The Daily - The Debt Ceiling Showdown, Explained

Episode Date: January 23, 2023

In the past decade or more, votes over increasing the U.S. debt ceiling have increasingly been used as a political tool. That has led to intense showdowns in 2011, 2013 and, now, 2023. This year, both sides of the argument are dug in and Republicans appear more willing to go over the cliff than in the past. What does this year’s showdown look like and how, exactly, did the United States’ debt balloon to $31 trillion?Guest: Jim Tankersley, a White House correspondent for The New York Times.Background reading: Two decades of tax cuts, recession responses and bipartisan spending fueled more borrowing has set the stage for another federal showdown over the debt limit.Last week, America hit its debt limit. Here’s what to know. For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. 

From The New York Times, I'm Michael Barbaro. This is The Daily. Today, as House Republicans and President Biden head toward yet another high-stakes showdown over the debt ceiling, my colleague Jim Tankers, looks at which party is really behind the original problem of the country's ballooning debt. It's Monday, January 23rd. Jim, we are here to talk about the debt ceiling. This annual dance, this fiscal foxtrot we do seemingly every year in this country, and we are about to do it all over again.

Yeah, it's Groundhog Day in Washington again. And the reason why is because by law, Congress can only borrow so much money at a time. The federal government can only have so much debt. And so because Congress borrows money all the time, we have to keep raising that limit on how much debt we can have. It's just a vote Congress has.

It likes to kick the can down the road only as far as it can get a little bit out of sight. And then pretty soon it catches back up to the can. And then votes to raise the debt ceiling all over again. And the votes to do it again and again and again and again. And this has happened a lot over American history and for long stretches of time. It was a basically pro forma act. People just did it without a lot of debate. But in recent years, the last kind of decade plus, Republicans have figured out that they can use this need to raise the limit as a political weapon. And they can essentially force a Democratic president to negotiate with them over reducing federal spending going forward in exchange for allowing the government to simply

keep borrowing the money it needs to pay the bills it's already incurred. And so this Republican approach has created some pretty intense showdowns in 2011, 2013, and now this year. So catch us up on where we are in this ugly showdown right now. Well, this year could honestly be the most perilous of all of them for a bunch of reasons. The big one is the Republicans in Congress. They have a narrow majority, but they now control the House. And in the fight over who would be Speaker of the House, a group of conservative lawmakers exacted concessions from the now Speaker, Kevin McCarthy, including on the debt limit.

They really want to go to the mat on this. They're tired of the government spending so much money, and they are signaling that they are very willing to force a crisis and not raise the limit unless President Biden negotiates with them. And President Biden has said, I'm not negotiating. I'm not going to even talk about spending reforms to raise the debt limit. So you have two very dug-in sides, and the Republicans in particular have a much stronger willingness, it appears, to actually go up and maybe even over the cliff of the debt ceiling than they have in the past. And to go over that cliff is to what exactly?

To go over that cliff is to what exactly? To go over that cliff is to risk economic catastrophe. It could be what's called a default on U.S. debt where the Treasury can't pay the bondholders it owes money to. It could also just be that the Treasury can't pay money into the economy to other people it owes, whether it's federal workers or Social Security beneficiaries. Any scenario where the Treasury doesn't have enough money to pay all of its bills, economists agree, would be economic disaster, even if it's brief. Got it. And this showdown has begun in earnest because last week the government hit its debt limit. We amassed the amount of debt we're allowed to have under the law. That doesn't mean it's over or we're going over the cliff right away. The Treasury Department can,

for several months, employ what are called extraordinary measures that basically move money around to make sure that the government can pay its bills on time. But that won't last forever. And so now the showdown begins. So right now we are in the very early phases of a slow-moving but inevitable car crash, which, Jim, you and I guess all of us will have to cover in a very predictable way. Yeah, it's predictable and it's frustrating in part because the stories start to sound the same and the arguments all sound the same. You know, Republicans have been saying time and time and time again that it's big Democratic spending that is piling onto our debt. And that's the reason why

we're in this place where we need to have reforms before we can raise the debt limit. And Democrats turn around and say, hey, Republicans, you're hypocrites. You raised the debt limit under President Trump with no problem. And by the way, you've done all these unfunded tax cuts over the last 20 years that have added to the debt. And so rather than just write, you know, another 12 stories that get into all those arguments, I decided to actually drill into them and do an autopsy of where did our debt come from that has forced the government time and again to raise the debt limit. You decided to cut through all the baloney and properly assign blame through good old fashioned reporting. I decided to dig into CBO spreadsheets and talk to budget wonks and to

really put a quantifiable calculation down for people on, hey, this is how we got here. This is where the debt came from. Okay. A very noble undertaking. So where did you begin? I think the right place to start was the last time the federal government actually spent less money than it was taking in in tax revenue. That was 2000. So 2000 was the last time that our budget in the United States wasn't adding to our debt. Yes, the end of the Bill Clinton presidency.

And there's some really unique things to that time period that produced that budget. For one, it's the height of the dot-com boom. So tax revenues are really high because there's all this money being kicked out of Silicon Valley that's being taxed. And it's also the sort of aftermath of the Cold War where we're not spending very much money on the military. And so lawmakers basically in 2000 were able to look at the budget and say, hey, we've got a lot of money coming in and we don't have a lot of obligations for defense. And boy, we think this is going to be like this forever. And so let's do some stuff. And boy, we think this is going to be like this forever. And so let's do some stuff.

But almost immediately, those great conditions evaporated and the big drivers of debt kicked in. So Jim, after Bill Clinton leaves office in 2000, this kind of halcyon year of balanced budget and no new debt, we get President Bush. So what happens to the debt under him? Well, it grows for a couple of big reasons. The first is the nation starts spending much more money on the military again because of the September 11th terrorist attacks. On my orders, the United States military has begun strikes against al-Qaeda terrorist training camps and military installations of the Taliban regime in Afghanistan. And Bush launches wars in Afghanistan, in Iraq. Controversy over the war in Iraq has taken on a fresh dimension as economists and politicians voice growing concern about just how much it is costing taxpayers in concrete dollars and cents. Which will last a long time and end up costing trillions of dollars. And unlike previous presidents, he doesn't fund those wars with war bonds or by raising taxes.

He borrows the money. So pretty much immediately he takes the budget out of balance. Yes. Second. Today I am sending to Congress my plan to provide relief to all income taxpayers. He cuts taxes. He cuts taxes in 2001 and then again in 2003. We must give overcharged taxpayers some of their own money back.

And those also balloon the deficit. They reduce the amount of tax revenue that the federal government is getting and end up costing trillions of dollars over time. This new law will provide 95% coverage for out-of-pocket drug spending. Bush actually spends more money, too. He does an expansion of Medicare to cover prescription drugs. Right. That grows the deficit, although not by as much as the tax cuts or the wars. And then the big one.

It was a manic Monday in the financial markets. The Dow tumbled more than 500 points after two pillars of the street tumbled over the weekend. Is that at the end of Bush's term, the United States falls into a financial crisis. For the financial security of every American, Congress must act. And that sets the stage for more big deficit spending. Right, in order to try to stem the fallout from the 2008 financial crisis. Yes. And so the net result of the Bush years is he inherits a balanced budget and leaves with trillions more dollars in debt added to the nation and a country in economic crisis.

So that brings us to Bush's successor, Democratic President Barack Obama. What does he do to the national debt? Well, Obama grows the debt even more, and he does it in some familiar ways, but also some new ways. The biggest, newest way is that he has to essentially kickstart the economy out of the recession he inherited from Bush. The American Recovery and Reinvestment Act that I will sign today, a plan that meets the principles I laid out in January, is the most sweeping economic recovery package in our history. So he signs an economic stimulus bill that costs almost a trillion dollars.

And over the next couple of years, the government keeps spending money on safety net programs like food stamps to help people endure high unemployment and the slow recovery from the financial crisis. And that costs a lot of money, trillions of dollars to the debt. This week, President Obama is expected to announce a plan to send up to 35,000 more American troops to Afghanistan. Critics wonder how the president will justify the enormous cost.

The other thing that Obama inherits, of course, are the wars in Iraq and Afghanistan, and he continues spending money on them as well, continuing to add to the debt. He also doesn't raise taxes to pay for them. Today, after all the votes have been tallied, health insurance reform becomes law in the United States of America. He does raise some taxes to help pay for his signature legislative bill that he then passes, the Affordable Care Act, which expands health care even more. I talked to a lot of experts about this, and basically there's a big debate over how much Obamacare adds to the debt. And basically, there's a big debate over how much Obamacare adds to the debt.

But in the end, there's some agreement that it did something to the debt, but maybe not as much as you think. President Obama is calling for an extension of the Bush-era tax cuts for families earning less than $250,000 a year. The big thing, though, that he does that you maybe don't remember is that he makes 80% of the Bush tax cuts permanent in a deal with Republicans. And that extends their impact on the debt by keeping tax revenues lower than they would have been for decades to come. So Obama leaves office having added a lot to the debt as well, in part just because of the circumstances he inherited, but in part because of decisions that he made along the way. Right. Good morning, everybody.

Thank you very much for being here. Merry Christmas. Happy New Year. Next, of course, is President Trump. And there are two big things Trump does that add a lot more to the debt. So this is the bill right here, and we're very proud of it. It's a, it's going to be a tremendous thing for the American people. It's going to be fantastic

for the economy. The first is, is that like Bush before him, he cuts taxes. 3.2 trillion dollars in tax cuts for American families, including... He cuts a lot of taxes. And this is entirely with Republican votes at a time when Republicans have been hitting Democrats over debt. The other thing, though, that Trump has to do, like Obama, is respond to a recession. This pandemic has now touched every corner of the U.S. economy, workers for large companies and small companies. This is the pandemic recession of 2020. It's deep. It's fast.

It's a very important day. I'll sign the single biggest economic relief package in American history. And the government spends a lot of money to help people and businesses get through it. Trump approves more than $3 trillion worth of pandemic relief spending. Right, a stimulus three times as big as Obama's, if I'm remembering the numbers you used there. Yeah, actually, if we take it down to decimal points, it's almost four times as big. And that all just goes straight to the debt because, again, no tax increases to pay for it. So Trump leaves office with a very large pile of debt just in

that last year that he's there. And the pandemic recession is still rippling through the economy when he leaves office and Joe Biden comes in and takes over. Well, this historic legislation is about rebuilding the backbone of this country and giving people in this nation, working people, middle class folks, people who built the country a fighting chance. And Biden pushes through another $2 trillion in stimulus spending as a sort of last government effort to shock the economy back into normalcy. Got it. Thank you all. Right. And let me guess, that stimulus is not covered by new taxes, thus adding to the debt.

You, I can't believe it. You're right. You totally got, you nailed it. There's a pattern here. There's a pattern. Okay. So at the end of these four presidencies that you evaluated, Jim, how does all this spending add up by party? Jim, how does all this spending add up by party? So if you go and pull a spreadsheet from the Treasury Department, you actually can add up just how much debt was added under each president for the time that they were in office. And if you do it for the last 20 years and you break it down by party,

then basically nobody's going to like this. But if you do that, you find that between Democrats and Republicans, it's kind of a tie game. We'll be right back. Okay, Jim, talk us through the raw math of this tie game between Democrats and Republicans when it comes to the U.S. debt, which I have to say is genuinely a surprising conclusion to have reached. Yeah, I was surprised when I saw it, too. But if you add up all the debt that was added under President Bush and then under President Trump, the two Republicans, it comes to $12.7 trillion. Trump, the two Republicans, it comes to $12.7 trillion. And if you add up all the debt that was added under President Obama and President Biden, the two Democrats, that comes to about $13 trillion. Hmm. A distance of about $300 billion between the two parties, between the Democrats and the Republicans.

It's basically the same. Now, that said, there's some reasons to be cautious about using that as a comparison. And the big one is policies transcend presidencies. You don't just make policies that affect the debt that start when you're in office and stop when you leave. If you pass a tax cut and it's continuing when the next president takes office, it's still affecting the debt. President Biden is still having the revenues on his watch affected by the Trump tax cuts. And the Bush ones before that. example, a researcher at George Mason University looked at the first year of the Biden presidency and found that actually it was Trump policies that added more to the debt than Biden's. So the question of blame gets muddy, but the bottom line is that both parties have contributed mightily to this national debt that has brought us to this moment. Yeah, that's absolutely true. You can't look at the data and come to any other conclusion

except presidents from both parties have approved policies that have added a lot to our national debt over the last couple decades. Right, and that's interesting because in this latest debt ceiling crisis that we are now in, Republicans are claiming, as you said earlier, that the reason they should hold the entire government hostage is because of excessive Democratic spending that they say created this debt problem. And you have, I think, very clearly shown that that is just not true. The idea that we have a $31 trillion national debt right now because President Biden spent too much money is just not at all supported by the evidence. And the idea that it's just Democratic spending that's the reason why we had debt is also

not supported by the evidence. It's spending from both parties. It's tax cuts that largely started under Republicans. And it is the effects of recessions, which both parties have responded to. And I think it's fair to say that Republicans haven't just contributed at least as much as Democrats to the debt. It's also the case that they probably consider

the spending that contributed to that debt that they approved to have been worthwhile and not a waste. Well, often that's true. I think there's certainly fiscal conservatives who never liked the Medicare prescription drug benefit, for example. Under George W. Bush, right. Right.

And there's certainly been a real national rethink of whether the spending in Iraq and Afghanistan was worth it. in Iraq and Afghanistan was worth it. But at the time, those were very popular spending plans, military spending plans passed among Republicans. And Republicans continue to push for very high levels of military spending, even now that Iraq and Afghanistan have both wound up. The reality is, is that a lot of the spending

that added to the debt was at least at one time or another quite popular. Whether it's the tax cuts that were passed under Bush and then made permanent by Obama, there's a reason for that. They didn't want to raise taxes on the middle class in the Obama administration because it was popular to have lower taxes on the middle class. The same is true with the pandemic spending. It was popular at the time to send people checks, and it was popular to keep businesses afloat so that they didn't have to close their doors when they were shut down for the pandemic. Even some of the new permanent spending programs, quite popular. Medicare Part D, the prescription drug benefit, very popular among senior citizens. The Affordable Care Act has grown so popular that it was the one really concerted Republican effort

under President Trump to attempt to repeal Obamacare. And they couldn't do it. It was too popular. They could not even get a majority of Republicans when they controlled Congress and the White House to repeal it. That popularity is a big reason why we're continuing to have more debt being added.

So the popularity of all that debt-creating spending makes me wonder how we're supposed to be thinking about the very idea of America's debt, and whether it's something to be feared or, frankly, even worried about. The argument that's being made right now by Republicans is that $31 trillion in debt is just inherently bad and so out of control that it's worth threatening a financial crisis to reduce it. Is that a legitimate argument? Is that true? Listen, I have not talked to an economist in Washington or on Wall Street who views our current level of debt as an economic crisis for the country right now or anything close to it. There is a long-running theory among conservative economists that too much debt crowds out private investment.

Basically, the government is blocking private business from doing some things it should be doing. Because the government itself is borrowing so much money. That's the theory. Exactly. But there's not a lot of evidence, really any at all, right now that that's happening to any major degree. But what the economists on Wall Street and Washington and universities across the country will tell you is that there is a real threat of a crisis if the country doesn't raise the debt limit in time and we trigger sort of the financial panic that would come from a breach of the debt limit. Got it. You're saying that if we are worried about any kind of financial crisis, the risk of that is far, far likelier from Congress not

raising the debt ceiling and potentially defaulting on our debt than it is from continuing, as we have under these last four presidents, to rack up more and more and more trillions and trillions and trillions of dollars of debt. The risks right now are much, much higher of something very bad happening to the economy because we don't raise the debt ceiling than they are of something very bad happening to the economy anytime soon because of how much debt we're continuing to add up. For sure.

So we've reached this weird point where despite that risk that you just described, Republicans have decided to weaponize this question of raising the debt ceiling under Democratic presidents, not Republican presidents, despite having contributed to that debt as much as Democrats, and despite loving, for the most part, the programs and the tax cuts that led to that much debt. Is that just going to be a fact of life, that pretty flawed and in some ways hypocritical Republican approach to the debt ceiling? Or do the people that you talk to see a way out of this ugly cycle?

Let me put it this way. There are ways for Republicans who control the House to push through fiscal reforms that would have the effect of reducing the amount of debt we add every year that do not jeopardize the debt limit. What would be an example of that? They could, for example, refuse to pass spending bills that spend the amount of money that the president wants. That's the purview of the House. They could pass a budget that actually balances over 10 years and then convince the Senate to go along.

And then if President Biden vetoes spending bills that fit that budget, then find the votes to override his veto. Practically speaking, they don't have the majorities to do those things. But they could certainly pick a real fiscal fight with the president that does not involve the debt limit that he would have to engage in. Because the president's stance is he's not going to negotiate over the debt limit. But that's very different than saying he's not going to negotiate over spending. And it's possible that they could force President Biden to come to the table with other means to reduce spending over time. They also, by the way, if what they really care about is debt, Democrats love to say that they have a bunch of tax increases

they'd like to get Republicans behind. But Republicans oppose tax increases and in fact want to do some things that would reduce tax revenues even further, like making the Trump tax cuts permanent. So at the same time that they are talking about reining in debt, they're also pushing some policies

that would make the debt worse. So what you're saying is there are good faith debates to be had about how to lower the debt if we decided something we want to do, which we might, we might not, but we're not having those debates. Instead, we're in this ugly, familiar, and very scary showdown mode. That's absolutely right. We know that Democratic administrations, Republican administrations are going to keep adding to the debt. That's what the parties do in Washington right now. That's the budget reality. And we know if history is any guide, if a Democrat's in the White House and Republicans control at least part of Capitol Hill,

we're going to have these fights over raising the debt limit. And with each one of those fights, it's going to be uglier and uglier, and the risks are going to grow of something very bad happening to the economy that hurts all of us. Well, Jim, thank you very much. We appreciate it. Michael, thank you. We'll be right back.

Here's what else you need to know today. On Sunday afternoon, the gunman suspected of killing at least 10 people and injuring another 10 at a ballroom dance hall in Monterey Park, California, killed himself after a standoff with police. Police said that the suspect attempted to carry out a shooting at a second dance hall nearby, but was stopped by people inside. This could have been much worse. The police chief overseeing the manhunt, Robert Luna,

said that officers did not yet know why the suspect targeted the two halls. We still are not clear on the motive. The investigation continues and that is something we are all extremely, we want to know. We want to know how something like this, something this awful can happen. And at President Biden's invitation, federal investigators conducted a 13-hour search of his private home in Delaware on Friday, where they found additional classified documents. Friday, where they found additional classified documents. The discovery and the search itself highlight how seriously the Justice Department is taking the issue of how the president handled classified material. The department has already appointed a special counsel to investigate the matter. Today's episode was produced by Nina Feldman, Mary Wilson, Muj Zaydi, and Sydney Harper.

It was edited by Mark George, contains original music by Marian Lozano, Alisha Ba'itub, and Sophia Landman, and was engineered by Chris Wood. Our theme music is by Jim Grunberg and Ben Landsberg of Winderly. That's it for The Daily. I'm Michael Barbaro. See you tomorrow.