House Republicans pushed the U.S. to the edge of a fiscal crisis because they wanted deep cuts in government spending.
So, based on the deal President Joe Biden signed into law on June 3, 2023, how did they do?
In broad strokes, the deal suspends the debt limit until January 2025, freezes nondefense discretionary funding at current levels and makes a few additional cuts and policy changes that were designed to appeal to enough Republicans and Democrats to get it through Congress. The deal also includes an incentive to motivate lawmakers to pass a budget on time in four months.
That provision and the 2025 expiration date should mean the U.S. will avoid any self-inflicted fiscal crises until at least after the next presidential election.
No one got everything they wanted. Biden didn’t get the clean debt ceiling increase he had insisted on for months. Republicans didn’t get most of what they sought in a bill they passed in April – though they did get some of it.
As a professor of public policy and former deputy director at the Congressional Budget Office, I believe the deal, which passed through both Houses of Congress just ahead of the June 5 deadline to avoid default, does hardly anything to address America’s long-term debt problem. To me, this outcome shows why a debt ceiling standoff is not the right way to solve it.
Let’s take a closer look at what I would consider the five main components of the new law to see what they’ll accomplish.
1. Expanded work requirements for SNAP
The Supplemental Nutrition Assistance Program has been a Republican target for a while.
Under current law, an individual must work or be in training for 80 hours per month if they receive SNAP food benefits in three or more out of 36 months, is able-bodied, does not live with dependent children and is under 50 years old. This entitlement program is 100% funded by the federal government but is administered by states, which have the ability to waive the requirements in some low-unemployment areas.
The new deal expands the eligibility requirements to people up to age 54 and limits some of the state waiver authority. It excludes veterans and homeless people from the tougher work requirements and will expire in 2030.
The Congressional Budget Office estimated the changes would result in a net gain of 78,000 people getting benefits, according to a letter sent to Congress May 30. And while that provision was intended to reduce spending, because of the exclusions the CBO expects it to actually increase spending by US$1.8 billion over the next decade.
The bill also contains some additional work requirements for welfare recipients for the temporary assistance for needy families program, but the changes are relatively minor.
2. Cap on nondefense discretionary spending
The main way the agreement restricts federal spending is through the temporary cap on nondefense discretionary spending.
Spending on everything other than defense, entitlements like Social Security, and veterans benefits will stay flat in next year’s budget relative to the 2023 amount and increase 1% the following year, with no limits after that.
But ultimately, the caps apply to just a small share of total government spending – less than 13%. So not only is it a very minor reduction in spending, it involves a small fraction of the federal budget.
In their House bill, Republicans had sought a larger cut in discretionary spending.
Entitlement programs will be unaffected by the deal, while defense spending will grow by 3.3% next year, as Biden requested in his budget.
According to the Congressional Budget Office, the savings from the caps will amount to about $1.3 trillion over the next decade, with another $188 billion in total interest savings.
But I – and the White House – believe the actual savings will be much more modest, likely under $200 billion. The White House puts it at as little as $136 billion.
That’s because enforcement mechanisms exist for only the first two years of the deal, and some accounting tricks make the total savings seem higher than they are. After that anything goes, and Congress has a record of restoring funding lost to those types of caps.
One item that will see actual cuts is the $80 billion that previously had been allocated to beef up IRS enforcement of tax cheats. The deal trims that by $1.4 billion immediately, while another $20 billion will be “repurposed” to shore up other discretionary items facing spending caps.
The Congressional Budget Office estimates the $1.4 billion cut will actually increase the deficit by $900 billion over a decade because it’ll result in reduced tax revenue due to less enforcement. The actual impact could be a lot higher, but the CBO didn’t do an estimate for the other $20 billion.
Republicans had wanted to slash IRS enforcement by a lot more, or $71 billion of the $80 billion originally approved.
3. Streamlining energy leasing and permitting
Both Republicans and Democrats have interest in expediting the environmental review process for new energy leases, but they have very different priorities.
Republicans are more interested in gas pipelines and fossil fuel projects, while Democrats are more interested in wind, solar and other alternative energy installations. The problem for both is that the approval of environmental and technical plans is very slow and often involves all three levels of government. Also, at the federal level decisions often involve federal agencies with overlapping jurisdictions.
The new deal makes some minor changes to the environmental review process to make it go faster – though it’s less than what Republicans initially wanted.
4. COVID-19 funding clawback
White House and House Republican negotiators agreed to claw back $27 billion in unspent funds from six COVID-19 programs passed by Congress.
Some of these funds were allocated to various agencies, while others have already been distributed to states and even to local governments. The Congressional Budget Office expects the actual spending to go down by just $11 billion.
5. No government shutdown
Negotiators included a provision that should ensure there isn’t another fiscal crisis related to the 12 appropriations bills Congress must pass by October to keep the government funded into the next fiscal year. I think this is the most important component of the deal.
It automatically funds everything at 99% of the previous year’s level if Congress fails to pass the bills in time. Besides eliminating the possibility of a shutdown over the budget, as the U.S. has experienced in the past, the 1% decrease in funding – on everything from education to defense – provides a strong incentive for Republicans and Democrats to negotiate a compromise that keeps their priorities fully funded.
The bottom line
As you can see, while the deal limits some spending in the short run, it does very little to tackle America’s long-term debt problem, which I believe urgently needs to be addressed.
The U.S. national debt has exploded, most recently as a result of trillions of dollars in spending related to the COVID-19 pandemic. At a little under $32 trillion, it’s over 120% of gross domestic product, which is considered unsustainably high and is costing well over half a trillion dollars in annual interest payments. At some point, investors may begin to see U.S. government bonds as a risky investment and stop buying, which would lead to higher borrowing costs and could bring down the entire U.S. financial system.
But using the debt ceiling as a negotiating tactic is unlikely to achieve the kinds of tough choices needed to meaningfully slow the growing mountain of U.S. debt.
About 60% of total government spending goes to fund just a few items, such as Social Security, Medicare and national defense, that are very hard, politically, to cut. And political realities make it nearly impossible to increase taxes.
But a budgeting process known as reconciliation was created specifically for this purpose because it allows Congress to cut any mandatory spending and entitlement program and increase taxes in one bill. It also can’t be filibustered in the Senate – it just needs a majority.
To truly address the debt problem, what is needed, in my view, is a balanced bipartisan proposal that includes cuts to all programs, as well as some significant tax increases. Political brinkmanship won’t get America there.
For all the debt ceiling drama and the risks of profound economic damage and global tensions that resulted from it, Republicans achieved only a two-year cap on a small fraction of the total budget. Reconciliation – and lawmakers willing to govern and compromise – is a far superior way to attain a comprehensive deficit-reduction plan.
This article was updated to include deal’s passage and CBO estimates.