Austerity and prosperity may rhyme, but that doesn’t mean they’re in sync. And rather than having some kind of symbiotic relationship, they typically don’t get along. Yet for much of this decade, we’ve heard this incessant drumbeat to “balance the budget” while many Americans were having a hard time balancing their families’ needs. And when “fiscal hawks” finally had their chance to “rein in runaway spending” two years ago, they instead opted to loosen the very budget restrictions they passed six years prior.
So how did we get here, why might we get a two-year reprieve from this, and can this happen again? Buckle up, because we’re in for a bumpy ride of a fiscal history lesson.
What on earth is the debt ceiling, and why the hell should we care about it?
Shortly after Republicans won control of the U.S. House and whittled down Democrats’ U.S. Senate majority in 2011, they decided to wield their power in a way that was meant to diminish then President Barack Obama’s. It was the year of “peak birtherism” (when future President Donald Trump falsely claimed Obama wasn’t a “natural-born citizen”), and it was the year of debt ceiling insanity.
In short, the debt ceiling was created by statute in 1917 to streamline the process by which the U.S. Treasury could borrow money to pay the nation’s bills (at the time, the U.S. was entering World War I) without forcing Congress to abdicate all fiscal authority to the White House. However two key policy decisions, President Richard Nixon’s move to end the convertibility of the U.S. Dollar to gold (or “the gold standard” as previously practiced) and President Ronald Reagan’s push to slash corporate and personal tax rates, gradually transformed the debt ceiling from fiscal guardrails into the ultimate political football. Congressional Republicans first attempted to force their agenda upon President Bill Clinton by shutting down the federal government and threatening debt default in 1995. While Clinton technically “won” that fight in that the Republicans’ budget gambit failed, he also worked with them to limit government spending and tie the nation’s fortunes more closely to Wall Street’s.
Yet for all Clinton’s success in turning fiscal frowns upside down, President George W. Bush’s combination of two wars abroad (Afghanistan and Iraq) and massive tax cuts at home brought back the big deficits. And yet, it wasn’t until President Barack Obama took office in 2009, shepherded a modest fiscal stimulus package through Congress to provide relief from the Great Recession, and secured passage of the 2010 Affordable Care Act (or Obamacare) did Republicans suddenly care about “fiscal responsibility” again. And to prove how much they cared, Congressional Republicans threatened to subject the entire world to a “double-dip” recession and a financial panic not seen since 1929.
From ceiling to cliff, a crash course on how the sequester was born
Here, we return to 2011: Once again, Republicans took the debt ceiling hostage and demanded budget cuts in exchange for not blowing up the economy. But unlike Bill Clinton’s refusal to engage in debt ceiling hostage negotiations, Obama saw it as an opportunity to pursue a “grand bargain” with then House Speaker John Boehner (R-Ohio) that involved cuts to social safety net programs like Social Security and Medicare in exchange for higher tax rates on the wealthy and larger corporations. From the start, the furthest right of House Republicans balked over the potential for higher taxes on anyone and the lack of broader across-the-board budget cuts. At the same time, progressive Democrats in Congress balked over the potential for cutting the nation’s social safety net just months after they successfully expanded the social safety net with Obamacare.
So instead the divided Congress crashed and careened its way into the 2011 Budget Control Act, in which the Bush Tax Cuts of 2001 and 2003 expire, Social Security, Medicare, and Medicaid are largely shielded from budget cuts, but most other military and civilian budget accounts are subject to automatic cuts through 2021 that have since been called “the sequester” and/or “sequestration”. Congress was supposed to agree to some kind of budget and tax deal to avoid sequestration. But when Obama won reelection in November 2012, House Republicans resorted to brinkmanship again in hopes of scoring a better deal (which for them meant lower taxes, no military budget cuts, and more civilian budget cuts). Ultimately, the “fiscal cliff” seemed to have been avoided with a last-minute deal to only allow the Bush Tax Cuts to continue for individuals with incomes under $400,000 (or $450,000 for married couples) in exchange for a two-month delay in sequestration and a few other tax tweaks.
But on March 1, 2013, sequestration officially began with an even 50/50 split in military cuts and civilian budget cuts affecting everything from housing aid to medical research and environmental stewardship. And on October 1 of that year, the nation suffered another manufactured crisis of a government shutdown and debt ceiling brinkmanship that “fiscal hawks” used to pedal more austerity. Though Congress finally voted to raise the debt ceiling and reopen government 16 days later, Congress also allowed sequestration to continue.
Make Republicans Spend Again
When President Donald Trump took office in 2017, some on the right hoped a “unified Republican government” would lead to a new era of “fiscal responsibility” featuring lean budgets and vanishing deficits. That never happened. Instead, Trump pushed for passage of his own 2017 Tax Plan that adds some $1.9 trillion to the national debt through 2028 while having little to no effect on income for all but the wealthiest of Americans. Yet at the same time, Trump has presided over two government shutdowns, growing budget deficits, and continuing resolutions to reopen government and/or avert additional shutdowns that have quietly been easing off sequestration’s hard budget caps.
When we keep all this in mind, particularly the economic growth that was lost under austerity and Republicans’ gradual rejection of further austerity under Trump, and yesterday’s big announcement of a House Speaker Nancy Pelosi’s (D-California) agreement with Treasury Secretary Steven Mnuchin to lift the debt ceiling for the next two years while boosting federal investment by $320 billion (with slightly more of it going to civilian programs than military accounts) over sequestration-mandated caps appears to be less of a phenomenal breakthrough and more of a subtle admission that the austerity programs recommended by the “very serious people” failed miserably.
Of course, there are caveats: Trump is still threatening cuts to social safety net programs like SNAP (through a rules change) and Medicaid (through his lawsuit against Obamacare), the debt ceiling may yet reemerge to stymie yet another Democratic president in 2021, and the emerging Pelosi-Mnuchin Deal allows “wiggle room” for Trump to override Congress, whether for another attempt at his long-threatened border wall or for other purposes he can’t achieve through legal means. As we’ve already been seeing with Congress giving Trump funds for “humanitarian aid” that Trump uses for anything but, Congress can’t realistically expect anyone in this White House to tell them the truth or honor any promises made.
But in the meantime, Pelosi and other Democratic leaders will probably whip enough votes to pass this deal because it at least provides relief from the harsh grip of austerity. It remains to be seen if anyone in Carson City is paying attention to this (and more importantly, learning the right lessons), and it remains to be seen if all the Democrats running to repeal and replace Trump truly understand what’s coming their way if one of them succeeds.