It was critical to reach an agreement, and it's very good news for the American people. No one got everything they wanted, but the American people got what they needed. We averted an economic crisis, an economic collapse. We're cutting spending and bringing the deficits down at the same time.
It's the big take. I'm Nancy cook in for West Kosova today. The debt crisis was narrowly averted. But is compromise still a dirty word in Washington?
Yeahs are three fourteen and now he's are one seventeen.
The bill has passed.
Everyone in America.
I will never give up on you.
It wasn't an easy fight. I had people on both sides upset, but I was focused on you.
I am pleased, so pleased to announce that both sides have just locked in an agreement that enables the Senate to pass legislation tonight, avoiding default.
We've told the days of bipartisans were over and the Democrats and republic Who can no longer work together. But I refuse to believe that, because America can never give into that way of thinking.
The month's long fight of eraising the debt ceiling is finally over. That means the threat of the US defaulting on its debts and the resulting economic crisis is off the table at least for the next two years. Now, both parties are going to try to take credit for.
The deal they avoided disaster. You usually don't get rewarded for avoiding disaster.
I don't think because Joe Biden and Kevin McCarthy had this Kumbaya moment that all of a sudden, you're going to see this come to Jesus moment in the twenty twenty four campaign.
Congressional reporter Stephen Dennis and White House reporter Jordan Fabian are here. They're going to tell us what the final agreement says and the impact it'll have. Stephen, So, the House in the Senate voted on a deal to raise the debt ceiling. Let's start with a quick refresher. What actually is the debt ceiling and why have we started hearing so much about it in recent years?
Yeah, I mean, the dead ceiling started in nineteen seventeen, and it was actually a way to make it easier to borrow money. Before then, Congress had to pass a build for every bond issue every time they wanted to raise money to have a war, they would have to get together and pass a single you know, have another vote now. Over time, starting in nineteen fifty three, it started to become a weapon on Capitol Hill. You started to have these big fights over things like building the
National Highway System, et cetera. And then twenty eleven was really the biggest fight, you know, certainly in the past twenty five years, where the new House for publican majority. Back then, during Obama's era, they were intent to enforcing big spending cuts and they got them.
And I want to announce that the leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default, a default that would have had a devastating effect on our economy.
You know, they held the dead limit hostage, and Barack Obama decided to agree to two trillion dollars in spending cuts over a decade in return for a couple trillion in debt limit increases. And you know, the Republicans looked at that and said, hey, pretty good model for the future. Let's do that again. And that's what this year was
all about. And they weren't quiet about this. You know, we started writing about this and reporting it before the election, Kevin McCarthy said, I'm going to do this, and the Democrats were unable to take it off the table. They actually had the power. If all the Democrats had voted last year, they could have done this on their own.
They didn't do that, so you were left with this hostage situation that you could see like a slow moving freight train, you know, really months and months ago, if not years ago.
So that's a good point to I think, actually dive into the deal. Jordan, Can you tell me a little bit about what's actually in there.
So the headline is that they're suspending the debt ceiling until January first, twenty twenty five, in exchange for mandatory spending caps on both defense and domestic spending into twenty twenty five, so for the next two fiscal years there'll be limits on that spending. There are some other provisions like new work requirements for certain older people who have food stamp benefits and other public benefits, and there's some easing of energy projects for permitting. So those are kind
of the broad outlines of this agreement. It's interesting because the top line number this reduce spending of one point five to two trillion dollars over a decade. This deal, I think Biden really got the best of them on the length of the spending caps and the severity of them. There were some automatic spending cuts across the board that were triggered under the deal that President Obama had with
Republicans ten years ago. These spending caps are only for the next two years, so if President Biden wins reelection, he will be able to budget relatively unconstrained, of of course depending on the makeup of Congress, but facing less spending constraints than President Obama did, and that would in theory help him accomplish more on his domestic agenda in the second term.
And Steve what ended up not being in the deal.
Yeah, I mean, if you look at the original House bill had almost five trillion dollars in real deficit cuts. It would have canceled the student loan relief that's before the Supreme Court. It would have undone most of the climate tax credits, things like ev tax credits that are pretty big deal right now because you're seeing battery factories all over being built right now. It would have rolled back a lot of his agenda for the past two years. It also would have had much deeper spending cuts a
ford and with ten years of enforceable caps. You know, if you have ten years of enforceable caps, that banks leverage not just for the next year or the next two years, but year three, year four, year five. And so that's where the White House really you know, if you dig into the details of the deal. But Kevin McCarthy really wanted and you know, he had to claim a win. He was a news speaker with a very tenuous majority, with a right flank that is sort of out for his scavel, and he needed to get a.
Win now on record.
So they can't sit there and yell, this isn't good.
So I'll bring something back tomorrow.
Let's get the rest of the iras sag, Let's get the rest of the work with let's cut more because we are in a big debt.
This is fabulous.
This is one of the best nights I've ever been here.
I thought it would be hard.
I thought it'd be almost impossible just to get to two eighteen. Now I found there's a whole new day here.
So I think from the perspective, if you're like a typical American and you're wondering, how is this going to affect me? There really isn't a whole lot in here that you can guarantee is going to affect you. This is about an outline for future spending fights. It's a top line number that the appropriators are going to have to fill in between the lines. So it says, you know, we're going to have six hundred and thirty seven billion in domestic discretionary funding after all of the gimmicks are
added back in. That means it's roughly flat, but roughly flat for the entire domestic agenda. You know, how much is going to go to the Department of Justice. We won't know until September or December. How much is going to go four meals on wheels, you know, all these government programs, the entire alphabet soup of agencies. Their lobbyists are going to be on Capitol Hill trying to plus
up that spending. And there is a provision in here that is very interesting and new, and that is if they do not have a deal by January first, and they have something called a continuing resolution, which is just sort of a stop gap to keep the government open and not have a shutdown that if they do that, there would be an additional across the board one percent cut. But this is something that really potentially brings the two parties together because they each have priorities they want in
these bills. You have to pass all twelve bills to avoid this cut. And the thing about this cut is it really hurts Republicans more than Democrats. It really cuts defense by about four and a half percent from the caps that they agreed to, and it actually doesn't really cut non defense discretionary. So all the pressure is on the Republicans to cut a deal before the end of the year or else their priorities get cut. That's the way to look at it.
So just so I'm clear, it doesn't actually cut spending from where it is today, Is that right, Jordan? It just means that they won't spend as much in the future.
Yeah, it really holds spending levels at current levels rather than forces a cut.
I mean, I think there's there's sort of like a raw twelve billion dollar cut, but that's really undermined by a lot of side deals that include things like rescinding COVID money and rescinding some of the IRS money in the future. To pay for money now. So on the top line, you can say it's a cut, but I think everybody should have very, very healthy dotha skepticism that any of these caps are going to hold even to the end of the year.
Yeah, And like ste mentioned, the White House is indicated they're going to do some budget gimmicks to essentially keep the spending level steady. And what we also saw in the Senate was a lot of defense hawks very upset about the level of defense spending that was including this deal, And there were assurances made that don't worry. If we need more spending for Ukraine or let's say we get into you know, God forbid a conflict with China or something like that where we would need to plus up
defense spending, that vote will happen. And so that cap, at least on the defense side was kind of thrown under an eighteen wheeler last night.
And it wasn't even defense. I mean, I spoke to Majority Leader Chuck Schumer, and it's clear to me that this cap steal is irrelevant in the Senate. The Senate does not really plan to stick by these caps. They're already talking about doing a big supplemental spending package to include potentially Ukraine navy ships, dealing with China competition, China
competition bill, fentanyl, and any other national priority. Now, when Chuck Schimmer said that on the Senate floor that they stand ready to process any supplemental request, that was basically a green light that the Senate is prepared to spend all kinds of money way above these caps. These caps are only going to be as relevant as the House majority and Kevin McCarthy want them to be. As far as the House, it's not clear to me that there's really a huge desire to keep to these caps. Either.
They have their defense hawks who want to spend more money. They have folks who want to spend more money on some domestic issues as well. I'm not sure they're going to actually be able to pass a lot of their bills keeping to these spending levels without a lot more gimmicks.
Jordan, I'm curious what was the most contentious part of the deal. Maybe we could just say for both Republicans and Demo crats.
For Democrats and Joe Biden, it was negotiating over the debt limit period. This is something that Joe Biden repeatedly insisted he didn't want to do.
Well, you meet with McCarthy gard, but not on whether or not the death said that's not negotiable.
In fact, the White House continues to insist that they did not negotiate over the debt limit, despite all indications to the contrary. But as we discussed earlier, Joe Biden Democrats were very wary of setting this precedent where under a Republican majorities in Congress, the debt limit gets held hostage and used his leverage to extract policy demands and I don't even want to say spending cuts, but policy demands of the Republican majority. They wanted to do away
with that. The reality is that Joe Biden was forced to sit down and negotiate over the debt limit. And Kevin McCarthy showed that despite his rest of caucus that for fifteen ballots before he became speaker, he was able to marshal enough support the two third support of his conference to get behind a bipartisan deal with the Democratic president. Now, for Republicans, one might say that they did not accomplish nearly as much as they wanted to in this hostage situation.
They got, as we've talked about very soft spending caps. Really, if the goal was deficit reduction, it's not going to reduce the deficit by much at all. The bottom line is that if you look at the bill that Reps Republicans initially passed, much deeper spending cuts, much bigger changes to the titlement programs, repealing Joe Biden's first term agenda,
they did not get nearly any of that. And that's why you saw a lot of House Conservatives very upset, and also some center Republicans very upset to the extent that a lot of them, the majority of cenerate Republicans, did not vote for this agreement. They don't think that Kevin McCarthy got enough in exchange for raising the debt limit,
essentially ticking this issue beyond the presidential election. They will not have another bite at the apple here before a president Biden goes back to voters and asks for a second term.
And one thing that I think is important to sort of put in perspective when you hear the numbers one and a half trillion or two trillion over ten years. Before this deal, we were on track to spend eighty trillion and have sixty trillion in revenue and a twenty trillion dollar deficit. So our debt is on track to go up twenty trillion before the deal. After the deal, if you believe they'll stick to the spending caps, and I think there are very few senators at least that
think they will actually stick to these spending caps. You are going to spend seventy eight and a half trillion according to CBO. So does that change the trajectory of the national finances a little bit? But if you just look at the two years, the final two years of Biden's presidency, the spending cuts are about two hundred billion dollars,
not counting all the gimmicks. I think they're going to be very lucky to get through the next two years without spending two hundred billion dollars on other things like disasters in Ukraine and all the rest.
After the break what the deal says about the state of getting things done in Washington. So Jordan, President Biden said at the start of this that he would not negotiate on the debt ceiling, but he wound up doing that. What made him change his mind.
The prospect of a recession triggered by a first ever default on the US debt was too big of a risk for Joe Biden to take in sitting out a negotiation and essentially leaving it to chance. He felt that he needed to get a deal done and take the possibility of a default off the table. He did not want number one, a recession to hit the US economy right now, and number two, especially at a time when
he's looking to ramp up his reelection campaign. If history shows presidents running for reelection during times of recession usually lose, and so he did not want an additional variable inserted into that race. He's already facing a lot of tough questions about his age and his fitness for office, and also how whether his record is breaking through to the American people that there's just a very sour mood in the country right now. He did not need a recession
on top of that. So ultimately, the political calculus pointed to Biden eventually sitting down with Republicans and hammering out a deal.
Now, Jordan, what a progressive think about this deal? Because it claws back some money for IRS funding, it imposes some work requirements for adults to get food stamps. I can't imagine that progressives are really jazzed about that.
They're not Nancy upset about all the provisions you just listed. And while President Biden did well in attracting majorities of Democrats in both the House and the Senate to vote for this deal, a lot of them did so reluctantly. And one thing to look out for as Joe Biden ramps up his re election campaign here is how enthusiastic support will he be receiving from those progressives and from voters of color and other people who might not like
what's in this deal. I will say there was not a full on revolt against this deal, as indicated by the vote count. Joe Biden did sort of swat off some of the more extreme things Republicans wanted, scrapping a lot of environmental protections for energy permitting, also repealing his Inflation Reduction Act the climate and health provisions of that bill. But he's already facing an enthusiasm deficit with a lot of the voters who helped elect him to office in
twenty twenty. He needs those people to be motivated to vote for him again in twenty twenty four.
Right, I mean they got a deal. They averted defaulting which is a good thing. But Stephen, did either side really get a lot of political capital out of this deal? Out of this compromise?
Yeah, I think it's you know, it's a mixed picture. I think the Republican Party is a little bit divided right now, particularly in the House, over wishing they had gotten a better deal.
Not one Republican should vote for this deal. It is a bad deal. No one sent us here to borrow an additional four trillion dollars to get absolutely nothing in return.
You know, there are some House members talking about trying to oust the speaker. They do not have the votes who elect a new speaker, So you know, usually when you're trying to oust somebody, there's a reason why there hasn't been a roll call vote on ousing a speaker since nineteen ten, and in that vote failed. You know, it's hard to go after the king, as they say, and normally when you're going after the king, you don't want to miss So some of these folks, any one
House member can force a vote. But from our reporting talking to a lot of Democrats, people like Stenny Hoyer, they're prepared, and there are Democrats who are openly talking about keeping speaker McCarthy in his job if his right flank tries to oust him. A small band of fifteen or twenty on the Senate side, they were mostly irrelevant to this process. I think one of the things that was going on in the Senate and why Chuck Schumer was willing to be irrelevant to this process, I think
he was most focused on preventing a default. And I think the second thing is he wanted to protect his members. If you look at the Senate map next year, there are many many Moremocrats up for reelection than Republicans, and the debt limit is kind of politically toxic. So they wanted to have a bipartisan deal. That was one of the things that was I think in the calculus and why they didn't do it last year is they didn't
want to own the debt limit all by themselves. They wanted Republican cover and so they got that.
Yeah, that's a good point about the Senate map, Jordan. I'm curious, just like from thirty thousand foot, what does this say about what Ken and Kent get done in Washington moving forward?
So I think it's a mixed picture. On one hand, you had President Biden promise when he ran for the presidency in twenty twenty that Republicans would have an epiphany in the post Trump era and then start to work with Democrats.
Again.
A lot of people laughed him off, but if you look at his record, he actually now does have a number of examples he can point to to tell his doubters that he was actually right. There was this debt limit deal. You look at the bipartisan infrastructure bill that he got passed during the last couple of years, So he did get a small but in significant piece of gun control legislation through with bipartisan support. So he can go to voters in twenty twenty four and say, look,
I can get things done. I know how to work with Republicans despite the hyperpartisanship that exists in this country. But on the flip side, you look at this deal and frankly, it's kind of small fries. It's not like we're accomplishing something major here. It's really staving off a disaster.
I mean really, and just interject, it's also paying bills on money we already.
Spent exactly, So it's not like we're passing some sort of major new initiative here. It's again just making sure the country doesn't blow up, And so should we really be patting ourselves on the back over that. Should Joe Biden and Kevin McCarthy be patting themselves on the back over that? Probably not, but they're going to do it anyway.
I mean, I do think that one thing that this deal sort of demonstrated is that the era of big expansions of government in the safety net are basically over. You're going to be doing more small ball kinds of deals. But there are a couple of green shoots that I think you can take from this. One is on the permitting side. They got sort of a baby permitting deal in here where the Democrats got some speeding up of permitting for grain energy projects in return for some speeding
up of fossil fuels as well. There is a major bipartisan negotiation on permitting that could be the most significant thing that actually happens this year where both sides want something. If you look at that Inflation Reduction Act, all those solar plants and wind farms that are being built, they need transmission lines to be relevant and to have more of them built. That's something to watch. Another thing that's
sort of something to watch is China. There is a committee in the House bipartisan set up by Kevin McCarthy. He wants to have a big bipartisan legislation on competing with China, and the Democrats and the Senate also want to do something there, and so does the White House. I think that that's something that just watch, especially if things heat up over Taiwan. Now, is that going to be,
you know, an Obamacare style legacy program accomplishment. No, but in a divided government, it's the kind of thing that you can get done that could be pretty significant.
When we come back how the debt ceiling deal will affect the twenty twenty four campaign trail and future debt negotiations. So, Jordan, I'm curious how this debt deal will impact the economy more broadly, both short term and then just some longer term.
Most projections say that this is not going to have a tremendous effect on the economy. I believe there was a Morgan Stanley estimate that showed that it might shave a couple of hundreds of a percentage point off the GDP for next year. But as we discussed, the spending
cuts are really not that significant. I mean, they are significant politically, but economically it's it's just not that much, and it doesn't it pales a comparison to the level of spending cuts that were in the last debtlimit deal in twenty eleven and twenty thirteen, which were pretty significant across the board spending cuts. This deal, I think most estimates say, is not going to have that kind of effect.
But there are other things in the economy, obviously inflation and just the overall risk environment that could point to a recession, perhaps closer to twenty twenty four.
But the deal won't have anything to do with the recession.
It's hard to like predict one hundred percent, but likely not.
Yeah. So we talked to one analyst who was like, look, if you total of the seventy billion cuts in this bill for the first year, that's about zero point three percent of GDP. And he made the point a supporter of the deal, he said, look, this could cut zero point two five percent maybe off of inflation. And the big difference between the economy of twenty eleven and the economy of today is in twenty eleven, the refrain from House Republicans is where are the jobs? The unemployment rate
was still high. We were coming off the Great Recession, and you know, they were cutting spending at a time when the economy was really slow and coming back, we have in some ways a roaring economy. For jobs, we have one of the lowest unemployment rates on record. The issue in the country has been more inflation, and so there could be some benefits here if inflation gets curbed, just even the tiniest bit going into next year without actually causing a recession.
And how do you think that will affect the rhetoric on the campaign trail in twenty twenty four.
I don't think because Joe Biden and Kevin McCarthy had this Kumbaya moment that all of a sudden, you're going to see this, you know, come to Jesus moment in the twenty twenty four campaign, and all the heated political rhetoric we've seen for the past decade plus is going to subside.
American public think is wrong if we simply saying, let's spend what we spent five months ago. But every moment I've spent with the president, he doesn't want to go there. He does not want to go back one dollar.
It's going to be a bare knuckle election Joe Biden. If you looked at what he said during his twenty twenty campaign, there were a lot of, you know, themes of unity that I could bring back this era of bipartisan cooperation, and this is only going to enhance that while also drawing a contrast with Trump or whomever else he might be running again. So I'm not sure that it really changes the dynamics of the race that much.
I think I would discount the deal really impacting the election. Not getting a deal would have impacted the election. You know, they needed to avoid disaster. They avoided disaster. You usually don't get rewarded for avoiding disaster, right people are focused on the next thing, the kitchen table issue of the fight next year.
So it sounds like Steven from what you're telling me, voters you do not think will hold Washington politicians responsible for getting this close to the deadline for the default.
I think it's it's very hard when the numbers get this big for a lot of voters to really get a sense of how big the deficit is and what it would mean if we stopped paying our bills. I do think if Kevin McCarthy and Joe Biden are in
the same positions in a few years. Is there a prospect for a grand bargain that does look at this twenty trillion eighteen trillion that we're facing and deal with not just the discretionary side, but all these other programs that are going to start running out of their trust funds in the next five twelve years.
Jordan, what are you watching next? Steven talked a little bit what he is looking for. What about you.
I'm looking to see what happens with the debt limit. This is something that is, as we've discussed, become extremely controversial, contentious, and a lot of people in Joe Biden's party want to get rid of the debt limit, and this is something that Joe Biden, traditionalists in the center for thirty forty years, has been resistant to in the past. I'm interested to see if this experience has changed his thinking.
He is indicated perhaps that he is open to either getting rid of it or lifting it on his own through the fourteenth Amendment, which is a It would be a controversial and novel legal theory. Basically, you know, there's language in the fourteenth Amendment saying that, you know, the US must pay its debts, and so there have been some folks on his side who have said, you can take that use that authority to raise the debt limit unilaterally as president, you wouldn't need Congress, you wouldn't need
to go through this sort of negotiation. You could prevent Republicans from taking the debt limit hostage. Does the President express openness to that? Does he actually try and work with Democrats and perhap some Republicans to eliminate the dead ceiling, the statutory dead ceiling?
Yeah, I do think the fourteenth Amendment is I think it's very unlikely that he even goes that route because he's facing the Supreme Court that is hostile to kind of novel legal theories that help Democrats. But the bigger issue is the US Senate. It's very unlikely that the Democrats have more than fifty or fifty one seats after a very difficult map next year, and you need at least fifty one who are going to fifty or fifty one who are going to agree to eliminate the dead
limit entirely. I think it's very unlikely they need to get to something like fifty four or fifty five Senate seats, so that you can find fifty one and have the house back to raise the dead ceiling unilaterally to some astronomical number that it's a f actively repealed. That's the way to do it. I think it's unlikely that happens anytime in the next few cycles.
Jordan Steven, thanks so much for joining us.
Thanks for having me on.
Yeah, it's absolutely fantastic. Let's do it again in two years.
Thanks for listening to us here at The Big Take. It's a daily podcast from Bloomberg and iHeartRadio. For more shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or wherever you listen, and we'd love to hear from you. Email us questions or comments to Big Take at Bloomberg dot Net. Our supervising producer is Vicky Vergalina. Our senior producer is Katherine Fink, and they both produce this episode. Original music is by Leo Sidron. I'm Nancy cook in
for West Kasova. We'll be back tomorrow with another Big Take.