The Deficit Myth is Hanging On for Dear Life

The old playbook is making a comeback. Democrats and Republics are closing in on a "debt" limit deal with the "Fiscal Responsibility Act"

First came months of vowing not to negotiate with republicans over raising the debt ceiling limit. Then came weeks of negotiating with republicans over raising the debt ceiling limit. And now, as I have been predicting for months, it appears that democrats and republicans are on the verge of passing a bipartisan deal that will push pause on the debt ceiling fight until sometime in late 2024.¹ And then, in all likelihood, we will reenact this painful drama all over again.

For now, the lead negotiators on both sides are touting the deal as a win. House Speaker Kevin McCarthy is boasting that 95% of his caucus is “overwhelmingly excited” by the agreement. One exuberant member, Dusty Johnson (R-SD), claimed that “there were no wins for democrats” in the deal that had been reached. Not so, according to President Biden and many of his fellow democrats, who are spinning the deal as “good news for the American people.”

And while avoiding a catastrophic default is undoubtedly “good news”—both for the American people and for the rest of the world—there are plenty of reasons for concern. See here, here, here, and here.

Among other things, the deal would expand food stamp access for veterans and the homeless, while imposing work requirements that make it harder for some Americans to qualify for the benefits they need. And although some democratic pundits have called the work requirements “trivial,” the Center on Budget and Policy Priorities describes them as “harmful,” pointing out that they will “increase hunger and poverty” among poor older Americans.

President Biden has claimed that the deal “reduces spending while protecting critical programs for working people.” But it clearly spells added hardship for some, including those who will find it difficult or impossible to satisfy new work requirements and those who might be forced to start repaying student loan debt after being told their debts had been approved for cancellation. If Mark Zandi is right, the overall deal won’t have a significant impact on the broader economy. He sees it as a headwind—but a small one—that will only last for a couple of years.

The real risk—and the lasting damage—will come from the destructive messaging that both sides have engaged in for the better part of two years.

Reinforcing Deficit Myths

For months, Speaker McCarthy has been telling the American people that republicans wouldn’t agree to raise the debt limit without a plan to get the nation’s “fiscal house back in order.” Never mind that he and most of his republican colleagues voted—without any preconditions—to lift the debt ceiling on three separate occasions when Donald Trump was president. To retain his gavel McCarthy needed to cut a deal that his members could get behind.

A number of republicans have already indicated that they will break ranks and vote against the deal. It’s unclear whether McCarthy’s speakership can survive a small uprising, but I suspect it won’t matter in terms of passing the legislation. The president wants the deal, and it looks like there will be enough support from democrats in both the House and the Senate to carry it forward.

To sell the American people on the idea that it would be irresponsible to raise the debt ceiling without negotiating around the budget, McCarthy invoked every deficit myth in the book. Literally.

He took to the podium, Twitter, outdoor spaces, the hallways, and countless talk shows, to complain that raising the debt limit is like allowing your child to go crazy with the family credit card. He said it was “common sense” that the federal government “can’t afford” to spend more than it takes in. He raised concerns about “borrowing money from China” to “pay for” social programs. And he invoked rhetoric that the national debt is a burden on future generations by saying, “Every new child that was born today just got a $94,000 bill.”

In response, President Biden said, “Speaker McCarthy and I have a very different view of who should bear the burden…to get our fiscal house in order.”

And therein lies the problem. After a brief reprieve from The Deficit Myth, we are backsliding into the kind of dangerous rhetoric that led to the hostage negotiations in the first place. If you haven’t seen it before, watch the short video below. It was put together almost a decade ago by one of my graduate students.

Some have argued that the Biden-McCarthy deal isn’t all that bad because it doesn’t touch Social Security or Medicare, and it doesn’t necessarily force deep cuts to non-discretionary defense spending. But ask yourself what comes next? Speaker McCarthy has called the deal “an important first step in relieving America of its crushing debt.”

Without an effective counter narrative, The Deficit Myth with return with a vengeance.²

1. The debt ceiling limit will be suspended until January 1, 2025, but there’s a good chance we’ll start some version of this dance in the run up to that deadline.

2. And I’m not talking about making TikTok videos to explain that if only we had more revenue, we wouldn’t have a debt crisis. I’m talking about rejecting—forcefully and unapologetically—the very idea that programs like Social Security and Medicare are sustainable only with more revenue or that striving to balance the federal budget is a sensible policy objective.