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May 25, 2023
Debt Deal's Economic Hit Seen Rippling Through 2024 Presidential Race
(Bloomberg) -- The economic impact of a deal on the debt ceiling will have ripple effects for presidential candidates in 2024 — and 2028.
Negotiators for House Republicans and the White House have been haggling over proposals that could include multi-year spending cuts — and possibly trigger or exacerbate a recession in 2024, according to Bloomberg Economics. Such a scenario would weigh down a reelection campaign by President Joe Biden that’s already beset by low approval ratings and concerns over the 80-year-old’s fitness for office.
In addition, those spending caps, depending on the details and if House Republicans and the White House end up reaching a deal, would likely be lifted some time after the next presidential election. That would promote a strong economic recovery, amounting to a tailwind for whomever is president at that time.
“The contour of the economic impact of a spending cut deal is such that most of the hit will happen in 2024,” Anna Wong, the chief US economist for Bloomberg Economics, said. “When the cap is removed — if that’s 2026 or 2025 — then whoever wins the 2024 election will likely have a strong recovery in that administration.”
That means, if Republicans are extremely strategic — or just plain lucky — this debt ceiling negotiation could help them create the economic conditions to defeat Biden in 2024 and win the presidency again in 2028.
Capping spending for three to five years would mean an additional 340,000 job losses by the end 2024 and a decrease in gross domestic product of up to 0.3%, according to Bloomberg Economics. That would be on top of a predicted recession that could come as soon as the second half of this year.
The timing and depth of the recession matters, but voters tend to hold presidents responsible for the health of the economy. The last three one-term presidents — Jimmy Carter, George H.W. Bush, and Donald Trump — have all had their reelection hopes fatally injured by the lingering effects of a recession.
Days after launching his 2024 reelection bid in April, Biden registered the lowest approval rating of his presidency in Gallup’s monthly poll. Just 37% said they approved of his job performance, with 59% saying they disapproved.
When it comes to the debt ceiling specifically, polls indicate that voters blame Republicans and Democrats equally for the standoff. A Quinnipiac poll Wednesday showed Americans laying responsibility with Biden over House Republicans 38% to 37%. A Marist poll released Tuesday showed that 45% of Americans would blame Republicans for a default, while 43% would blame Biden. Both polls are within the margin of error.
Read more: US Voters Assign Equal Blame to Both Sides in Debt-Limit Fight
Polls also show general agreement that a default would be bad. The Monmouth survey found that 42% of adults agree that the US would suffer significant economic problems if the $31 trillion debt limit isn’t lifted and there is a default, while 30% say that’s an exaggerated claim and 28% said they have no opinion.
It’s possible that the bigger-picture economic effects haven’t been considered by either Republicans or Democrats as both have been under intense political pressure to cut a deal to prevent a federal default that could occur as soon as June 1. The two sides are still wrangling over details related to the size and scope of budget constraints, additional requirements for social programs and whether to address energy permitting issues.
While House Speaker Kevin McCarthy has said negotiators are moving closer to a deal, no agreement has yet been reached. McCarthy said Republicans will not approve any deal that doesn’t include cuts to federal spending.
Democrats continue to push against spending cuts. House Democratic Leader Hakeem Jeffries said Thursday that Republicans are pushing “devastating cuts” to education, Medicaid, public, safety and veterans.
The best way to avoid a recession would be to raise the debt ceiling with no conditions, Wong said. That had been the mantra from Democrats for months, but a Republican-controlled House and a narrow majority in the Senate meant that Democrats didn’t have the support to pass a clean debt ceiling hike.
The risks of not cutting a deal are even greater. Defaulting would mean a much deeper recession and widespread job losses.
--With assistance from Gregory Korte.
©2023 Bloomberg L.P.
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