After months of negotiations, President Joe Biden and House Speaker Kevin McCarthy have finally agreed to suspend the country’s debt limit — or the amount of money the federal government can borrow — for two years.
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The U.S. officially hit its $31.4 trillion ceiling back in January, triggering panic and fear over a potential default. Without a deal to raise the borrowing limit, Treasury Secretary Janet Yellen has warned the country could run out of cash and be unable to pay its bills as soon as June 5.
But the agreement to put the brakes on the debt limit until January 2025 — which still needs to be approved by Congress — comes with plenty of caveats and cuts to spending. Here’s what it covers — and most importantly, what it claws back.
Spending cuts, the student loan freeze and more
The bipartisan “compromise” bill would restrict spending to avoid a government shutdown for the next two years.
First, it would reduce discretionary spending for the 2024 fiscal year and cap it to 1% growth in 2025, which White House officials told reporters could “likely” save around $1 trillion over the next decade.
It would also add new work requirements for adults aged 50 to 54 who don’t have children living with them to qualify for the Supplemental Nutrition Assistance Program (SNAP). The current law only imposes these limits on adults aged 18 to 49, although the bill will exempt veterans, people without housing and young adults 24 and under who are transitioning out of the foster care system.
As for the bill’s proposed energy projects, a lead agency will be created to oversee reviews and ensure they’re completed within one to two years.
About $30 billion in unspent funds from a previous COVID-19 relief bill will also be clawed back, with some of the money diverted to non-defense discretionary spending.
While Biden’s student loan forgiveness plan (which currently remains under review by the Supreme Court) was left out of the bill, the legislation does specify that the student loan freeze will end in August and restricts Biden’s ability to reinstate it. That means, come September, student loan payments (and interest charges) will resume.
Read more: Here’s the annual income you need to fall in America’s lower, middle, and upper class — plus 3 simple tips to boost you up the ladder
There’s a major pull-back on IRS funding
To pay for the debt deal, Biden has to go back on some of his spending plans — especially when it comes to the tax agency. The new debt deal proposes to immediately rescind $1.38 billion and then repurpose another $20 billion of IRS funding from the Inflation Reduction Act.
Last year, Biden announced he’d be increasing funding to the IRS, which has been woefully underfunded and understaffed for a decade.
A cool $80 billion was set to be spread over 10 years in order to modernize the agency’s infrastructure and replace its aging workforce. And $45.6 billion from that total was targeted specifically toward boosting enforcement, especially around big businesses and the wealthy tax evaders.
Former IRS Commissioner Charles Rettig estimated in 2021 that the agency loses $1 trillion in unpaid taxes each year and called for more “fire-breathing dragons” to take cheaters to task.
However, some critics raised concerns that dialing up enforcement on upstanding tax-paying Americans could breed resentment and anger. Republicans also approved legislation to pull back on the entire $80 billion.
While the new agreement significantly slashes back funding, officials told reporters in a background call that they expect no disruptions in the short term, according to The New York Times.
They indicated the IRS could potentially use some of the money that was reserved for later years, and then return to Congress at a later date to request more funding.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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