X-DATE: A Spending Cap in Name Only

Today was supposed to be the actual X-date, upon which the federal government would run out of money. Instead, Congress passed and the president signed the Fiscal Responsibility Act (FRA), suspending the debt ceiling for two years. So we’re using today to round out our series on this absurd few weeks in American politics. We hope to never again have to create a pop-up newsletter to cover the threat of a catastrophic deliberate default on the nation’s debt, but since this deal did nothing to extinguish that possibility, we will save the X-Date logo for 2025.

We have discussed in detail what the FRA will mean for public policy, from more paperwork for poor people seeking federal benefits, to a Pipeline Payoff that renders a future permitting reform deal more difficult, to the ways in which Congress reasserted its role in checking the judiciary. But since the centerpiece of this deal is a spending cap, we’ll close X-Date by explaining how it is not likely to be a cap at all.

I have said previously that the Congressional Budget Office claim that this bill will cut $1.5 trillion in federal spending is unreliable. That’s not the budget office’s fault; there are side deals that both sides claim to be part of the agreement that CBO didn’t score because they aren’t in the law’s text. Those side deals will take rescinded COVID aid and IRS funding and plow it into the nondefense discretionary side of the budget, so it just about gets to the level of fiscal year 2023. Since that would create a new baseline about $40 billion higher for fiscal year 2024, it changes all of CBO’s assumptions on spending in the subsequent years.

Plus, after FY2025, the caps are lifted, and while CBO just assumes spending will then rise at the rate of inflation, it will be the 2024 election that determines the trajectory. (That election is shaping up to be monumental in terms of fiscal policy: The spending caps, the Trump tax cuts, including the changes to the Child Tax Credit, the boosted subsidies for the Affordable Care Act, and this debt ceiling suspension all expire after the election, in 2025.) The best read on the actual cuts from this agreement is about $136 billion, with everything else a wild card.

But that’s only if the 12 annual spending bills pass Congress. If they don’t, an automatic continuing resolution will impose a new discretionary spending cap, with a 1 percent cut to FY2023 levels. This mostly slams the defense side of the budget (which is actually scheduled for a 3 percent increase under the deal) with what amounts to close to a 10 percent cut in real terms. The auto-CR is intended to enforce the side deals, although some House Democrats think Republicans will be all too happy to automate further budget cuts.

As I’ve written, if you believe the Pentagon gets too much money, and the IRS too little, the auto-CR is perhaps your friend, since in addition to slashing military spending it would preserve most IRS funding from being rescinded. But it would also extinguish some side deals that designate $23 billion in domestic spending as "emergency," outside the caps, and cut domestic budgets even beyond that by a bit. I also tend to think that there will be enormous lobbyist pressure to pass the spending bills and eradicate the existential threat of the military having to get by with a paltry eight hundred and forty-nine billion dollars in one year. (What, are we supposed to get by with a mere ten aircraft carriers, like some kind of peasant country?)

In fact, the loudest voices on Capitol Hill are saying that even the boosted Pentagon budget, up to eight hundred and eighty-six billion dollars in this deal, is entirely too low. And they’ve already figured out a way around it.

One of the reasons for the unusually lightning-fast Senate passage of the deal, outside of making sure nobody’s summer Friday was trifled with, was that Senate defense hawks demanded and got what amounts to a commitment for votes on a supplemental spending bill later in the year that adds military spending. That means going above the $886 billion cap, maybe well above it.

This will be sold as part of an urgent request to funnel more money to Ukraine’s war against Russia. But the defense hawks are being quite open about how they will attach funding that has nothing to do with Ukraine to that. "There will be a day before too long where we’ll have to deal with the Ukrainian situation. And that will create an opportunity for me and others to fill in the deficiencies that exist from this budget deal," Sen. Lindsey Graham (R-SC) said bluntly to reporters on Thursday.

Senate Majority Leader Chuck Schumer read a statement on the Senate floor Thursday night intended to "reassure our friends across the world about the Senate’s commitment and ability to respond to emerging threats and needs." Schumer said that "the debt ceiling deal does nothing to limit the Senate’s ability to appropriate emergency supplemental funds to ensure our military capabilities are sufficient to deter China, Russia and our other adversaries and respond to ongoing and growing national security threats."

That was the condition for speedy passage of the Fiscal Responsibility Act. The language was negotiated between the parties in the Senate. It connects the supplemental funds to "military capabilities," not just overseas assistance to Ukraine. Everyone understands what’s about to happen here; the military "caps" are a joke.

At the end of the statement, Schumer said, "Nor does this debt ceiling limit the Senate’s ability to appropriate emergency supplemental funds to respond to various national issues, such as disaster relief, combating the fentanyl crisis or other issues of national importance." That was a Democratic insertion, and a potential opportunity. We’ve seen supplemental deals struck before that pair military and non-military spending, so each side gets something. A Ukraine supplemental could be the vehicle for that.

Many House MAGA types have been rallying against another Ukraine supplemental, but we’ve seen in this debt ceiling deal that they do not have unilateral influence over their caucus. There will be an enormous amount of demagoguery over that supplemental; the extra Pentagon funding smuggled through in the name of Ukraine won’t be discussed. Whether enough Democratic votes are needed to create parity in the deal, with some more funding for domestic priorities, remains to be seen.

Still, there is another opportunity here. Democrats could demand domestic priorities in the supplemental by threatening to deny votes on other spending bills. Once again, if the spending bills fail, military spending would suffer a much bigger cut. Of course, that may be too dangerous a game for many defense-hawk Democrats.

At any rate, what becomes clear is that the spending cap is a comforting fiction, intended for some budgets but not others, especially not the ones that give military contractors the purchasing power for luxury yachts and vacation homes. Which makes one wonder what the point of any of this was.

Republicans spoke about changing the fiscal trajectory, but it’s unlikely to change very much, and in some cases not at all. The deal only affects a fraction of federal spending, and Congress is already devising ways to shoot off the shackles they just clamped on themselves. Meanwhile, the collateral damage of this make-believe belt-tightening is that a handful of interests—older poor people trying to keep eligibility for food assistance, tiny domestic policy agencies forced to do more with less, student borrowers shoved back onto the debt treadmill—will get randomly punched for no good reason.

In the metaphor of Washington as a spoiled child, the debt ceiling was just a tantrum, a haphazard bout of anger, a meaningless cry for attention. But the child will remain spoiled, its playroom stuffed with toy weapons and G.I. Joe figures, no matter how much they cost. It’s good to be the baby.