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| The US has reached an agreement to temporarily suspend the debt ceiling. (Source: Twitter) |
This breakthrough result was achieved after a sprint in negotiations ahead of the deadline to reach an agreement to raise the public debt ceiling in June 2023.
US Treasury Secretary Janet Yellen has revised her forecast for the deadline to raise the federal debt limit, saying the US government could default as early as June 5 instead of the previously stated June 1.
The parties are now ready to send the deal to Congress for a vote.
The debt extension will last through 2024, meaning Congress won’t have to confront the deeply divisive issue again until after the presidential election in November 2024. But contentious debates over how to allocate money under the new spending cap will still take place in Congress this year.
Here are some key points from the agreement as posted on a US Congress website.
Limit non-essential spending, increase defense spending
The deal would suspend the $31.4 trillion debt ceiling until January 1, 2025, allowing the government to pay its bills until then. In return, non-essential spending, excluding defense spending, would be “roughly flat” from current levels in 2024 when accounting for agreed-upon appropriations adjustments.
White House officials estimate that total non-defense discretionary spending (excluding veterans benefits) will total $637 billion in fiscal year 2024 (ending June 30, 2024), down slightly from $638 billion in the previous fiscal year. The total will increase 1% in fiscal year 2025.
The deal would bring total defense spending to $886 billion, in line with President Biden’s proposed 2024 budget. That would be an increase of about 3% over the $858 billion allocated in the current budget for the Pentagon and defense-related programs in other agencies.
Transfer of Grants to the IRS
President Biden and Democrats secured $80 billion in new funding over a decade to help the Internal Revenue Service (IRS) enforce the tax on wealthy Americans in last year’s Deflation Relief Act, a move expected to bring in $200 billion in additional revenue over the next 10 years.
The IRS has earmarked the money to hire thousands of new employees. The extra tax revenue is expected to offset a series of climate-friendly tax credits.
The new law and subsequent appropriations would divert $10 billion from IRS funding in each of the 2024 and 2025 calendar years. But administration officials believe the IRS can live with that in the short term because the agency will be funded for 10 years.
Recovering Unspent Covid-19 Funds
President Biden and House Speaker McCarthy have agreed to recover much of the unspent Covid-19 relief funds as part of a budget deal. The unspent funds are estimated to be between $50 billion and $70 billion.
Some funds will be retained, including items related to vaccine funding, housing assistance and Native American assistance, White House officials said.
Additional employment requirements
Lawmakers from both parties have been locked in a bitter battle over imposing stricter work requirements on low-income Americans to qualify for food aid and health care programs.
There are no changes to the Medicaid program in the deal, but it would impose new work requirements for some low-income people who receive food assistance under the program known as SNAP until age 54 instead of age 50 as before.
Student loans
The new bill would require the Biden administration to follow through on its plan to end student loan forbearance by the end of August. However, it does not eliminate President Biden’s proposed $430 billion in student debt forgiveness.
The US Supreme Court is currently considering the plan.
Easing licensing requirements for energy projects
The parties have agreed on new rules to make it easier for energy projects - including those using fossil fuels - to get permits.
Senator McCarthy and his fellow Republicans have identified reforming the licensing process as one of the pillars of any deal.
The White House backed the plan in early May 2023.
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