The debt crisis is over, the Kevin McCarthy crisis has begun, and it’s not too early to regret that the deal that will keep the U.S. government out of default does not include a tax increase.
Let’s take these one at a time.
The debt crisis is over. President Joe Biden and House Speaker McCarthy cut a deal over the weekend that will preserve the full faith and credit of the United States (what’s left of it anyway; a downgrade may still be in the cards). Here’s the text going into the House Rules Committee. Here’s a New York Times summary of the text.
If there had to be some sort of compromise—put me down as a guy who believes there didn’t—this one isn’t too bad. Granted, everything in it is harmful and unnecessary, and to whatever extent congressional Republicans have a point that federal spending is out of control, the agreement avoids, at these Republicans’ insistence, the source of the problem. Middle-class entitlements and military spending together represent about half of all government spending, and the ransom the GOP demanded to keep the U.S. out of default did not require, or even permit, cuts to these programs. Spending cuts to the other half of the budget, though gratuitous, are relatively small, and there will be enough votes in Congress to enact them and remove debt ceiling brawls from the calendar until after the 2024 election.
The Kevin McCarthy crisis has begun. On Friday I demonstrated, by means of a game-theory model invented by Jean-Jacques Rousseau known as the stag hunt, that all outcomes from the debt ceiling negotiations spell doom for the House speaker. On Tuesday Representative Dan Bishop, Republican of North Carolina, said he’s going to call a vote of no confidence in McCarthy. “It has to be done,” he told Politico. Still, I perhaps should have made clearer last week that doom for the House speaker does not represent doom for a debt ceiling deal, or indeed doom for anybody except McCarthy himself. I see a lot of commentators conflating the two.
Even before I wrote this, I now observe, my friend Jackie Calmes, a columnist for the Los Angeles Times who’s forgotten more about the inner workings of Congress than I ever knew, equated McCarthy’s fate, erroneously, with America’s. “The handcuffs that House Republicans have put on the speaker,” she wrote on May 12, “will make it almost impossible for him to sign off on a compromise.” In fact, it wasn’t almost impossible, except insofar as Oscar Hammerstein II (in the context of a musicalized fairy tale) advised us in 1957 that “impossible things are happ’ning every day.” It was merely somewhat difficult.
McCarthy, Calmes noted, had assured his right flank that the debt ceiling floor he’d pushed through Congress was a floor, not a ceiling. Representative Ralph Norman, Republican of South Carolina, had McCarthy’s word on that! But if we’ve learned anything by now about McCarthy, it’s that he’ll promise anything to anyone, often in absurdly hyperbolic terms, to buy himself another 15 minutes of peace. He’s a liar, and not an especially competent one. McCarthy said the debt ceiling was a floor, yet he dealt almost all of it away. On Sunday McCarthy said that when he described the debt limit deal that he reached with Biden to the Republican conference, “over 95 percent were overwhelmingly excited by what they see.” Unless he meant excited in a bad way, that’s impossible to believe.
McCarthy also said, “This is a good strong bill that a majority of Republicans will vote for.” In fact, as I write this, it’s an open question whether McCarthy can pass the bill without violating the “Hastert rule,” which says you never pass a bill without support from a majority of your own caucus. Some people (including my boss, Michael Tomasky) suggest that McCarthy won’t bring the debt ceiling bill to the House floor unless he first secures “a majority of the majority,” because if he passes the bill without majority-Republican support, the Freedom Caucus will exact revenge by ejecting him from the speakership. I agree with the second part of that, but not the first. Yes, McCarthy is screwed; the Freedom Caucus is going to be very cross with him even if the debt ceiling hike squeaks by with a “majority of the majority.” Indeed, it’s cross with him already.
But McCarthy has no choice. He must bring the bill to the House floor because he’s run out of time. The “X-date” on the debt ceiling is June 5. McCarthy has given his imprimatur, very publicly, to the compromise, and if he now dithers and causes a default, everybody (including the Freedom Caucus) will blame him, and his speakership will be over. Since McCarthy is screwed no matter what he does, he has nothing to gain by chickening out.
The most exasperating version of the McCarthy-won’t-violate-the-Hastert-rule prediction is the assertion, on Page One of Tuesday’s Washington Post, that
McCarthy needs [italics mine] a “majority of the majority,” or at least half of the 222 Republicans in the House, even to bring the bill to the floor. He could lose up to 111 of his own party members but then would need up to 107 Democratic votes to pass the bill.
This merits a formal correction. McCarthy wants a majority of his caucus behind him, but he doesn’t need it to pass the debt ceiling bill. He can bring it to the floor without a “majority of the majority,” just as his predecessor, John Boehner, did in 2013 during a previous stupid debt ceiling fight between House Republicans and a Democratic president.
The Post makes the Hastert rule sound like some sort of parliamentary rule, which it is not. It merely describes the usual political preference of House speakers, especially Republican ones. Every House speaker but one since Hastert has violated the Hastert rule on multiple occasions. (The sole exception was Paul Ryan.) Hastert himself violated his rule 15 times. If McCarthy violates the Hastert rule, will the Freedom Caucus forgive and forget? Of course not. These guys never forgave Boehner, and by 2015 he was gone. Given McCarthy’s shakier grip on power, they’ll likely dispatch him before the year is out. But again: That’s McCarthy’s problem. It isn’t mine, it isn’t yours, and it won’t get in the way of passing the debt ceiling bill.
And finally: It’s not too early to regret that the deal doesn’t include a tax increase. Unlike during the last two big debt limit fights, in 2011 and 2013, Democrats never uttered the word “tax” out loud until negotiations were near an end. By then, it was too late.
At a May 10 appearance at SUNY Westchester Community College, Biden faulted Republicans for refusing to consider undoing $2 trillion in tax cuts enacted under President Donald Trump. These tax cuts are set to expire in 2025.
But that was a bluff. Although Biden said during the 2020 campaign, “I’m going to eliminate the Trump tax cuts,” after he became president he decided to eliminate Trump’s tax cut only for people earning in excess of $400,000 (to honor a different, very ill-advised, campaign promise). That whittled $2 trillion in savings down to about $500 billion, according to calculations by Jim Tankersley of The New York Times. So what Biden really meant at SUNY Westchester Community College was that Republicans refused to consider the $500 billion that Biden wants to save by canceling some of Trump’s tax cuts but holding harmless the supposed proletarians who earn hundreds of thousands a year short of $400,000.
Five days after the Westchester speech, The Washington Post’s Jeff Stein reported that the Biden White House, on the down low, had handed House Republicans a list of proposals to close various tax loopholes and that the Republicans had said no. The Biden proposals included a commonsense prohibition against investors claiming a tax loss on a cryptocurrency asset that is quickly repurchased—something already prohibited for other financial assets—and a separate prohibition against deferring taxes on property swaps, aligning real estate with an existing prohibition against deferring taxes on tax swaps. Together these loophole-closings would, Stein calculated, have raised $40 billion over 10 years.
On May 21 the Biden administration went public with these, which the White House said in a tweet would save not $40 billion but $43 billion over 10 years. It also proposed $31 billion in additional savings over 10 years through the elimination of tax subsidies for oil and gas, plus $200 billion in savings over 10 years from some sort of expansion of the provision in last year’s Inflation Reduction Act that imposed various cost controls on drugs purchased by Medicare. This last wasn’t a tax-loophole-closer, exactly, but it was a revenue-raiser. Total savings would have totaled $274 billion over the next decade.
To that $274 billion, the Biden administration proposed adding $2.6 trillion in various new taxes: a (25 percent) billionaire minimum tax; an increase (to 39.6 percent) in the top income-tax rate, which is currently 37 percent; a (higher) tax on stock buybacks; higher taxes on large corporations; and a global minimum tax. These are all plucked from Biden’s proposed budget for 2024. Taken together, the Biden tax proposals plus the Medicare drug-purchase proposal totaled nearly $3.5 trillion in budget savings over the next decade, and they wouldn’t have thrown anybody off food stamps. By contrast, the debt ceiling deal, which includes no tax increases, would, over the next decade, total only $860 billion in budget savings over 10 years, according to an analysis by The New York Times, and it will take on average about $8 a day away from people aged 50–54 who are on food stamps, according to the nonprofit Center on Budget and Policy Priorities.
In summary: Biden weighed in near the end of the debt limit negotiations with $3.5 trillion in savings, as against the $4.8 trillion required under McCarthy’s debt limit bill, and more than four times as much in savings as in the final deal. But because these savings were through tax increases, McCarthy refused to consider them. Indeed, after the White House tweet, McCarthy hit the roof and accused Biden of reneging on an agreement to take tax hikes off the table. That Biden ever agreed to such a condition strikes me as unlikely in the extreme. It was McCarthy who had agreed (with his own Republican caucus) not to propose any tax increases.
The failure to include any tax increases in the debt ceiling package is a missed opportunity. You aren’t supposed to say so in polite company, but Americans are undertaxed. On average, Americans pay about 28 percent of their income in taxes (federal, state, and local), and the distribution is less equitable than it used to be. (I’m indebted to Berkeley economist Gabriel Zucman, who furnished these statistics in a 2021 testimony before Congress.) The bottom half in the income distribution pays about 25 percent; the haute bourgeoisie (on whom Biden refuses to raise taxes) pays 28 percent; and the superrich pay about 25 percent. That isn’t much of a spread. It’s much worse with corporations; the federal corporate income tax started falling in the 1950s, and now it’s lower than it has been in nearly a century.
Republicans aren’t wrong that the federal government has a solvency problem. But they refuse to address it by raising taxes, even as taxes become less progressive and fall below historic levels. Thank goodness we can borrow our way out of the problem by selling Treasuries—at least until congressional Republicans take that off the table, perhaps in 2025, and force a default on U.S. debt. By then, the name “Kevin McCarthy” will be the answer to a trivia question.