President Joe Biden’s team and House Speaker Kevin McCarthy’s deputies are nearing a deal that would raise the U.S. debt ceiling and avoid a market-shaking default, though getting it through Congress quickly could prove tricky.
McCarthy has said he’ll follow a rule to post any bill for 72 hours before votes, so that could mean House action on Tuesday or Wednesday. But the Senate then might end up with “essentially no time to pass the bill” by the Treasury Department’s June 1 debt-limit deadline, and therefore a short-term suspension might be needed in this ongoing process, said Capital Alpha Partners analyst James Lucier in a note.
However, Treasury Secretary Janet Yellen late Friday extended her department’s debt-limit deadline to June 5 from June 1.
“The protests of conservative Republicans and progressive Democrats are music to our ears,” Lucier also said. “They are the sound of a deal being done. The individuals who are complaining are those who were never likely to vote for the bill in the first place.”
But what’s going into the bipartisan deal? Below are expected elements.
- Lift the debt limit through the 2024 elections: The emerging deal calls for increasing the ceiling for federal borrowing so that no further hikes are needed until after the 2024 elections. The measure that the Republican-run House passed in April would have raised the limit on federal borrowing for only a year.
- Some cuts to spending: Nondefense discretionary spending in the next fiscal year would be below the current fiscal year’s levels, but all discretionary spending would grow at 1% in 2025, according to a New York Times report citing people familiar with the developing deal. The Pentagon and veterans’ programs wouldn’t face cuts.
- IRS to lose out on $10 billion, potentially increasing the deficit: The Internal Revenue Service scored an additional $80 billion in funding from Democrats’ Inflation Reduction Act, with the agency saying it would use it to crack down on tax evasion by wealthy individuals and big companies. But now $10 billion of that funding would get taken away and essentially shift to nondefense discretionary spending, allowing Democrats to avoid further cuts in programs like education and environmental protection, according to the Times report. EvercoreISI analyst Tobin Marcus said in a note that “cutting tax enforcement funding as part of this deal will serve to increase the deficit at the margin, underscoring our consistent argument that this is a political exercise not a fiscal exercise.” Janet Holtzblatt, senior fellow at the Urban-Brookings Tax Policy Center, said the possible reduction “just nine months after IRA’s enactment points to the fragility of the $80 billion budget boost and could undermine IRS managers’ confidence that the funds will be available in the future to pay new hires and cover the costs of modernization of the agency’s technology.”
- A way to prevent government-shutdown fears this fall: “The deal also reportedly includes a mechanism for automatic ‘continuing resolutions’ if Congress cannot agree on detailed appropriations bills based on the caps set in this deal, which would take the threat of a fall government shutdown off the table entirely — good news for investors who would like to stop focusing on DC dysfunction,” Evercore’s Marcus said.
- Work requirements called ‘major hang up’: Analysts have predicted the deal could feature tougher work requirements for the Temporary Assistance for Needy Families (TANF) program, but probably not for food stamps and Medicaid. Work requirements on aid programs are “the major hang up at this point,” a McCarthy deputy, GOP Rep. Garret Graves of Louisiana, told reporters on Thursday.
- Energy-permitting reforms: The deal looks set to include a measure to upgrade the U.S. electric grid for renewable energy, while also speeding up permits for pipelines and other fossil-fuel projects, according to a Bloomberg News report citing people familiar with the agreement.
- Clawing back unspent COVID-19 aid: About $30 billion in unused COVID-19 funding is expected to be rescinded. Biden has sounded open to clawing back some unspent pandemic aid, saying on May 9: “We don’t need it all.“