Five things to know about the debt ceiling bill passed by House Republicans
Zachary Halaschak
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GOP lawmakers this week narrowly passed legislation to raise the debt ceiling. Here are some key points to know about the bill and the broader political context.
Lawmakers passed the debt ceiling proposal, which included some last-minute concessions to attract support for some of the caucus’s more conservative members, along party lines in a 217-215 vote. Four Republicans voted against the measure.
The backdrop
The United States hit the debt ceiling, also known as the debt limit, of $31.4 trillion in January, according to the Treasury Department. Treasury Secretary Janet Yellen announced that the Treasury would take “extraordinary measures” to prevent the U.S. from defaulting on its obligations.
The measures essentially involve moving around government funds to pay incoming bills for now, although the Treasury only has a few months of runway before those measures are exhausted — a deadline that is fast approaching.
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Those “extraordinary measures” essentially amount to shifting money around government accounts in order to pay incoming bills without issuing new debt. The measures have been used at least 16 times since first being deployed in 1985, according to the Committee for a Responsible Federal Budget, and as recently as 2021.
Lawmakers must act to raise the debt ceiling before the measures are depleted because failing to do so would mean that the U.S. could default on its obligations.
When will the Treasury run out of time?
The “X date,” which is the date when the U.S. would exhaust its extraordinary measures, is not a set date but instead fluctuates based on day-to-day expenditures and incoming revenues.
The federal government and economists are closely analyzing tax receipts to get a sense of the X date. Estimates have ranged from early summer to as late as the fall. But in recent days, estimates have shifted toward the deadline being hit at the earlier end of that timeline.
Analysts with Bank of America recently noted that tax receipts have been weaker than anticipated and moved their X date projection from mid-August to early August but said in a note that the date “could easily slip to late July.”
Goldman Sachs predicted the X date will come in late July, although the chance that it could come in June has increased in recent days. Wells Fargo expects the X date to arrive in early to mid-August, according to its latest forecast.
Why don’t Republicans just raise the ceiling if it’s so important?
Republicans, who just recently regained narrow control over the House but still lack the Senate and the White House, see this as a key opportunity to exact some concessions from the White House and improve the country’s fiscal situation (and score key talking points ahead of the 2024 presidential election).
The U.S. is facing a major debt reckoning in the coming years, and Republicans say they hope to slash government spending in order to close the budget deficit. The Congressional Budget Office forecasts that the federal debt (which represents the accumulated annual deficits) is expected to grow to about 120% of the annual gross domestic product in 10 years.
Worsening the situation are rising interest rates. The Federal Reserve has been hiking its interest rate target for more than a year, and interest rates have risen on Treasury securities, mortgages, and the whole range of financial products. The higher rates on Treasuries threaten to raise the cost of servicing that debt drastically.
The cost of servicing the federal debt hit the highest level in 23 years in the first quarter of this year, it was revealed in a GDP report released Thursday. U.S. spending on interest payments ballooned to 3.5% of GDP, the highest level since the turn of the century.
So, what does the GOP legislation do?
The top line is that the bill would raise the debt ceiling over the next year either by $1.5 trillion or until March 31, 2024, whichever comes first.
In separate provisions, it would reduce spending. The now-passed House bill sets federal discretionary spending at $1.47 trillion for the coming fiscal year and reverts discretionary spending caps to fiscal 2022. It also only allows that spending to tick up by 1% each year after that.
The Congressional Budget Office estimates that the legislation would amount to a $4.8 trillion reduction in deficits over the next decade. The reductions would mostly be tied to cuts rather than increased tax revenue. The spending cap would account for about two-thirds of the deficit reduction.
Crucially, the cuts involved in the proposal would be tied to discretionary spending rather than mandatory spending. That is important because it would not affect Social Security and Medicare, something that Democrats and most Republicans have seen as a red line.
Discretionary spending includes things such as federal rental assistance, grants for schools in low-income communities, research funding, and weapons programs. While Republicans have said the cuts wouldn’t eat away at defense spending, there is nothing in the legislation expressly blocking discretionary defense cuts.
The legislation also includes cuts to the Inflation Reduction Act, which was passed by Democrats last year. It would also claw back most of the controversial $80 billion boost to the IRS, which was part of the act and has rankled Republicans who say it will fund overreach by the tax-collecting agency. It would also repeal some clean energy tax credits, although not all of them. McCarthy has argued that the tax breaks “distort the market and waste taxpayer money.”
The legislation also cuts President Joe Biden’s plans to waive up to $20,000 in student loan debt and would put to an end to the White House’s plan to slash monthly payments in half for borrowers in income-driven repayment plans.
Additionally, the legislation aims to bolster work requirements for major social welfare programs. The boosted work requirements would affect the Supplemental Nutrition Assistance Program, known as food stamps, as well as Medicaid.
Does it have a chance of becoming law?
No. It has virtually no chance of raising the debt ceiling as it is currently written. Democrats hold a slight edge in the Senate, and the McCarthy legislation is essentially dead on arrival. Democrats oppose many of its provisions, such as increasing work requirement strictures for welfare.
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The legislation is more of a messaging bill, signaling Republican priorities during talks about raising the debt limit.