Cozen Currents: A Critical Review of DC’s Debt Ceiling Drama

“The debt ceiling battle has evolved into DC’s version of a Shakespearean play – it is a tale of sound and fury, signifying very little in the end.”
— Howard Schweitzer, CEO, Cozen O’Connor Public Strategies

The Cozen Lens

After a dramatic few months, the latest debt ceiling saga underscores how leadership on both sides of the aisle can navigate the partisan divide notwithstanding the high level of polarization that has become endemic in the nation’s capital.

The Debt Ceiling Deal, Finally

The Art of the Deal. President Biden and House Speaker Kevin McCarthy (R-CA) found enough common ground to reach a deal on raising the debt ceiling. The legislation, the Fiscal Responsibility Act (FRA), is a classic example of two sides seemingly far apart being creative in finding middle ground.

• The die was cast on a negotiated outcome. Both sides weren’t entertaining a default, despite the public posturing. When McCarthy proved he can pass debt ceiling legislation on his own and Biden dismissed the possibility of taking unilateral action, the two sides negotiating was the only way out.
• Biden and McCarthy were able to set their own narratives. Biden said the FRA was able to prevent draconian cuts the Republicans were pushing in the Limit, Save, Grow Act. McCarthy said the FRA was a conservative win for fiscal responsibility.
• The deal involved plenty of budget gimmicks. Republicans claim the FRA sets non-defense spending at FY22 levels for FY24. However, Democrats claim they can use unspent Covid-19 aid and repurposed IRS funds to keep that spending at FY23 levels.

The Art of Passing the Deal. With the FRA released, leadership on both sides are pressing the case to the rank-and-file that this is a deal worth supporting and that the alternative is unbearable. The debt ceiling needs to be raised by the X-date on June 5th.

• The far-right and far-left won’t support the FRA, but leadership from both parties are using their opposition as a reason for most rank-and-file members to support it. There’s no more powerful motivator for Democrats to support legislation than the opposition of House Freedom Caucus members. There’s no more powerful motivator for Republicans to support legislation than the opposition of the progressive Squad.
• Leadership doesn’t want another “TARP moment” as occurred in the midst of the 2008 financial crisis where a significant market sell-off is needed to spur legislative action. McCarthy involved the entire Republican caucus in the House bill so they would have at least some skin in the game for supporting a final deal. Most Democrats know there isn’t a better negotiated deal out there that doesn’t risk economic calamity from a default.
• Despite political polarization, there’s a strong middle to not do stupid stuff. Moderate Democrats are endorsing the FRA and mainstream conservatives are congratulating McCarthy and his negotiators. The extremes are making noise but have failed to mobilize in a way that makes either Biden or McCarthy feel their job security is at risk.

What’s the Deal with the Deal. The debt ceiling dramatics are a uniquely American institution. It doesn’t appear to be ending anytime soon.

• The debt ceiling is more about politics than policy. The FRA will only have modest cuts to spending over the long term. Republicans are already looking towards tax cuts that could more than offset the spending cuts. This was more about cutting Democratic spending priorities than taking a serious look at reducing the government’s growing debt.
• This deal helps grease the wheels for future deals. In tackling thorny issues on spending levels and work requirements, some of the heavy lifting is already done for other big negotiations later this year, like defense authorization, the farm bill, and FY24 appropriations.
• This deal doesn’t matter to voters. Most Americans don’t understand what the debt ceiling is. It’s very unlikely this will be an issue for the 2024 election.
• This deal only raises the stakes for the 2024 election though. The FRA suspends the debt ceiling in 2025, coinciding with the end of individual and business provisions in the Tax Cuts and Jobs Act and enhanced Affordable Care Act tax credits. Which party controls the White House and Congress will have major policy implications.

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