Congress Enacts Debt Limit/Spending Cuts Bill, Averts Financial Crisis

On June 1, by bipartisan votes, Congress finalized approval of a bill (H.R.3746) embodying the Biden-McCarthy debt limit/spending cuts agreement. The agreement staves off the default on U.S. debt that Treasury stated would have come on June 5 unless Congress acted.

The House approved H.R.3746, by a bipartisan 314 to 117 vote on May 31. The Senate followed suit, by a 63 to 36 vote, on June 1. President Biden signed the bill into law on June 3, just ahead of the June 5 deadline for default.

H.R.3746, the Fiscal Responsibility Act (FRA), embodies the May 27 agreement between President Biden and Speaker of the House Rep. Kevin McCarthy (R-CA). It is essentially a two-year deal. It suspends the country’s statutory debt limit until January 1, 2025, and establishes a non-defense discretionary spending cap of $703.641 billion for fiscal year (FY) 2024. It would allow for a one percent increase in that spending cap for FY 2025. Combining the various exceptions and special case funding elements in the bill results in FY 2024 spending that is essentially flat as compared to current (FY 2023) spending.

The FRA also sets separate spending limits for defense and Veterans Affairs (VA) spending. The limits, $886.249 billion for defense and $325.1 billion for the VA, reflect the spending levels requested by President Biden in his FY 2024 budget this past March.

There are basically seven elements to the FRA. They are:

• A suspension of the debt limit until January 1, 2025.
• Discretionary spending caps, enforced through automatic across-the-board spending cuts if Congress does not enact the required appropriations bills by the September 30 end of the fiscal year for FYs 2024 and 2025.
• Modified work requirements for eligibility for two welfare programs, TANF (Temporary Aid to Needy Families) and SNAP (Supplemental Nutrition Assistance Program). But new work requirements were not imposed on Medicaid recipients.
• Modest reforms to energy project permitting rules to make new energy projects easier to get approved.
• Rescission of some $30 billion in unspent COVID relief funds.
• Claw back of some of the $80 billion in new funding allocated to the Internal Revenue Service (IRS) in legislation enacted into law last year. H.R.3746 contains statutory language clawing back $1.4 billion of the $80 billion, but President Biden and Speaker McCarthy also agreed to a rescission of $20 billion in IRS funding. That $20 billion will be available for “other” spending that will be allocated during the appropriations process.
• A statutory requirement to resume collecting student loan payments by this fall.

On spending cut issues, the FRA is a compromise between President Biden’s FY 2024 budget proposal and H.R.2811, the House-passed Limit, Save, Grow bill that would cut spending by about $4.8 trillion over ten years. Supporters of the FRA point to what is not in the new law as being as important as what is in it.

Left out of the new law were:

• Democratic demands for new taxes on the wealthy and big corporations.
• Republican demands for stricter work requirements for Medicaid eligibility.
• GOP efforts to repeal most of last year’s Inflation Reduction Act.
• Democrats’ push to approve higher discretionary spending for social welfare programs.

House leadership released H.R.3746 on May 28, setting up a 72-hour period during which lawmakers and the public could read the bill. As expected, it generated considerable comment—some supportive, some in opposition. The Senate voted down 11 amendments before agreeing to the House-passed measure without any changes. Ultimately, the flanks (far right and far left) of both parties voted against the bill. But most lawmakers in both parties and in both chambers of Congress—fearing the risk of an economy-wrecking default--voted to enact the bill.

Prospects: Avoiding an economy-devastating default on the U.S. debt was a powerful incentive to enact H.R.3746. The FRA is not good enough for many conservatives and progressives alike (for different reasons, of course), including many who voted for the bill. But at the end of the day, most lawmakers agreed that the consequences of default would be worse.  

Enactment of H.R.3746 does not end the spending cuts/tax increase debate. The legislative battles are not over. Most of the spending cut details will come in appropriations bills that are still to be written. Expect a hot summer as lawmakers maneuver to make the best of a compromise that has left many unhappy with the final outcome.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; Michael Hedge – Senior Director – Government Relations, at mhedge@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.