© Reuters. FILE PHOTO: US President Joe Biden holds debt limit talks with US House Speaker Kevin McCarthy (R-CA) in the Oval Office of the White House in Washington, US, May 22, 2023. REUTERS/Leah Millis
By Steve Holland and Jarrett Renshaw
WASHINGTON (Reuters) – U.S. President Joe Biden and Republican House Speaker Kevin McCarthy reached an agreement in principle on Saturday to lift the debt ceiling that would cut some U.S. federal spending.
While the bill is still being drafted, the general outlines of the deal have been outlined by Democratic and Republican sources. Here’s what we know so far:
A CAP ON DISCRETIONARY SPENDING
The deal would suspend the $31.4 trillion debt ceiling until January 2025, allowing the US government to pay its bills. In exchange, nondefense discretionary spending would be capped at current-year levels in 2024 and increased by just 1% in 2025.
The U.S. government will spend $936 billion on non-defense discretionary spending in 2023, according to estimates from the Office of Management and Budget, money that will go to housing, education, traffic safety and to other federal programs.
A BREATH FOR THE 2024 ELECTION
The extension of the debt ceiling lasts beyond 2024, which would mean that Congress would not need to consider the deeply polarizing issue again before the November 2024 presidential election.
That would prevent another political showdown that rattles investors and global markets until a Republican is elected president or Biden wins a second term.
INCREASE IN DEFENSE SPENDING
The deal is expected to raise defense spending to about $885 billion, in line with Biden’s 2024 budget spending proposal.
This is an 11% increase over the $800 billion allocated in the current budget.
MOVE IRS SPECIAL FUNDING
Biden and Democrats secured $80 billion in new funding over a decade to help the IRS enforce the tax code for America’s wealthy in last year’s Cut Inflation Act, a move that , according to the administration, would generate $200 billion in additional revenue over the next 10 years.
Republicans and Democrats had fought to move that funding, which was allocated under the law as “mandatory spending” to keep it from politically battling it out in the annual budget process, to “discretionary spending.” to be allocated by Congress.
The IRS planned to use the money to hire thousands of new officers, and the extra tax revenue they generated was to offset a slew of climate-friendly tax credits. Republicans have argued that listeners will eventually go after middle-class Americans, though the Treasury and Biden have said they will focus on higher-income households.
Biden and McCarthy are expected to agree to claw back unused COVID relief funds as part of the budget deal, including funding that had been earmarked for vaccine research and disaster relief. The estimated amount of lapsed funds is between $50 billion and $70 billion.
Biden and McCarthy have fought hard to impose tougher work requirements on low-income Americans to be eligible for food and health programs.
No changes were made to Medicaid in the agreement, but the agreement would impose new work requirements on low-income people who receive food assistance under the program known as SNAP. They would apply to beneficiaries up to age 54, instead of up to age 56 as Republicans had proposed.
SNAP, the Supplemental Nutrition Assistance Program, is a federal nutrition assistance program that reaches more than 40 million people.
Biden and McCarthy agreed to new rules to make it easier to get permits for energy projects — including those based on fossil fuels. McCarthy and his Republicans had identified reform authorization as one of the pillars of any deal, and the White House threw its support behind the plan earlier this month.
Biden protected the iconic climate provisions of his Cut Inflation Act, sources said.
A bill that would boost electricity transmission between U.S. regions was under consideration in the talks, Reuters reported on Thursday. The measure could be combined with slight changes to the fundamental US environmental law, the National Environmental Policy Act, or NEPA, which governs environmental reviews of projects such as roads and pipelines.