US House of Representatives Passes Bill to Raise Debt Ceiling and Cap Government Spending
Late on Wednesday, the US House of Representatives passed a bill to raise the debt ceiling and cap government spending by a vote of 314-117. The bill now moves to the Senate just days before the deadline, which is Monday. The vote was expected to be contentious, with reports that over 20 Republicans intended to vote against the bill, and concerns that House Speaker Kevin McCarthy would not have the necessary support. The ultimate bill is a conciliation reached by President Joe Biden and McCarthy, which will halt the debt ceiling until January 2025, guaranteeing that this matter will not be a subject of dispute until the 2024 presidential election is over. It also contains two years of spending caps, an expansion in work requirements for the Supplemental Nutrition Assistance Program, and an end to a pause in federal student loan payments that’s been in place since 2020.
The legislation is currently on its way to the Senate, which is controlled by the Democratic Party. It must obtain a minimum of 60 votes in order to pass and be sent to President Biden for his signature. Senate Majority Leader Chuck Schumer has already said lawmakers are prepared to stay the weekend to pass the legislation if needed. As soon as the bill arrives in the Senate, Schumer plans to promptly bring it to the floor.
Over the weekend, House Speaker Kevin McCarthy and President Joe Biden reached a compromise agreement that would temporarily suspend the debt limit until Jan. 1, 2025. Additionally, non-defense spending in fiscal year 2024 would remain just below current levels, with a 1 percent increase expected in fiscal year 2025. Biden and McCarthy struck a deal that involves less stringent spending restrictions compared to the House Republicans' proposal, as they prepare for a potential breach of the debt-ceiling on June 5. Rather than reducing discretionary spending to the levels of 2022, the cuts will maintain non-defense spending at approximately the same level as 2023, with an exception for military and veterans' healthcare expenditures. The allowance increase for the discretionary budget in 2025 would be restricted to 1%, which is lower than the inflation rate.
By 2025, the bill gradually introduces an increase in age requirements for work on specific federal safety net programs such as food stamps, elevating the highest age limit from 50 to 54. The proposal includes new exemptions that would waive the aforementioned requirements for veterans, individuals experiencing homelessness, and young adults aged 18-24 who are transitioning out of foster care. McCarthy has modified his original suggestion, which demanded that people between the ages of 18 and 55 who do not have dependents should have to work for their food assistance, without any exemptions for veterans, homeless individuals, or young adults leaving foster care.
Passing the bill marks the House’s biggest bipartisan victory since Republicans took over the chamber this year. Up until this point, McCarthy has primarily engaged in pushing messaging bills that lack Democratic support and have no likelihood of being passed into law through constant wrangling with members. He was confronted with numerous inquiries regarding his ability to secure sufficient backing from Republicans for the debt proposal. On Wednesday, McCarthy declared the establishment of a commission with members from both parties to investigate the federal budget and identify areas of potential waste that can be eliminated.
If the agreement is signed into law, payments on federal student loans that were paused at the start of the pandemic will be reinstated at the end of August, with the bills coming due the next month. If the deal goes through unchanged, federal student loan payments will resume by the end of August, regardless of the exact timing. According to the CBO, the agreement would result in a reduction of approximately $1.5 trillion in federal deficits within the next ten years. The amount is slightly less than 7% of the previously projected deficits before the agreement. The majority of deficit reduction would be achieved through limits on non-defense discretionary spending, which only accounts for a fraction of the federal budget.
Following Treasury Secretary Janet Yellen's warning that the U.S. faced default without a timely agreement, the Biden administration and the Republican House majority reached a compromise named the Fiscal Responsibility Act on June 6. Both sides announced the breakthrough Saturday night — a deal that neither set of negotiators loved but both could accept. Biden succeeded in one crucial aspect: the suspension of the debt ceiling for a complete two years, freeing him from the need to renegotiate as he campaigns for re-election in 2024.
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