Potential debt ceiling agreement would hardly change the federal spending path

As their debt limit negotiations with President Biden push the nation perilously close to devastating bankruptcy, House Republicans have held on to a clear message: They must force a change in what they call the nation’s “unsustainable” spending path.

But in conversations with Mr. Biden, Chairman Kevin McCarthy and his lieutenants have focused almost entirely on cutting a small portion of the budget — known as non-defense discretionary spending — which includes funding for education, environmental protection, national parks, domestic law enforcement and other areas. That budget line accounts for less than 15 percent of the $6.3 trillion the government is expected to spend this year. It’s not outsized, by historical standards. It is already expected to shrink as a share of the economy over the next ten years.

And it has nothing to do with the big drivers of expected spending growth in the coming years: the Social Security and Medicare safety net programs, which get bigger and bigger payouts as the US population ages.

Those politically popular programs have been considered off-limits during current talks by Republicans, who have come under heavy criticism from Mr. Biden, even for entertaining changes that could raise the retirement age for those programs or make other changes to improve their future delay spending.

Republicans have also refused to cut military spending, which is almost as large as non-defense discretionary spending. As a result, it is almost certain that the negotiations will not produce an agreement with Mr. Biden that would dramatically change the course of federal spending over the next decade.

Instead, they would focus the cuts on education, environmental protection, and a host of other government services that tax experts say will be nowhere near the main sources of spending growth in years to come.

For example, if Republicans could somehow convince Mr. Biden to accept the full round of discretionary cuts in the fiscal bill passed by the House last month, it would do little to change the country’s overall spending trajectory in the next decade. Those cuts would cut federal spending by about $470 billion by 2033 and likely save about $100 billion in borrowing costs that year, according to the Congressional Budget Office.

Total government spending would then be just under 24 percent of the economy — or almost exactly what it is today.

While those cuts might not make much of a dent in the overall budget, they would still be felt by many Americans. Because the cuts would be so limited to one segment, many popular government programs would shrink by as much as 30 percent in that scenario, White House officials and independent analysts have calculated.

“The cuts proposed by Republicans would have serious implications for education, public safety, childcare, veterans’ health care and more,” White House Budget Director Shalanda Young wrote in a memo last week.

For months, Republicans have cited growing federal spending and debt as the reason they refuse to raise the country’s borrowing limit — at risk of default — unless Biden agrees to cuts.

Representative Garret Graves of Louisiana, one of Mr. McCarthy’s top negotiators, said this week that the biggest gap with Biden administration officials was the spending numbers. “My interpretation of their position is that they do not recognize or care that we are currently on a spending trajectory that is absolutely unsustainable,” he said.

Federal spending rose during the Covid-19 pandemic, first under President Donald J. Trump and continuing under Mr. Biden, as lawmakers poured trillions of dollars in aid to businesses, people, and state and local governments. It remains above historical standards when measured as a share of the economy, which is the easiest way to track spending patterns as prices have risen over time.

The Congressional Budget Office estimates that total spending between 1980 and 2019, just before the pandemic hit, averaged just under 21 percent of gross domestic product. It rose above 30 percent in 2020 and 2021. This fiscal year, it is expected to be just over 24 percent, fall slightly over the next few years, and then begin to grow again in the waning years of this decade, to above 25 percent in 2033.

However, discretionary spending is expected to decline as a share of the economy over the course of the decade. Military spending — which Republicans have so far refused to cut as part of talks with Mr Biden’s team — should fall slightly from 3 percent of the economy. Non-military discretionary spending is now 3.6 percent, but is expected to fall to 3.2 percent by 2033.

Social Security and Medicare, on the other hand, are expected to grow rapidly over the next 10 years as retired baby boomers become eligible for health and retirement benefits. Social Security spending will rise from 4.8 percent to 6 percent of the economy during that time, budget bureau projects and Medicare will rise from 3.9 percent to 5.3 percent.

Analysts say those programs are the main reason budget projections have long shown federal spending rising for decades to come — even before Biden took office.

“The overall long-term increase in federal spending relative to GDP can be fully explained by the growth of the major federal health programs (Medicare, Medicaid, and the ACA) and Social Security,” Charles P. Blahous, who studies federal spending and debt at the Mercatus Center at George Mason University, the Senate Budget Committee said in written testimony this month.

Conservative groups have criticized the Republicans for not including the safety net programs in the debt claims. “While the current debt ceiling negotiations are largely about ways to limit the discretionary parts of the budget, any serious proposal to address the emerging debt and deficit crisis should also address our largest mandatory spending programs: Social Security and Medicare,” Alex Durante, an economist at the Tax Foundation, which promotes lower taxes, wrote Wednesday.

Liberal groups and the White House have criticized Mr. McCarthy and his team for neglecting the other side of the fiscal ledger: the country’s tax system. Tax revenues rose briefly last year but are expected to fall back to historic norms this year, stabilizing about 18 percent of the economy, the budget bureau projects said. Mr McCarthy has cited last year’s figures to falsely claim that current tax revenues are near record highs.