Both the House and the Senate approved the Fiscal Responsibility Act of 2023 (H.R.3746). The President also signed the legislation into law (June 3).
The House approved the legislation by a vote of 314-117, with 4 Representatives not voting. The Senate approved it by a 63-16 margin, with one Senator not voting. The legislation passed both parts of Congress on a bipartisan basis.
The US Treasury will soon restart its processes to borrow from financial markets in order to finance a portion of Federal operations. Treasury is down to less than $25 billion in cash on hand by the beginning of June, from nearly $600 billion when the Federal debt limit was reached in January.
What follows below is a rundown of the specifics of the legislation.
Debt Limit Suspension
The Federal debt limit in law, currently at $31.4 trillion, is suspended until January 1, 2025; meaning, there no longer will be a specified debt limit in law until that time. The Treasury must, however, try and calibrate its borrowing so that it only raises the minimum amounts needed to get by during this period (i.e., it must not build up cash reserves.)
President Biden will, immediately after the 2024 election cycle, need to negotiate a way forward on the debt limit with the current Congress (any new President and the new Congress will be seated later in January 2025.)
Increases in annual discretionary spending in the Federal budget, which covers less than 30% of all annual Federal spending, will be limited for the next six years (FY 2024-FY 2030), though with harder controls only for the next two years (i.e., across-the-board cuts if targets are not met). Such controls do not mean a whole lot beyond next year, however, as Congress can merely change the limits or suspend any control mechanisms.
That being the case, defense spending under the agreement will be permitted to increase by nearly 3.5% next year (FY 2024), and veterans health care spending will go up significantly given expected demand (+$19 billion, +16%), with the remainder of discretionary programs facing a combined reduction for FY 2024. After next year, discretionary spending can go up 1% each year starting in FY 2025. For next year alone, that means a total increase of just $16 billion.
CBO estimates that for FY 2024, spending will fall below amounts needed for Federal discretionary programs to keep pace with inflation by $64 billion, increasing to $107 billion in FY 2025, and $1.3 trillion over ten years (assuming Congress complies into the future with the spending targets). Spending which falls below inflation-adjusted needs is considered to be "savings." The savings amount is not insignificant, but is relatively small given current Federal debt totaling $31 trillion, an amount that will continue to increase into the future.
Even this relatively small spending reduction, however, is definitely not certain. Under the terms of the agreement, some one-time spending claw backs (see below) can be reused for FY 2024 to make up for some spending cuts. The Biden Administration has claimed that by reusing such funds, and with other more technical adjustments under the FY 2024 budget request, the outcome for non-defense, non-veterans programs will be minimized for FY 2024.
For the longer term, Congress can choose to ignore the spending targets, or increase them. More importantly, the Federal budget is driven more by mandatory program costs (two-thirds of the Federal budget) than by the cost of discretionary programs.
The agreement will “claw back” billions in unspent COVID-19 funding that was appropriated over the past few years. CBO estimates that $27 billion will be clawed back under the bill.
In addition, House Republicans had been seeking the repeal of $80 billion in new funding for the Internal Revenue Service (IRS) provided in the 2022 Inflation Reduction Act (IRA). The new IRS funding is being used to improve IRS service, accelerate IT modernization, and also strengthen and expand the auditing of corporations and higher-income taxpayers.
Very little of the new funding has likely been spent to date. A small portion of the new IRS funding––
$1.4 billion––will be immediately clawed back under the agreement. A separate reduction of IRS funding of $20 billion over two years will be addressed outside of the debt limit legislation in the annual appropriations process. This will leave net new IRA/IRS funding at about $58 billion (a 28% total cut from the $80 billion).
The IRS was only planning on spending about $2.8 billion of its IRA-provided funding this year, on top of another $14 billion in regular annual funding.
Public Assistance Work Requirements
There are no work requirements for healthcare provided under the state-administered Medicaid program. House Republicans had been looking to impose work requirements for some Medicaid beneficiaries.
The agreement adjusts work requirements under the Supplemental Nutrition Assistance Program (SNAP) and the Temporary Assistance for Needy Families (TANF) programs (which is the traditional income “welfare” program).
For SNAP, the agreement increases the upper-age level for persons without children where work is required to receive assistance, from the current-law level of age 49 to age 54. Under current law, persons aged 18-49 without children are currently required to work 20 hours a week or enroll in a work training program. The agreement includes exemptions (from current law and new requirements) for veterans, homeless persons, and certain adults who were in foster care.
For TANF, the agreement includes measures intended to compel states to put more beneficiaries into work programs, or risk the loss of some Federal funding. TANF is a state-run program, with the Federal Government providing more than 60% of funding. States are supposed to require participants to find work or participate in a training program, but few states actually fully meet program standards.
Student Loan Forgiveness
There will be no requirement sought by House Republicans for President Biden to halt his planned broad-based student loan debt relief initiative, canceling up to $20K of debt per debtor, though a pending Supreme Court challenge could still impact the Administration’s ability to implement the program. A decision from the Court is expected soon.
Post-pandemic student loan payments (these were paused during the Public Health Emergency which ended this month) will have to resume in September under the agreement, though the Biden Administration was already planning this action and had informed debtors earlier this year.
Energy Permitting Reform
The provisions of a comprehensive House Energy bill, to help enable more oil and gas drilling on an expedited basis, is not included in the agreement. More limited measures intended to help expedite the permitting process for more than just oil and gas projects, are included (e.g., assigning a lead Federal agency for major projects, limiting time frames for environmental reviews, etc.)
The agreement includes provisions that will enable the Mountain Valley Natural Gas Pipeline project to quickly receive all required permits to construct and operate the pipeline. The provisions were pushed hard by Senator Joe Manchin (D-WV) as part of any deal on permitting reform.
Clean Energy Tax Credits
House Republicans had been seeking the repeal of a large portion of clean energy tax credits and other incentives included in the 2022 IRA. The agreement does not include the repeal of any clean energy incentives.