Reaching a debt ceiling deal to avoid default is no longer an issue. President Biden has urged Congress to pass a deal to raise the government’s borrowing limit and prevent a potential default on US debt repayments. We now know that no matter what, the U.S. government is not going to default on its obligations. Nevertheless, this deal was made with a lot of political concessions. Who conceded the most between Republicans and Democrats? One sure thing is that whoever will benefit the most from this agreement is not going to be ordinary Americans. They are the ones who will have to repay those government debts.
In the deal reached on Sunday, they have not raised the limit to a certain level but suspended it entirely until 2025. This allows them to pay their bills until that date and know that the next fight over raising the ceiling will not interfere with the presidential election.
Republicans wanted a freeze on overall spending for ten years, with a rise in defense spending and cuts to other budgets. The agreement keeps non-defense spending flat next year, with a 1% raise in 2025. Thus, defense spending would increase to $886 billion, which amounts to a 3% raise on this year. Republicans wanted to toughen up the distribution of welfare benefits by attaching strings that would mean able-bodied recipients having to work to get food and healthcare help. Democrats categorically refused this demand. In addition to keeping all welfare benefits constant, Democrats request that the deal would fully fund Medicare for veterans who have been exposed to toxic substances to environmental hazards. Biden sought $20.3 billion for the toxic exposure fund in his budget, and Republican negotiators that funding was left untouched.
As part of the deal, Democrats requested $80 billion for a decade to help the Internal Revenue Service (IRS) to enforce the tax code in last year’s Inflation Reduction Act on the wealthiest Americans. Republicans, on the other hand, wanted to dump the $80 billion in IRS, claiming it would be used to hire an army of agents to audit Americans—the agency said it would also be used to modernize the system.
Who then wins from these negotiations? The Democrats definitely will accumulate more political gains from this deal than the Republicans. Maintaining welfare benefits as they are an important factor in the Democrats’ victory. This is an important political victory for Democrats because it will consolidate their positions with independents who favor more government intervention, and it will reinforce the trust and loyalty that welfare recipients already have for the Democratic Party.
One of the central priorities of the Democratic Party is to keep increasing the number of recipients of welfare benefits. Welfare recipients usually vote Democrat. The larger the welfare-recipient base, the larger becomes the Democrat electorate. Moreover, the resentment that people have garnered against the rich and capitalism over the last year is another political boon for Democrats because President Biden can now use this as political leverage to use the IRS to implement new confiscatory policies. Welfare maintains ordinary people financially dependent on government, and increasing the IRS budget to enforce new confiscatory measures toward the rich will disincentivize those who have the means of production to actually create new wealth for society. This debt ceiling agreement is going to strengthen Biden's position as the frontrunner within the Democratic camp, and it could potentially put him on the path to reelection as more people want more government to interfere in economic and social affairs.
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