Debt Ceiling Talks Push Washington Toward New Era of Deficit Cuts

WASHINGTON, D.C. (AP) - As Washington tries to reach a budget agreement to end the debt limit standoff, one thing is clear: the ambitious COVID era government spending -- designed to deal with the pandemic or rebuild afterward -- has given way to a fiscal focus that focuses on targeted investments and reducing deficits.

Joe Biden said that recovering COVID-19 funds not spent is "on the table" in budget discussions with Congress. While the White House threatened to veto Republican House speaker Kevin McCarthy's bill to raise the debt ceiling because it would make 'devastating' cuts to federal programs the White House is willing to consider other budget caps.

It's a dramatic turnaround from a few short years ago when Congress passed the $2.2 trillion CARES Act and President Donald Trump signed it at the beginning of the COVID Crisis in 2020. It's a dramatic realignment, even though Biden's bipartisan Infrastructure Law and Inflation Reduction Act now invest billions of dollars in paving streets and strengthening the federal safety net.

The appetite for throwing a lot of money at major issues right now has been significantly reduced, given the events we have seen in the last few years, said Shai Akabas. He is the director of economic policies at the Bipartisan policy Center, an organization that is nonpartisan and based in Washington.

Treasury has warned that it will run out of money by June 1 to pay bills. However, a nonpartisan estimate released Friday by the Congressional Budget Office put the deadline in the first two weeks of the month. This could buy the negotiators some time.

Even if there is uncertainty about the political will, the contours of a deal between the White House & Congress are still within reach. Negotiators may consider clawing back $30 billion of unused COVID-19 funding, imposing caps on spending over the next few years, and approving reforms in permitting to make it easier to build energy projects and other developments.

McCarthy's far-right House majority is not likely to agree to any kind of deal, as the White House is reluctant to enter into talks. Biden and his team are also skeptical.

There's no agreement to be made on the debt ceiling. Karine Jean-Pierre, White House Press Secretary, said that there is no way to negotiate the debt ceiling.

McCarthy's allies claim that the White House underestimated the accomplishments of the new Republican leader, first with the difficult battle to become House Speaker and then in passing the House bill containing $4.5 trillion as an initial offer for negotiations. McCarthy has been emboldened by both events to press for a deal.

Russ Vought is the president of Center for American Renewal and former director of Trump's Office of Management and Budget. They're dealing with an entirely new animal.

In recent years, the nation's debt has increased to $31 trillion. This is almost double the amount of debt a decade earlier, when Biden was vice president under Barack Obama and faced a new class 'tea-party' Republicans who demanded spending cuts as a condition for raising the limit.

The nation's debt has not changed, despite the recent political fervor surrounding the debt limit. Since the early days of the Civil War, the U.S. has had a deficit on its balance sheet. The government spends more than it takes in, which helps to subsidise the things Americans rely on, such as national security, federal safety nets, public works and basic operations. Individuals pay most of the tax in the U.S. while corporations pay less that 10%.

Experts said that the government has returned to normal spending levels after a large portion of the COVID-19 funding approved at the beginning of the pandemic. This includes free vaccines, small-business payroll funds, individual emergency payments, monthly child tax credit and supplemental food assistance that protected Americans as well as the economy.

Sharon Parrott is the president of Washington's Center for Budget and Policy Priorities. She said, "Most of our big projects are complete and have done a lot of good."

She said, 'We showed that we knew how to reduce poverty and increase health insurance in the face of what would have been increasing hardship.'

The Inflation Reduction Act of Biden, signed into law last year over Republican opposition, has been paid for in large part with new revenues and savings elsewhere.

The political appetite for certain investments, such as the COVID-19 relief's child tax credits and the Inflation Reduction Act, which aims to combat climate change, is evident in the popularity of these spendings.

McCarthy was persuaded to remove the biofuel tax credits from the House bill by a core group of Republican legislators in the Midwest. Their colleagues had wanted to eliminate them. The federal money supports new investments in states with corn-heavy farming.

McCarthy's House Republicans are hesitant to say what programs and services they intend to cut, even though they demand budget cuts in exchange for raising debt limits.

House Republicans have reacted strongly to Biden's claim that their bill will cut veterans and other benefits.

McCarthy went as far as telling Biden, during his meeting with President Obama, that this was a 'lie'

Republicans have promised to exempt veterans' health and the Defense Department from cuts once they create the spending bills that match the House debt limit proposal. However, there is no guarantee these programs will not be cut.

Democrats claim that if Republicans spared Defense and Veterans from cuts, then the reductions in other departments could be as high at 22%.

Budget watchers say that the problem with debt is not the total amount of debt, which can reach 100% of GDP, but rather whether the federal government will be able to continue paying the debt as interest rates increase.

Mitch Landrieu, coordinator of infrastructure implementation, spoke out from the White House on Friday about the $1.2 trillion bipartisan Infrastructure Bill Biden signed 18 months ago. He said that it creates jobs, stimulates private investment, and shows what can be achieved when both sides come together.

He said: 'We don't say it happens every generation, because it's not happened in our lifetimes and, quite frankly, it's unlikely to happen in the near future.'