Biden debt ceiling extension, modest spending cuts

The bipartisan agreement between Democratic President Joe Biden and Republican Speaker Kevin McCarthy extended the debt limit for two years, along with modest federal spending cuts and a series of policy changes.

The 99-page Fiscal Responsibility Act, which is expected to be voted in the Republican-led House on Wednesday, has to pass the Democratic-controlled Senate before the June 5 deadline set by the Treasury Department to act or risk default.

The deal's focus is a suspension of the debt ceiling, currently at $31.4 trillion, until January 1, 2025. The money can then be paid in exceptional ways by the Treasury Department, which usually last for months.

The election successfully resolves the problem through the election of 2024, leaving it to the next president and new Congress to deal with.

The agreement includes spending caps for the next two years to set up the appropriations process. In fiscal year 2024, it has a net limit on military spending to $886 billion, and non-military discretionary spending to $704 billion. In fiscal year 2025, those numbers increased to about $895 billion and $711 billion.

McCarthy called the deal historic, saying it would amount to cutting spending year-over-year for the first time in more than a decade. The White House projects that when setting aside veterans funding, non-defense spending barely changes - with a slight reduction overall from 2023 to 2024.

It's flat. It's a difference of about $1 billion, said a White House official. In a divided government, we are not going to get the kinds of non-defense discretionary increases that we would hope to get. The bill demonetizes about $28 billion in unsecure Covid relief funds and repeals $1.4 billion in IRS funding and resumes federal student loan payments after a lengthy pause that began at the beginning of the pandemic. The federal government escalating work requirements for receiving the Supplemental Nutrition Assistance Program and Temporary Assistance for Needy Families benefits on Americans up to 55 years old, with carveouts for veterans and homeless people.

House Republicans declare the bill as the first significant reforms to the National Environmental Policy Act since 1982, paving the way for the first significant changes to NEPA. What is it really like for the Democrats?

The White House is touting it as a budget deal - not a ransom payment for a debt ceiling extension - and emphasizing the modesty of the spending cuts despite facing a Republican-led House. The bill also notes that the bill does not make changes to Medicaid and leaves Social Security and Medicare untouched. The White House says the bill fully preserves the climate and clean energy provisions of last year's Inflation Reduction Act and leaves Biden's executive action on student debt forgiveness untouched.

And it averts a catastrophic default for the rest of Biden's first term.

We think that taking the threat of default off the table into 2025 is a significant upside for the economy, a substantial accomplishment, the White House official said.