House Republicans pushed the US to the brink of a fiscal crisis because they wanted major cuts in government spending.
So based on the tentative deal announced on May 27, 2023, how did they do?
Broadly speaking, the deal would suspend the debt limit until January 2025, freeze non-defense discretionary funding at current levels and make a few additional cuts and policy changes to appeal to enough Republicans and Democrats to get it through Congress. The deal also included incentives to motivate lawmakers to pass a budget on time within four months.
That provision and the 2025 expiration date should mean that the US should avoid a self-inflicted fiscal crisis — including an unprecedented default — until at least after the next presidential election.
No one got everything they wanted. President Joe Biden got the clean increase in the debt ceiling which he had been insisting on for months. Republicans didn’t get most of it what they were looking for in an account they passed in April – although they did get some of it.
Like a professor of public policy and former deputy director in the Congressional Budget Office, I believe the deal still stands must pass both houses of Congress by June 5 to avoid a default hardly does anything about the long-term US debt problem, which to me shows why a deadlock in the debt ceiling is not the right way to solve it.
Let’s take a closer look at what I would consider the five key components of the deal to see what they will accomplish.
1. Expanded Work Requirements for SNAP
The Supplemental Nutrition Assistance Program is one Republican target for a while.
Under current law, a individual must work or are in training for 80 hours per month if they receive SNAP food benefits within three or more of the 36 months, are able-bodied, do not live with dependent children, and are under age 50. This entitlement program is funded 100% by the federal government, but is administered by states, which may waive the requirements in some areas with low unemployment.
The new deal would expand the definition to people up to age 54 and limit some of the state’s exemption power. It would exclude veterans and the homeless from the stricter job requirements and will expire in 2030.
The Congressional Budget Office had estimated that a similar provision in the House bill – based on extending the age requirement to 55 – would kick 275,000 people off the SNAP rolls and save $11 billion over a decade.
As states would have to expand their work reporting systems, their higher costs would offset some of the federal savings.
The bill also includes some additional work requirements for welfare recipients for the Temporary Assistance to Needy Families program, but the changes are relatively minor.
2. Cap on non-defense discretionary spending
The main way the agreement would limit federal spending is through the temporary cap on non-defense discretionary spending.
Spending on everything but defense, entitlements such as Social Security and veterans’ benefits, would remain flat in next year’s budget relative to the 2023 figure and increase by 1% the following year, with no caps thereafter.
But in the end, the limits only apply to a small fraction of total government spending – less than 13%. So it’s not just a very small reduction in spending, it’s also a small portion of the federal budget.
In their House bill, Republicans had pushed for greater cuts in discretionary spending.
Entitlement programs would be unaffected by the deal, while defense spending would grow 3.3% next year as Biden in his budget.
An item that would see actual cuts would be the $80 billion previously allocated to strengthen IRS enforcement of tax fraud. The deal would reduce that by about $20 billion, and the savings would be used to offset cuts in other areas of discretionary spending.
Republicans would have wanted to lower this by $71 billion — which, ironically, would have led to a bigger budget deficit, as much of that money would have been used to bolster enforcement to collect more revenue from people who didn’t pay all the taxes they owed.
3. Streamlining energy lease and licensing
Both Republicans and Democrats have an interest in speeding up 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 of them is that the approval of environmental and technical plans is very slow and often includes all three levels of government. Also, decisions at the federal level often involve federal agencies with overlapping jurisdictions.
The new deal would make some minor changes to the environmental review process to speed it up — though it’s less than what Republicans originally wanted.
4. Recovery of COVID-19 Funding
White House and Republican negotiators agreed to back down as much as $30 billion in unspent funds from six Congressional-approved COVID-19 programs. The estimate is based on the house’s largely comparable bill.
Some of these funds have been allocated to various agencies, while others have already been distributed to states and even local governments. The actual amount recovered will likely be lower than estimated as money is still being spent and will take some time to recover.
5. No government shutdown
The negotiators included a provision that would ensure another fiscal crisis does not arise when Congress must pass appropriation bills by Oct. 12 to keep the government funded in the next fiscal year. I think this is the most important part of the deal.
It will automatically fund everything at 99% of last year’s level if Congress doesn’t pass the bills on time. In addition to eliminating the possibility of a budget cut, as the US has experienced in the past, the 1% cut in funding provides a strong incentive for Republicans and Democrats to negotiate a compromise that keeps their priorities fully funded .
it comes down to
The deal would limit some spending in the short term, but does little to address the long-term US debt problem, which I believe urgently needs to be addressed.
The The US national debt has exploded, most recently due to trillions of dollars in spending related to the COVID-19 pandemic. At one just under $32 trillionit’s over 120% of gross domestic product, what is considered unsustainably high And costs well over half a trillion dollars with annual interest payments. At some point, investors may come to view US Treasuries as a risky investment and stop buying them, which would lead to higher borrowing costs and could topple the entire US financial system.
But using the debt ceiling as a negotiating tactic is unlikely to lead to the tough choices needed to meaningfully curb the growing US debt mountain.
About 60% of total government spending is going to fund just a few items, such as Social Security, Medicare, and National Defense, which are politically very difficult to cut. And the political reality makes it almost impossible to raise taxes.
But one budgeting process called reconciliation was created specifically for this purpose because it allows Congress to cut all mandatory spending and entitlement programs and raise taxes in one bill. Nor can it be filibusted in the Senate – it just needs a majority.
In my view, to really address the debt problem requires a balanced bipartisan proposal that includes cuts across all programs as well as some significant tax increases. Political blunders will not get America there.
For all the debt-ceiling drama and the risks of major economic damage and global tensions that ensued, Republicans only hit a two-year cap on a small portion of the overall budget. Reconciliation – and legislators willing to govern and compromise – is a much better way to arrive at a comprehensive deficit reduction plan.