Debt Limit Negotiators Debate Spending Caps to Break Standoff

As negotiators for the White House and House Republican leaders struggle to reach a deal over how to raise the nation’s debt limit, a solution that harks back to old budget fights has re-emerged as a potential path forward: spending caps.

Putting limits on future spending in exchange for raising the $31.4 trillion borrowing cap could be the key to clinching an agreement that would allow Republicans to claim that they secured major concessions from Democrats. It could also allow President Biden to argue that his administration is being fiscally responsible while not caving to Republican demands to roll back any of his primary legislative achievements.

The Biden administration and House Republican leaders have agreed in broad terms to some sort of cap on discretionary federal spending for at least the next two years. But they are hung up on the details of those caps, including how much to spend on discretionary programs in the 2024 fiscal year and beyond, and how to divide that spending among the government’s many financial obligations, including the military, veterans affairs, education, health and agriculture.

What could a spending cap deal look like?

The latest White House offer would hold military and other spending — which includes education, scientific research and environmental protection — constant from the current 2023 fiscal year to next fiscal year, according to a person familiar with both sides’ proposals. That move would not reduce what is known as nominal spending, which simply means the level of spending before adjusting for inflation. Republicans are pushing to cut nominal spending in the first year.

One reason the White House is willing to entertain holding spending essentially flat has to do with politics. Given that Republicans control the House, getting an increase in funding for discretionary programs outside the military would have been nearly impossible. Congress would not have approved increases through the appropriations process, the normal way in which Congress allocates money to government programs and agencies.

Republicans have repeatedly said that they will not accept a deal unless it results in the government spending less money than it did in the last fiscal year. They have said that simply freezing spending at current levels, as the White House has proposed, does not enact the kind of meaningful cuts many in their party have long called for.

But Republican negotiators have shown some flexibility around how long they would require those spending caps to last. House G.O.P. leaders are now looking to set spending caps for six years, rather than 10. Still, that is longer than the White House is proposing, with Democrats offering to cap spending for two years.

“The numbers are foundational here,” Representative Garret Graves, Republican of Louisiana and one of Speaker Kevin McCarthy’s lead negotiators, said on Sunday. “The speaker has been very clear: A red line is spending less money and unless and until we’re there, the rest of it is really irrelevant.”

The approach is evoking debt limit déjà vu.

If spending caps sound familiar, that is because they were employed during the last big debt limit fight in 2011.

During that episode of brinkmanship, lawmakers agreed to impose limits on both military and nonmilitary spending from 2012 to 2021. The Budget Control Act caps were somewhat successful at keeping spending in check, but not entirely.

A Congressional Research Service report published this year noted that during the decade that the caps were in place, Congress and the president repeatedly enacted laws that increased the spending limits. Certain types of expenditures — for emergencies and military engagements — were exempt from the caps and the federal government spent $2 trillion over 10 years on those programs. And spending on so-called mandatory programs such as Social Security was not capped, and those make up about 70 percent of total government spending.

Still, the Congressional Research Service pointed out that spending was lower each year from 2012 to 2019 than had been projected before the caps were put in place.

The strategy is no fiscal panacea.

Caps that limit spending around current levels will help slow the growth of the nation’s debt, but will not cure the government’s reliance on borrowed money.

The Congressional Budget Office said this month that annual deficits — the gap between what America spends and what it earns — are projected to nearly double over the next decade, totaling more than $20 trillion through 2033. That deficit will force the United States to continue to rely heavily on borrowed funds.

Marc Goldwein, the senior policy director for the Committee for a Responsible Federal Budget, estimated that it would require $8 trillion of savings over 10 years to hold the national debt to its current levels. However, he said that did not mean that enacting spending caps would not be worthwhile.

“We’re not going to fix this all at once,” Mr. Goldwein said. “So we should do as much as we can, as often as we can.”

The group has called for spending caps to be accompanied by spending cuts or tax increases as a plan to reduce the national debt.

Spending caps are not the only issue.

Finding an agreement on the extent and duration of spending caps will be a critical part of getting a deal.

But negotiators are still working to resolve several other issues, including whether to put in place tougher work requirements for social safety net programs including food stamps, Temporary Assistance for Needy Families and Medicaid, and whether to expedite permitting rules for energy projects, two key Republican priorities that White House negotiators have shown some openness to.

Jim Tankersley contributed reporting.

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