Facts About the Federal Debt Ceiling Negotiations

from SPN’s Dispatch from DC newsletter

Republican Speaker of the House Kevin McCarthy and Democrat President Joe Biden are the figureheads of a high stakes game of political chicken centered around our national debt ceiling. Since the beginning of the year, the President has insisted that debt ceiling talks should be separate from budget negotiations for FY 2024. The administration argues that the debt ceiling should be raised without conditions. Meanwhile, House Republicans are insistent that any debt ceiling raise be contingent on passage of their preferred budget. This budget would include various policies Republicans claim would stimulate the economy, and would also freeze spending at last years’ levels.

Last week, House Republicans released their budget proposal — including a debt ceiling increase — which they are calling the Limit, Save, Grow Act of 2023. House Republicans plan to have a floor vote on the proposal soon, though they’re moving cautiously due to their slim majority. Some Republican lawmakers routinely vote against a debt ceiling increase, while others in moderate districts tend to have more concerns about changes to entitlement programs, so there are many political considerations to keep in mind. In addition to these internal tensions, the stakes around debt ceiling negotiations are inherently high, with our debt limit projected to be breached as early as July if it’s not raised. Furthermore, even if House Republicans pass their budget, Democrat Senate Majority Leader Chuck Schumer claims their proposal would be dead on arrival in the Senate.

With so much at stake, outside groups can play an important role in educating the American people about the need for strong financial stewardship of all levels of government. This edition of the Dispatch from DC provides some details about the Republicans’ proposed package, which includes several provisions that are similar to policies many state groups have worked on.

Limit, Save, Grow Act of 2023

Last week House Republicans introduced their budget proposal, which they claim would grow the economy and save taxpayers more than $4.5 trillion. In exchange for passage of their budget, they will agree to lift the debt ceiling either by $1.5 trillion or through March 31, 2024, whichever comes first.

What is the debt ceiling?

The debt ceiling is a limit on the amount the federal government can borrow and was congressionally established during World War I to give the Treasury Department blanket authorization to borrow money up to a set limit. Since 1960, Congress has raised the ceiling 78 times. The debt ceiling was last raised in 2021 to $31.4 trillion. The official limit has already been reached, but Treasury is using accounting procedures they call “extraordinary measures” to push default through June or July.

The United States has never defaulted on our debt, but we came close in 2011. The prolonged debate around the debt ceiling alone prompted rating agencies to downgrade the country’s credit rating from AAA to AA+. Markets subsequently went into a severe tailspin, prompted by the mere suggestion the ceiling wouldn’t be raised and the nation would default. An actual default on the debt would be much worse, and impact every facet of the national and global economy.

What is the House Republicans’ Plan?

The Limit, Save, Grow Act of 2023 is broken into five sections, labeled as Divisions A through E. These focus on limiting discretionary spending, saving taxpayer dollars, growing the economy by encouraging work and restricting regulations, passage of an energy and permitting package, and raising the debt limit.

Provisions in the act include:

Division A – Limit Federal Spending

  • Establishes discretionary spending levels for FY2024 at FY2022 levels.
  • The spending cap would be $1.47 trillion, which is $131 billion below the current fiscal year.
  • Allows for 1% annual growth over the next 10 years.

Division B – Save Taxpayer Dollars

  • Rescinds approximately $50 – $60 billion of federally unspent COVID funding.
  • Prohibits the executive branch from continuing to forgive certain student loans and delay repayment.
  • Repeals several sections of the Inflation Reduction Act that created tax credits and subsidies for electric vehicle purchases and the development and manufacturing of “green energy” technology.
  • Eliminates $71 billion that was appropriated in the Inflation Reduction Act for a massive expansion of Internal Revenue Service agents.

Division C – Grow the Economy

  • Establishes work requirements for Medicaid, the Supplemental Nutrition Assistance Program (SNAP), and Temporary Assistance for Needy Families (TANF) beneficiaries.
  • Modifies the TANF baseline year for the Caseload Reduction Credit, which provides states with a credit for reducing the number of individuals on their TANF caseload, from 2005 to FY 2022.
  • Applies work requirements to able-bodied adults without dependents in the Medicaid program between the ages of 19 to 55, requiring them to either work, engage in community service, or participate in a work training program for at least 80 hours per month.
  • Increases the SNAP work requirements age range from 18-49 to 18-55 and eliminates the ability of states to carry forward their unused exemptions from federal work requirements.
  • Includes the Regulations from the Executive in Need of Scrutiny (REINS) Act that would require Congress to approve any federal rule or regulation with an economic impact of $100 million or more.

Division D – H.R. 1 The Lower Energy Costs Act

  • Includes the recently passed House Republicans’ priority legislation which is a package that focuses on energy production and permitting reform.
  • Expedites hardrock mining, streamline manufacturing, and repeals the natural gas tax.
  • Streamlines National Environmental Policy Act (NEPA), the federal environmental permitting process, which adds years of delays and millions of dollars in costs to the energy and infrastructure projects.
  • Imposes a 120-day deadline to file a claim on any final agency action subject to NEPA.
  • Sets deadlines for completion of NEPA environmental impact statements.

Division E – Increase to the Debt Limit

  • Suspends the debt ceiling through either March 31, 2024, or by $1.5 trillion increase from the current $31.4 trillion ceiling—whichever comes first.
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