Congress left Washington on July 27 without enacting any fiscal year (FY) 2024 appropriations bills. Lawmakers did make some progress in both the House and Senate, but face having to do all 12 of the annual discretionary spending bills in less than three weeks in September. Expect deep cuts to the budgets of all the agencies, except the Veterans Administration (VA) and Defense, and potentially new taxes as well.

Government funding is a complex process, made even more complicated this year by deep and hard-fought divisions both among the Republican lawmakers who control the House, and between the GOP House and the Democratic-controlled Senate and White House. The Fiscal Responsibility Act (FRA), enacted in June, set spending caps that generally call for FY 2024 spending at FY 2023 levels. But, both the House and Senate are, for now, ignoring those limits, albeit in different ways.

Failure to enact the 12 appropriations bills would mean an across-the-board one percent cut in all federal discretionary spending, per the terms of the FRA. Because an across-the-board cut would hurt Defense and the VA (the two agencies that would actually get increases in budget authority in fiscal year (FY) 2024), that is a result no one—even the most ardent of the spending cut supporters—wants.

There are ongoing battles over funding levels—there is a chasm of $100 billion between funding levels approved by the two chambers’ Appropriations Committees and subcommittees. There are also deep divisions over certain policy issues like whether to allow government money to be used for abortions, abortion medications, or travel to obtain abortions. There are also policy disputes over whether to allow funding for programs involving transgender care; critical race theory; diversity, equity, and inclusion; and other hot button social issues.

In addition, many in the GOP, especially in the Senate, decry “inadequate funding” for Defense and they also want more aid for Ukraine. In addition, most Democrats want and are fighting for more money for health, housing, energy, nutrition, child and elder care, and other social safety network spending programs. Add in Fitch’s recent downgrading of U.S. credit rating (due in part to the burgeoning federal deficit and also in part to Congress’ “brinksmanship” on debt limit action), and you get the current complex and very difficult fiscal situation.

So far, Democrats are arguing that deficit reduction should include provisions to raise more revenue (i.e., tax increases), but virtually all Republicans oppose that. NAIFA’s interest in tax issues is broad due to the large number of tax rules that benefit life and health insurance, annuities, retirement savings, and employer-provided benefits. Tax increases may well come into play next month as Congress grapples with these very difficult issues.

Prospects: Expect bitter fights over both funding levels and policy riders. And a tense debate over whether to raise some kind of new tax revenue is also likely. Almost every Hill insider is talking about the potential for one or more continuing resolutions (CRs) between October 1 and December 31. And many are privately predicting a government shutdown, as currently there is no visible path to compromise. It is going to be one hellacious September (and thereafter) on Capitol Hill this fall/early winter.

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