With the debt ceiling stalemate, the COVID-era of high spending gives way to a new focus on the deficit

WASHINGTON (AP) — One outcome is clear as Washington seeks a budget deal amid the debt-ceiling row: ambitious COVID-19-era government spending to manage the pandemic and rebuild is giving way to a new focus on tailored investment and containing deficits.

President Joe Biden said recovery of unspent coronavirus funds is “on the table” in budget negotiations with Congress. While the White House has threatened to veto Republican House debt ceiling bill Kevin McCarthy with its “devastating cuts” on federal programs, the administration has signaled its willingness to consider other budget ceilings.

The end result is a reversal from just a few years ago, when Congress passed the historic $2.2 trillion CARES Act and then-President Donald Trump signed into law at the start of the 2020 public health crisis Inflation Reduction Act is now investing billions of dollars in paving streets, strengthening the federal safety net and restructuring the US economy.

“Given what we’ve seen in recent years, the appetite to put a lot more money into solving big problems now has diminished significantly,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, a nonpartisan organization in Washington .

The Treasury Department has warned it will run out of money to pay the country’s bills as early as June 1, although an estimate by the bipartisan Congressional Budget Office on Friday put the deadline in the first two weeks of June, potentially buying negotiators time would.

“We haven’t reached the critical point yet,” Biden told reporters Saturday before flying to Delaware for the weekend. “There are real discussions about some changes that we could all make. We’re not there yet.”

The contours of an agreement between the White House and Congress are within reach, even if the political will to end the standoff is uncertain. Negotiators are considering recovering about $30 billion of unused COVID-19 funds, imposing spending caps over the next few years and approving permitting reforms to ease construction of energy projects and other developments, according to those familiar with the closed-door staff talks . They were not authorized to discuss the private deliberations and spoke on condition of anonymity.

The White House has been reluctant to start talks, insisting it is only willing to negotiate the annual budget and not the debt ceiling, and Biden’s team is skeptical McCarthy can reach an agreement with his far-right majority in the House.

“There is no agreement on the debt ceiling. “There are no debt ceiling negotiations,” said White House press secretary Karine Jean-Pierre.

McCarthy’s allies say the White House fundamentally underestimated what the new Republican leader could accomplish – first in the bitter contest for the position of Speaker of the House and now as he passed the House bill with $4.5 trillion in savings Dollar as an opening offer for the negotiations. Both have encouraged McCarthy to push vigorously for a deal.

“The White House has been wrong every time it has understood where we stand with the House of Representatives,” said Russ Vought, president of the Center for American Renewal and Trump’s former director of the Office of Management and Budget. “You are dealing with a new animal.”

The country’s debt burden has soared to $31 trillion in recent years. That’s practically double the last major debt ceiling showdown a decade ago, when Biden, as President Barack Obama’s vice president, faced the new class of tea party Republicans demanding spending cuts in exchange for a debt ceiling hike.

While debt ceiling policies have tightened, the country’s indebtedness is nothing new. The US balance sheets were in the red for large stretches of their history, i.e. even before the civil war. That’s because government spending routinely exceeds tax revenue, helping to subsidize the amenities Americans depend on — national security, public works, a federal safety net, and basic operations to keep a civil society functioning. In the US, individuals pay the majority of taxes, while corporations pay less than 10%.

Much of the COVID-19 spending approved at the start of the pandemic has expired and government spending is back to typical levels, experts said. These include free vaccines, small business payroll funds, emergency payments to individuals, monthly child tax credits, and additional food aid that protected Americans and the economy.

“Most of the great things that we’ve done have been done — and they’ve done a tremendous amount of good,” said Sharon Parrott, president of the Center for Budget and Policy Priorities in Washington.

“We’ve actually shown that we know how to fight poverty and improve health insurance, even though the need would have been increasing,” she said.

Last year, Biden’s anti-inflation bill, passed in the face of opposition from Republicans, was paid for largely with savings and new revenue elsewhere.

The popularity of some spending, notably the child tax credits as part of COVID-19 relief and the Inflation Reduction Act’s efforts to combat climate change, demonstrates the country’s political hunger for investment, which some Americans believe will help to push the US fully into a 21st century economy.

Case in point: A core group of Republican lawmakers from the Midwest blocked a repeal of the Inflation Reduction Act’s biofuel tax credits that their peers wanted to remove, and persuaded McCarthy to leave it out of the House bill. The federal money supports new investments in corn-heavy agricultural states.

As Republicans in the McCarthy House of Representatives now demand budget cuts in exchange for raising the debt limit, they are finding it harder to say which government programs and services they actually intend to cut.

Republicans in the House of Representatives have vigorously opposed Biden’s claims that his law would cut veterans’ and other services.

McCarthy even went so far as to tell Biden that it was “a lie” in his meeting with the President.

Republicans are promising they will exempt the Department of Defense and Veterans Health Services once they draft actual spending legislation consistent with the House debt ceiling proposal, but there are no written guarantees that these programs will not be cut.

In fact, Democrats say that if Republicans spared defense and veterans from cuts, cuts in other departments would be as high as 22%.

Budget watchers often repeat that the debt problem isn’t necessarily the size of the debt burden, which approaches 100% of the country’s gross domestic product, but whether the federal government can continue to make payments on the debt, especially as interest rates rise.

On Friday, infrastructure implementation coordinator Mitch Landrieu spoke at the White House about the $1.2 trillion bipartisan infrastructure bill that Biden signed into law 18 months ago. He said it creates jobs, encourages private investment and shows what can happen when the sides come together.

“We say once in a generation because it hasn’t happened in our lifetime, and honestly it probably won’t happen again in the near future,” he said.

AP White House Correspondent Zeke Miller contributed to this report.