For the next few months, there will be much earnest reporting from Washington, D.C., about “negotiations” on the debt-ceiling standoff. House Republicans, led by Speaker Kevin McCarthy, will demand government spending cuts as a condition of raising the debt ceiling and allowing more federal borrowing so the Treasury can keep paying the nation’s bills. President Biden and his fellow Democrats will insist on a “clean” debt-ceiling hike with no conditions. News headlines will repeatedly warn that talks are stalled and a possible default on U.S. debt is looming.
The real political battle, however, is over which side can most effectively trash the other before a last-second deal averts a financial crisis and Congress raises the debt ceiling. Democrats seem to have the upper hand. The government has already hit the debt ceiling, forcing the Treasury to move money around to keep payments flowing. It can do this for another four months or so. Then it will be crunch time, with not enough money to go around.
Congress could raise the debt ceiling any time, but Republicans who control the House refuse. They seem to think they’ll gain leverage to demand spending cuts as the risk of a U.S. default rises. Their spending cuts, however, are a secret, for now. They won’t say exactly what they want to cut. This is why the Biden team has a new refrain: “Show us your budget.” They want voters to know what programs Republicans want to get rid of.
House Republicans seem to be tying their own shoelaces together, because spending cuts, while popular in theory, are abhorrent in practice. Everybody wants somebody else's spending cut. Nobody wants their own spending cut. It’s true, as Republicans and some Democrats claim, that federal borrowing is on an unsustainable path. But the mushrooming federal debt is the result of reckless behavior by both political parties during the last 20 years, and neither party is going to risk voter wrath by getting serious about fixing America’s finances now.
There are many plausible ways to reduce the nation’s debt. The Congressional Budget Office regularly publishes a long list debt-reduction suggestions. So do many think tanks. A ballyhooed 2010 report listed several pathways to fixing the debt that remain more or less viable today.
Every credible debt-reduction plan includes a combination of new tax revenue and spending cuts. But Republicans have ruled out new taxes, which means spending cuts would have to be even more draconian to make a difference. The Committee for a Responsible Federal Budget has a nice blueprint for lowering the federal debt, with specific recommendations. If you focus just on spending cuts, it quickly becomes apparent Republicans would have to eviscerate popular and necessary programs to accomplish what they’re after. Here are some illustrative examples:
Reform Medicare and Social Security. This is where a lot of the money is, since these two programs account for one-third of all federal spending, as the chart below shows. But seniors would revolt if reforms included significant cuts to benefits, which would be essential if you wanted to fix the debt without raising taxes. There are a lot of ways to save money on these two programs, but McCarthy has said cuts to either program are “off the table.” So never mind.
Medicaid and other health spending. This accounts for nearly 15% of federal spending and is likely to be one area Republicans target for big cuts. Medicaid mostly serves the poor, who are underrepresented by Washington lobbyists, so cuts here might seem relatively easy. But guess again. Medicaid funnels a ton of money to hospitals and other types of health care providers. It pays doctors. And it provides billions to state governments, helping them care for their citizens. Those groups are all well represented in Washington and it’s a safe bet lobbyists are maneuvering to make sure not one dollar of this spending goes missing.
Defense. This accounts for around 13% of federal outlays, and many analysts say Congress could trim spending on elaborate weapons programs without compromising national security. Yet the Reaganite defense hawk remains a core element of Republican identity, making cuts unlikely. Even Democrats are reluctant to cut defense spending, given Russia’s war in Ukraine and China’s intensifying militancy.
Republicans have said they plan to target “woke” military programs, but this is a messaging exercise unlikely to yield any significant budget savings. There’s no single category of “woke” spending Congress can go after, and some analysts say this focus on cultural sensitivity in the military is a made-up issue to start with.
Income-security programs. This is a big bucket of spending, accounting for nearly 15% of federal outlays, including anti-poverty programs such as food aid and the earned-income tax credit, disability aid, unemployment compensation and retirement programs for federal employees. Republicans have tried many times in the past to cut “welfare” and mostly failed. It ends up being politically treacherous to cut taxes for the wealthy, as Republicans did in 2017, while cutting aid for the needy. The idea will flop in 2023, as it has before.
Everything else. Those four huge spending areas above account for 65% of all federal outlays. The other 35% is spread across hundreds of programs, including some that are essentially uncuttable. Interest payments on existing debt can’t be cut unless you’re willing to wreck the nation’s creditworthiness and send future borrowing costs skyrocketing. Veterans benefits are politically sacrosanct. That’s another 11% of spending that’s off-limits, leaving less than 25% open for cuts.
There’s simply no way to extract meaningful savings from those remaining programs without generating voter outrage and probably harming the nation’s interests. NASA’s budget, for instance, is about $25 billion per year. Cutting that in half would gut the space agency while reducing federal spending by just 0.2%. The government spends $141 billion per year on transportation, which might sound like something Congress could cut. But that spending goes toward roads, bridges, airports, and tunnels in virtually every Congressional district, which gives every member of Congress a powerful incentive to make sure their own projects aren’t the ones to suffer.
Congressional Republicans are due to release specific budget proposals sometime in April, so we will know at some point what exactly they want to cut. But they’ll release those ideas knowing there’s almost no chance of budget cuts actually happening, since Democrats opposed to such cuts control the Senate and Biden would veto them anyway, if they were too painful. Republicans’ main gambit is pushing for budget cuts in general, while hoping voters don’t pay much attention to the details. Biden views his job as trumpeting every spending cut Republicans propose. That message will only get louder.