweeted.

In the second case, work search requirements have been tightened for some food aid recipients, but in exchange the Republicans agreed to from some of these conditions for veterans, people experiencing homelessness and young adults aging out of foster care. As a result, this so-called cut will lead to 78,000 more beneficiaries and $2.1 billion more spending, according to the Congressional budget office.

After years of record spending, deficits and debt due to the pandemic, the United States is in need of a fiscal adjustment. The approved cuts would reduce the deficit by $1.5 trillion if applied over 10 years. They are less than what experts recommended and their effect on the economy will be minimal.

McCarthy saved the U.S. from the risk of default by getting two-thirds of House Republicans to support the law, but it is somewhat embarrassing for him that Democratic support has been so much stronger. And given the polarization in the Republican Party, it doesn’t help that Biden has been continually praising McCarthy’s faith in the negotiation, how honest and respectful he has been and how well they have gotten along. On the other hand, McCarthy has shown that he is not as vulnerable to Republican hardliners as first though, and has avoided going down in history as the leader of Congress who caused the first default in US history.

Obviously, in the event of default, Biden would not also been held responsible. Even though it would be a disaster for the country, a deep economic crisis would have been a gift to Biden’s potential rivals in the 2024 presidential elections. For the president, the outcome is almost better than if the debt ceiling increase had been approved without conditions.

Biden benefits from being perceived as a centrist, effective leader, who is capable of reaching agreements when everyone underestimates him. On Saturday, he signed the bill into law. On Friday, he gave a solemn speech from the Oval Office of the White House: “The only way American democracy can function is through compromise and consensus,” he said. “Passing this budget agreement was critical. The stakes could not have been higher.”

And he also seemed to quote the Rolling Stones: “No one got everything they wanted, but the American people got what they needed.” He added: “We averted an economic crisis, an economic collapse.”

Biden has been able to recast himself as a moderate president who gets results, in contrast to Trump, who was one of the biggest losers of the outcome. In his speech, the president pointed out that Trump raised the debt by $8 trillion and increased the deficit every year. He also criticized Trump’s “extremist” statements that appeared to urge the U.S. to default: “Nothing would have been more irresponsible. Nothing would have been more catastrophic.”

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