Savannah economist weighs in on debt ceiling deal, future of federal spending

SAVANNAH, Ga. (WTGS) — President Joe Biden and Speaker of the House Kevin McCarthy came to an agreement over the weekend to suspend the federal borrowing limit through 2025, a move the president said would help the country avoid the 'threat of catastrophic default.'

Fox28 spoke with an economic expert about the issue of government spending and the impact this debt ceiling deal could have on inflation and the economy as a whole.

Economics professor Michael Toma works at Georgia Southern University's Parkers College of Business.

He said the debt ceiling deal gives Congress more time to address the $31 trillion the country owes by finding solutions to the nation's issue of overspending.

This follows the Treasury's announcement that the country will not have enough money to pay its bills on time by June 5.

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"It does push off those negotiations until after the 2024 election, so fundamentally the action now prevents a default on the national debt and provides a longer period of time during which those negotiations about what the actual cap is going to be set at to play out in Washington," Toma said.

The bipartisan bill has elements to appease both sides, like capping non-defense spending or protecting clean energy provisions of last year's Inflation Reduction Act.

Toma said capping spending is another way to reduce inflation post-COVID-19 when the nation was expending an unprecedented amount on fiscal relief.

"It's just one of the things that would need to have been done to reduce inflation in the economy anyways," Toma said. "One is, for example, what this bill does is reduce federal government expenditures and then, in conjunction with what the federal reserve is doing, raising interest rates, that should tend to slow the demand side of the economy down and relieve inflationary pressure."

Savannah area congressman Buddy Carter wants to make it clear to residents that the debt ceiling deal will not impact veteran benefits, as some of the bills' opponents have stated.

"The debt ceiling does not cut any veteran benefits whatsoever," Carter said. "It cuts non-veterans, non-defense spending, and that's a good thing. It needs to cut that. But for defense spending, veterans, and our defense, nothing has been cut. In fact, there have been increases."

Carter added that he supports the deal and said it's a first step in the right direction with the gathering of unused COVID relief funds and reinforcing student loan payments.

RELATED: Debt ceiling deal will bring an end to payment freeze on federal student loans

The fate of President Biden's student debt relief program now lies in the hands of the Supreme Court.

Professor Toma said that even if the court ruled in favor, it wouldn't get to the root of the nation's spending problem.

"One provision that reduces the amount by up to $400 billion certainly is helpful, but it still fundamentally does not solve the long-term problem that the government seems incapable of raising enough tax revenue to cover its expenditures," Toma said.

Speaker of the House Kevin McCarthy said the 99-page Fiscal Responsibility Act would go under a vote by the house on Wednesday.