The Debt Ceiling Deal
In January 2023, President Biden pledged he would not negotiate with the incoming Republican-controlled House of Representatives over the U.S. government’s statutory debt ceiling.
In May 2023, President Biden caved. Over the last few weeks, the outline of a two-year debt ceiling deal took shape. That deal has now been finalized. USA Today outlines the fiscal measures contained in the deal:
The tentative deal would raise the debt limit on how much the government can borrow through the end of 2024, averting a default that could happen June 5 if the debt ceiling is not raised….
The deal caps annual discretionary spending for two years, keeping non-defense spending levels flat next year and raising it by 1% in 2025. This means that funding for domestic programs across the board− besides Social Security and Medicare − will stay the same next year….
In another concession to Republicans, the deal rolls back $10 billion of $80 billion in IRS funding approved in Biden’s Inflation Reduction Act last year that was designed to crack down on wealthy Americans and corporations that evade taxes….
The final agreement overhauls the Supplemental Nutrition Assistance Program by setting time limits for how long able-bodied adults 54 years old or younger without dependent children can receive food stamps if they do not meet certain work requirements….
Delivering on another Republican rallying cry, the deal would claw back billions in unspent COVID-19 relief funding that was approved by Congress during the Biden and Trump presidencies….
How Much Spending Will Be Cut?
As described, non-defense discretionary spending would hold steady at 2023’s $935 billion next year. In 2025 non-defense discretionary spending will rise by 1% to $1,009 billion. That represents a $115.6 billion net reduction from the CBO’s May 2023 spending projections.
The second biggest source of clearly defined reduced spending is the rescission of unspent Covid funds. This cut will reclaim about $29 billion in unnecessary expenditures.
The indicated $10 billion rollback from the IRS is somewhat misleading. The amount rescinded from the IRS’ budget appears to be just $1.9 billion, which adds to the net reduction in spending. The remainder of the $10 billion rollback will instead be reallocated to other discretionary, non-defense spending.
Altogether, that adds up to about $146.5 billion in defined spending cuts, that figure is a little over 58% of the reductions needed to put the U.S. government on a strict path to a balanced budget in 10 years.
There may be more spending cuts from restarting work or job-seeking requirements for able-bodied welfare recipients, but that’s more difficult to quantify. On student loans, the debt ceiling deal leaves much to how the Supreme Court will rule on President Biden’s relief scheme, letting it go for now. Resuming student loan payments will increase the federal government’s revenue.
In terms of the U.S. government’s fiscal situation, the bottom line is that the debt ceiling agreement will result in slightly less excessive spending over the next two years. If it passes, it will represent the successful bipartisan achievement of kicking the can down the road for another two years.
