Most legislation requires compromise to become law. This truth relates to fiscal policy as much and as often as any legislation. Name whom you would consider a leading president or congressional leader (Lyndon B. Johnson of Texas was the rare two-fer) and several examples of negotiated settlements mark their history. As we near the end of the 117th Congress’s first term, it would seem the 4Q21 fiscal basket will contain items sought by both parties. All accomplished without much of a market worry, much less tangible risk.
The 1985 Balance Budget and Deficit Control Act, as amended specifically by the 2011 Budget Control Act (BCA) technically requires an automatic 2% cut to keep peace with BCA and 1985 Act accounting rules. Like many automatic, across-the-board cuts mandated by the 2011 law, each year since then Republicans and Democrats have exempted much of the proposed ‘savings’ from becoming law. That the 2011 BCA was an artifice created in July 2011 to avert default then and one of its final modifications would help avert default ten years later offers a glimpse into the silliness surrounding the debt limit as a fiscal management tool. It doesn’t constrain debt creation, obviously and it doesn’t force any tough choices.
In the final fiscal year of BCA, Washington needs to again prevent itself from doing something it never intended to do – cut Medicare expenditures. The last exemption was signed by President Biden in March and expires on December 31. The House has drafted and soon will vote on another exemption through the end of March. The last four pages of the ten-page bill temporarily changes Senate rules by allowing expedited consideration of a debt limit increase requiring passage by only a simple majority vote outside of reconciliation (actual dollar figure not a simple further suspension).
Markets care that another artificial cliff would be avoided. Democrats favor not having to go back to committee to reconcile a debt ceiling bill. A few Senate Republicans are upset their December Nutcracker tactic would be thwarted but are no doubt pleased the shenanigans will recur in early spring of a midterm election year (February 18 offers shutdown drama). Others of Minority Leader Mitch McConnell’s caucus believe this is a dangerous filibuster-weakening precedent.
More elected policymakers win rather than lose with this gambit, but it is one of those sausage-making-as-legislation moments. For those keeping score at home, this contains two mindblowers:
If the debt limit deal emanating from the House becomes law, Republicans won’t have squandered the opportunity to tie bipartisan debt around Democrats’ necks. The president’s party will be able to boast about fiscal management that never conjured worst-case default scenarios. They will also have a robust list of 2021 fiscal policy achievements most (not all of which) are long supported by the party and many Americans.
As we near the end of the 117th Congress’s first term, it would seem the 4Q21 fiscal basket will contain items sought by both parties. All accomplished without much of a market worry, much less tangible risk.
