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| The US reached a temporary agreement to suspend the debt ceiling. (Source: Twitter) |
This breakthrough was achieved after last-minute negotiations ahead of the June 2023 deadline for reaching an agreement on raising the debt ceiling.
US Treasury Secretary Janet Yellen has revised her forecast for the deadline to raise the federal debt limit, stating that the government could default as early as June 5th instead of the previously stated June 1st.
The parties are now ready to send the agreement to Congress for a vote.
The debt ceiling extension will last until the end of 2024, meaning Congress won't have to face this deeply divisive issue again until after the presidential election in November 2024. However, heated discussions about how to allocate the money under the new spending limits will still take place in Congress this year.
Here are some of the key points of the agreement, as posted on a U.S. Congressional website.
Limit non-essential spending, increase defense spending.
The agreement will suspend the $31.4 trillion debt ceiling until January 1, 2025, allowing the U.S. government to pay its bills up to that point. In return, non-essential spending, excluding defense spending, will remain "virtually unchanged" from current levels in 2024, taking into account agreed-upon allocation adjustments.
White House officials estimate that total non-essential defense spending (excluding veterans' benefits) will total $637 billion for fiscal year 2024 (ending June 30, 2024), a slight decrease from $638 billion in the previous fiscal year. This total is projected to increase by 1% in fiscal year 2025.
Conversely, this agreement would raise total defense spending to $886 billion, in line with President Biden's proposed 2024 budget. That would be an increase of approximately 3% from the current $858 billion allocated to the Pentagon and defense-related programs at other agencies.
Transfer funding to IRS
President Biden and Democrats have secured $80 billion in new funding over a decade to help the Internal Revenue Service (IRS) enforce its tax policies on wealthy Americans under last year's Inflation Reduction Act. This move is expected to generate an additional $200 billion in revenue for the budget over the next 10 years.
The IRS has allocated funds to hire thousands of new employees. The additional tax revenue is expected to offset a range of climate-friendly tax credits.
The new law and subsequent allocations will move $10 billion in each calendar year of 2024 and 2025 out of funding for the IRS. But administration officials believe the IRS can accept this in the short term because the agency will be funded for 10 years.
Recover unused Covid-19 funds.
President Biden and House Speaker McCarthy agreed to withdraw a large portion of unused Covid-19 relief funds as part of a budget deal. The estimated amount of unused funds is between $50 billion and $70 billion.
White House officials said some funds would be withheld, including those related to vaccine funding, housing assistance, and Native American aid.
Additional employment requirements
Bipartisan lawmakers have fiercely debated imposing stricter job requirements on low-income Americans to determine eligibility for food relief and healthcare programs.
There are no changes to the Medicaid health assistance program in the agreement, but the agreement will impose new work requirements for some low-income individuals receiving food assistance under the program known as SNAP until age 54 instead of 50 as before.
Student loans
The new bill would require the Biden administration to adhere to its plan to end the moratorium on student loan payments by the end of August. However, the bill does not eliminate President Biden's proposed plan to forgive $430 billion in student debt.
The U.S. Supreme Court is currently reviewing this plan.
Relaxing licensing requirements for energy projects.
The parties have agreed on new rules to make it easier for energy projects – including those using fossil fuels – to obtain permits.
Senator McCarthy and his fellow Republicans have identified reforming the licensing process as one of the pillars of any agreement.
The White House endorsed this plan in early May 2023.
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