The President and House Speaker McCarthy's negotiators published the Fiscal Responsibility Act (H.R.3746) mere days prior to the Xday deadline for when the federal government would run out of wiggle room to continue borrowing under the statutory debt limit.
Here's what you need to know to assess its impact on the U.S. debt crisis:
Waives the Debt Limit
The debt ceiling is suspended until January 1, 2025, per the bill. A suspension is analogous to a waiver. The measure eliminates the debt ceiling temporarily, allowing for unlimited borrowing for approximately one and a half years.
President Biden's executive decision to cancel student loans increased the fiscal year (FY)2023 deficit by more than $400 billion, which was also a pre election move. It is less surprising that Republicans dislike voting for explicit debt limit increases when one considers that it is currently more difficult to be transparent about increasing the debt by an additional $3–4 trillion between now and January 2025. It is more politically expedient to maintain the impact on the debt uncertain and open-ended. Even if doing so necessitates leaving open the possibility of further executive debt increases and resorting to additional deficit spending if a recession occurs within the next few months.
Phantom Savings
In exchange, the measure establishes discretionary funding caps of up to $1.606 trillion for FY2025 ($895 billion for defense and $711 billion for nondefense) and $1.590 trillion for FY2024 ($886 billion for defense and $704 billion for nondefense). In addition, the bill incorporates nonbinding spending caps for an additional four years. These might as well be considered suggestions.
The CBO accepts the spending limits at face value and assigns the bill a 10-year savings value of $1.5 trillion. Unfortunately, those calculations are deceptive. In addition to giving lawmakers full credit for six years of spending limits, the CBO does not take into account any side deals that would undermine even the modest savings proposed in this measure. After repurposing funds and various other budgetary maneuvers agreed to by negotiators outside the legal text, nondefense discretionary savings in FY2024 will not exceed $1 billion, according to off-the-record sources. CBO assumes $64 billion in savings for that year, which serves as the basis for estimates of future savings. Taking into account these secret expenditure increases, the CBO estimates mostly phantom savings that are unlikely to be realized.
Work Requirements Change to Increase Spending
Additionally, the measure modifies the work requirements for SNAP (Supplemental Nutrition Assistance Program) and TANF (Temporary Assistance for Needy Families) in such a way that more people will become eligible for assistance, thereby increasing spending. On the savings side, the age below which able-bodied individuals without dependent children are required to work a minimum of 20 hours per week would gradually increase from 50 to 54. On the spending side, more individuals would be exempt from labor requirements, including the homeless, veterans, and foster youth ages 18 to 24.
Fails to Address the Debt Crisis
Congress entered these debt limit negotiations with publicly held debt on the verge of surpassing the gross domestic product of the country — the total value of all goods and services produced in this year — and on track to surpass WWII record levels within the next five years. To significantly slow the growth of the debt, Congress needed to save at least $8 trillion, or 10 percent of total projected expenditure, over a 10-year period. Even if the phantom savings in the debt limit agreement are taken at face value, the Fiscal Responsibility Act falls far short of achieving this objective.
Congress should have augmented the Budget Control Act of 2011 with a Better Budget Control Act to meaningfully limit discretionary spending at pre pandemic levels, reduce mandatory spending, and establish a process for addressing the largest drivers of America's unfunded obligations: a BRAC like fiscal commission with fast track authority. Due to Congress and the White House's failure, the U.S. budget continues to teeter on the verge of catastrophe as the stakes of future debt limit negotiations increase.
