The nation appears to have veered away from a default crisis for now with the House approving budget cuts and a debt ceiling tax package this week. Democrat President Joe Biden and Republican Speaker Kevin McCarthy managed to put together bipartisan support comprising centrist Republicans and Democrats amid fierce opposition from the progressive and far-right conservatives.
The tax package deal was hard fought and neither appears to have emerged victorious. But lawmakers on both sides conceded that it was better than an alternative that could lead to a devastating economic upheaval. This could well have been the case if Congress had remained mired in quarreling over a host of contentious issues for another week. The government had indicated that they were a week away from defaulting on payments if a tax package could not be assembled within that period.
Tension was high through the final day as Democrats accused extremists within the GOP of risking a debt default as early as a week later. Republicans, on the other hand, have refused to compromise on several key issues about cuts in spending in 2024 as a major demand for backing the tax package. But in the end, an overwhelming House vote of 314 to 117 helped move the tax package through to the Senate for approval by the end of this week.
New Details Emerge In Debt Limit Tax Package
The deal over the tax package will lift the debt limit for two years even as it cuts and caps multiple government spending, except those related to defense. Among the components in the deal are two years of spending caps, extra work requirements for food stamps, and cuts to IRS funding. The cuts in IRS funding were a move close to the hearts of the Republicans as the funding was linked to President Biden’s efforts to tax the super-rich. This is something that the Republicans have consistently opposed given that they are their chief financiers.
The centerpiece of the agreement remains the tax package. The two-year suspension of the debt caps is the total amount the government can borrow to run the administration. Suspending the cap on spending, which now stands at $31.4 trillion, will allow the Biden administration to keep borrowing money and pay its bills. The federal administration has relied on accounting jugglery ever since the limit was reached in January 2023.
But it had reached its limits and would have defaulted on its payments if the debt ceiling was not extended through this tax package. And in exchange for a suspension of the debt limit, the Republicans have demanded a host of policy concessions from the White House. Leading among them are limits on the growth of discretionary federal spending over the next 2 years.
The Biden administration has also been forced to agree to some new work requirements for certain recipients of food stamps and the Temporary Aid for Needy Families program. Both sides agreed to certain efforts that will hasten the permit for energy projects though there are differences between the two camps over their priority.
While the Republicans have stressed greater efforts for fossil fuel energy projects, the ruling Democrats have insisted on prioritizing the use of electric and other non-polluting sources of energy.
Tax Package Temporary Suspends The Debt Limit
The final deal over the tax package temporarily suspends the nation’s $31.4 trillion borrowing limit until January 2025, past the 2024 presidential elections. Suspending the debt limit for a particular period of time is quite different from setting it at a fixed level. Thus, it gives the Treasury the latitude to borrow an unlimited amount of money it needs to pay the government bills during the period it is suspended.
It also gives it a few more months even after the limit is reached. That is what is keeping the administration afloat till May even though the ceiling was touched way back in January 2023. The department resorts to accounting jugglery to help keep up with the payments even after the ceiling is touched.
That is quite different from what the House Republicans passed to raise the limit by $1.5 trillion or through March 2024, whichever comes first. But under this fresh legislation, the tax package will set a debt limit that will technically be the level it has reached at the end of the suspension period.
This tax package is politically convenient for the Repubcalisns. The GOP prefers the suspension of the debt limit instead of raising it. This allows them to wriggle out of a situation where they can claim that they did not technically allow a specific higher debt limit. The present tax package suspends the nation’s debt load well past the next presidential election and pegs it at 2025.
Caps On The Tax Package
The tax package brings in cuts over non-defense discretionary spending. It includes forest management, scientific research, air traffic, domestic law enforcement, and many more for the fiscal year 2024. It also limits discretionary spending to 1% growth in 2025. In effect, it is a budget cut that is projected to be slower than the inflation rate.
The government thus will be able to borrow money to clear its bills on time. In exchange for agreeing to push through the tax package that effectively suspends the debt ceiling, the Republicans have demanded and received their pound of flesh.
The main concessions for letting through the tax package are caps on several planned spending over the next two years. The deal also claws back $10 billion from the increase in the IRS budget to go after the super-rich who have managed to avoid taxes thanks to the Republicans. Another major setback for President Biden under this tax package is that he had to agree to end his freeze on repayment of student loans that have remained suspended since the pandemic shutdown. This will have to be effected by the end of summer.
