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  • Writer's pictureThe San Juan Daily Star

New details in debt limit deal: Where $136 billion in cuts will come from

President Joe Biden delivers remarks about the agreement with House Republicans to raise the debt limit while cutting and capping some government spending, at the White House in Washington on Sunday, May 28, 2023.

By Jim Tankersley and Alan Rappeport

The full legislative text of Speaker Kevin McCarthy’s agreement in principle with President Joe Biden to suspend the nation’s borrowing limit revealed new and important details about the deal, which House lawmakers are expected to vote on this week.

The centerpiece of the agreement remains a two-year suspension of the debt ceiling, which caps the total amount of money the government is allowed to borrow. Suspending that cap, which is now set at $31.4 trillion, would allow the government to keep borrowing money and pay its bills on time — as long as Congress passes the agreement before June 5, when the Treasury Department has said the United States will run out of cash.

In exchange for suspending the limit, Republicans demanded a range of policy concessions from Biden. Chief among them are limits on the growth of federal discretionary spending over the next two years. Biden also agreed to some new work requirements for certain recipients of food stamps and the Temporary Aid for Needy Families program.

Both sides agreed to modest efforts meant to accelerate the permitting of some energy projects — and, in a surprise move, a fast track to construction for a new natural gas pipeline from West Virginia to Virginia that has been championed by Republican lawmakers and a key centrist Democrat.

Here’s what the legislation would do:

Temporarily suspends the debt limit

The deal suspends the nation’s $31.4 trillion borrowing limit until January 2025. Suspending the debt limit for a period of time is different from setting it at a new fixed level. It essentially gives the Treasury Department the latitude to borrow as much money as it needs to pay the nation’s bills during that time period, plus a few months after the limit is reached, as the department employs accounting maneuvers to keep up payments.

That’s different from the bill passed by House Republicans, which raised the limit by $1.5 trillion or through March 2024, whichever came first.

Under the new legislation, the debt limit will be set at whatever level it has reached when the suspension ends. For political reasons, Republicans tend to prefer suspending the debt limit rather than raising it, because it allows them to say they did not technically greenlight a higher debt limit.

The suspension will kick the next potential fight over the nation’s debt load to 2025 — past the next presidential election.

Caps and cuts spending

The bill cuts so-called nondefense discretionary, which includes domestic law enforcement, forest management, scientific research and more — for the 2024 fiscal year. It would limit all discretionary spending to 1% growth in 2025, which is effectively a budget cut, because that is projected to be slower than the rate of inflation.

The legislative text and White House officials tell different stories about how big those cuts actually are.

Some parts are clear. The proposed military spending budget would increase to $886 billion next year, which is in line with what Biden requested in his 2024 budget proposal, and rise to $895 billion in 2025. Spending on veterans’ health care, including newly approved measures to assist veterans exposed to toxic burn pits, would also be funded at the levels of Biden’s proposed budget.

Legislative text suggests nondefense discretionary outside of veterans’ programs would shrink in 2024 to about last year’s spending levels. But White House officials say a series of side deals with Republicans, including one related to funding for the Internal Revenue Service, will allow actual funding to be closer to this year’s levels.

Although Republicans had initially called for 10 years of spending caps, this legislation includes just two years of caps and then switches to spending targets that are not bound by law — essentially, just suggestions.

The White House estimates that the agreement will yield $1 trillion in savings over the course of a decade from reduced discretionary spending.

A New York Times analysis of the proposal — using White House estimates of the actual funding levels in the agreement, not just the levels in the legislative text — suggests it would reduce federal spending by about $55 billion next year, compared with Congressional Budget Office forecasts, and by another $81 billion in 2025. If spending then returned to growing as the budget office forecasts, the total savings over a decade would be about $860 billion.

Claws back IRS funding

The legislation takes aim at one of Biden’s biggest priorities — bolstering the IRS to go after tax cheats and ensure companies and rich individuals are paying what they owe.

Democrats included $80 billion to help the IRS hire thousands more employees and update its antiquated technology in last year’s Inflation Reduction Act. The debt limit agreement would immediately rescind $1.38 billion from the IRS and ultimately repurpose another $20 billion from the $80 billion it received through the Inflation Reduction Act.

Administration officials said Sunday that they had agreed to reprogram $10 billion of extra IRS money in each of the 2024 and 2025 fiscal years, in order to maintain funding for some nondefense discretionary programs.

The clawback will eat into the tax collection agency’s efforts to crack down on rich tax cheats. It is also a political win for Republicans, who have been outraged by the prospect of a beefed up IRS and approved legislation in the House to rescind the entire $80 billion.

Still, because of the leeway that the IRS has over how and when it spends the money, the clawback might not affect the agency’s plans in the next few years. Officials said in a background call with reporters that they expected no disruptions whatsoever from the loss of that money in the short term.

That’s likely because all of the $80 billion from the 2022 law was appropriated at once, but the agency planned to spend it over eight years. Officials suggested the IRS might simply pull forward some of the money earmarked for later years, then return to Congress later to ask for more money.

New work requirements for government benefits

The legislation would impose new work requirements on older Americans who receive food stamps through the Supplemental Nutrition Assistance Program and who receive aid from the Temporary Assistance for Needy Families Program.

The bill imposes new work requirements for food stamps on adults ages 50 to 54 who don’t have children living in their home. Under current law, those work requirements only apply to people age 18 to 49. The age limit will be phased in over three years, beginning in fiscal year 2023. And it includes a technical change to the TANF funding formula that could cause some states to divert dollars from the program.

The bill would also exempt veterans, the homeless and people who were children in foster care from food-stamp work requirements — a move White House officials say will offset the program’s new requirements, and leave roughly the same number of Americans eligible for nutrition assistance moving forward.

Still, the inclusion of new work requirements has drawn outrage from advocates for safety net assistance, who say it punishes vulnerable adults who are in need of food.

Permitting reform

The agreement includes new measures to get energy projects approved more quickly by creating a lead agency to oversee reviews and require that they are completed in one to two years.

The legislation also includes a win for Sen. Joe Manchin of West Virginia, a Democratic centrist, by approving permitting requests for the Mountain Valley Pipeline, a natural gas project in West Virginia. The $6.6 billion project is intended to carry gas about 300 miles from the Marcellus Shale fields in West Virginia across nearly 1,000 streams and wetlands before ending in Virginia.

Environmentalists, civil rights activists and many Democratic state lawmakers have opposed the project for years.

Student loans and unspent COVID money

The bill officially puts an end to Biden’s freeze on student loan repayments by the end of August and restricts his ability to reinstate such a moratorium.

It does not move forward with the measure that House Republicans wanted to include that would halt Biden’s policy to forgive between $10,000 and $20,000 in student loan debt for most borrowers. That initiative, which the Biden administration rolled out last year, is currently under review by the Supreme Court and could ultimately be blocked.

The bill also claws back about $30 billion in unspent money from a previous COVID relief bill signed by Biden, which had been a top Republican priority entering negotiations. Some of that money will be repurposed to boost nondefense discretionary spending.

According to an administration official, the deal leaves intact funding for two key COVID programs: Project NextGen, which aims to develop the next generation of coronavirus vaccines and treatments, and an initiative to offer free coronavirus shots to the uninsured.

Preventing a government shutdown

The agreement only sets parameters for the next two years of spending. Congress must fill them in by passing a raft of spending bills later this year. Large fights loom in the details of those bills, raising the possibility that lawmakers will not agree to spending plans in time and the government will shut down.

The agreement between Biden and McCarthy attempts to prod Congress to pass all its spending bills and avoid a shutdown, by threatening to reduce spending that is important to both parties. If lawmakers have not approved all 12 regular funding bills by the end of the year, the agreement tightens its spending caps. Nondefense discretionary spending would be set at 1% below current year levels, and it is possible that the IRS would not see its $10 billion in funding for next year repurposed for other programs.

The same levels would apply to defense and veterans’ spending — which would be, in effect, a significant cut to those programs compared with the agreed-upon caps. Democrats see the looming military cuts as a particularly strong incentive for Republicans to strike a deal to pass appropriations bills by the end of the year.

What’s not in the bill

The final agreement includes far less reduction in future debt than either side proposed.

Republicans wanted much deeper spending cuts and stricter work requirements. They also wanted to repeal hundreds of billions of dollars in tax incentives signed by Biden to accelerate the transition to lower-emission energy sources and fight climate change. Biden wanted to raise taxes on corporations and high earners, and to take new steps to reduce Medicare’s spending on prescription drugs. None of those made it into the deal.

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