Amid threats of the economy crashing and 401(k)s plummeting, the House of Representatives late May 31 approved legislation to suspend the federal debt limit until 2025.
Facing a June 5 deadline to avoid a first-ever federal default if Congress does not act, the House approved the Fiscal Responsibility Act of 2023 (H.R. 3746) on a bipartisan vote of 314-117, with 71 Republicans and 46 Democrats voting against the bill.
While the legislation is based on the broad agreement negotiated last weekend between President Biden and House Speaker Kevin McCarthy (R-CA), the brinkmanship may not be over just yet. Attention will now turn to the U.S. Senate, where it would take only a few senators to block the legislation and/or delay the process beyond the June 5 deadline.
Senate Majority Leader Chuck Schumer (D-NY) has indicated that, when the bill arrives in the Senate, it is his intention to bring the legislation to the floor as quickly as possible for consideration. “Senators must be prepared to act with urgency to send a final product to the President’s desk before the June 5 deadline,” Sen. Schumer stated.
Treasury Secretary Janet Yellen, in her latest letter to Congress dated May 22, estimated that Treasury will not be able to satisfy the government’s obligations if Congress has not acted by early June. Moreover, she warned that failure to raise the debt limit or even waiting until the last minute to address the debt limit “can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States.”
Such an event could also have far-reaching implications for the nation’s retirement system, including a possible suspension of public retirement benefits and steep losses in private retirement accounts resulting from market volatility.?
Under the legislation, the debt limit is suspended through Jan. 1, 2025. On Jan. 2, 2025, the debt limit would be raised by the total amount of obligations incurred up to that point. In addition, the legislation includes provisions to:
- Establish statutory caps on discretionary funding for fiscal years 2024 and 2025 that would be enforced by sequestration;
- Set limits on most discretionary funding for each year from 2026 through 2029 that would be enforced using the Congress’s procedures for considering budgetary legislation;
- Rescind certain funds provided to the Internal Revenue Service (IRS), as well as unspent COVID relief fund; and
- Modify work requirements for the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF).
H.R. 3746 does not make cuts Social Security, Medicare, and Medicaid.
Ironically, an analysis by the Congressional Budget Office (Congress’ official beancounter) shows that rescinding certain unobligated funds provided to the IRS and other agencies—most of which are for enforcement—would result in fewer enforcement actions over the next decade and in a reduction in revenue collections, producing a net increase in the deficit of $900 million over the period 2023–2033.
Additional details on what was included in the debt limit legislation can be found here.