US Debt Ceiling Deal - What it Actually Does and Why it Doesn't Solve the Problem

Wednesday - June 14 2023, 20:42 UTC - 1 year ago

House Republicans pushed the U.S. to the edge of a fiscal crisis in an effort to get deep cuts in government spending. The new deal signed into law by President Joe Biden suspends the debt limit until 2025, freezes nondefense discretionary funding at current levels until 2024, expands work requirements for SNAP recipients, and institutes a temporary cap on nondefense discretionary spending. The provisions in the bill do not fully address the US's long-term debt problem.

House Republicans pushed the U.S. to the edge of a fiscal crisis because they wanted deep cuts in government spending. So, based on the deal President Joe Biden signed into law on June 3, 2023, how did they do? .

In broad strokes, the deal suspends the debt limit until January 2025, freezes nondefense discretionary funding at current levels and makes a few additional cuts and policy changes that were designed to appeal to enough Republicans and Democrats to get it through Congress. The deal also includes an incentive to motivate lawmakers to pass a budget on time in four months. That provision and the 2025 expiration date should mean the U.S. will avoid any self-inflicted fiscal crises until at least after the next presidential election.

No one got everything they wanted. Biden didn’t get the clean debt ceiling increase he had insisted on for months. Republicans didn’t get most of what they sought in a bill they passed in April – though they did get some of it.

As a professor of public policy and former deputy director at the Congressional Budget Office, I believe the deal, which passed through both Houses of Congress just ahead of the June 5 deadline to avoid default, does hardly anything to address America’s long-term debt problem. To me, this outcome shows why a debt ceiling standoff is not the right way to solve it.

Let’s take a closer look at what I would consider the five main components of the new law to see what they’ll accomplish.

1. Expanded work requirements for SNAP .

The Supplemental Nutrition Assistance Program has been a Republican target for a while. Under current law, an individual must work or be in training for 80 hours per month if they receive SNAP food benefits in three or more out of 36 months, is able-bodied, does not live with dependent children and is under 50 years old. This entitlement program is 100% funded by the federal government but is administered by states, which have the ability to waive the requirements in some low-unemployment areas.

The new deal expands the eligibility requirements to people up to age 54 and limits some of the state waiver authority. It excludes veterans and homeless people from the tougher work requirements and will expire in 2030. The Congressional Budget Office estimated the changes would result in a net gain of 78,000 people getting benefits, according to a letter sent to Congress May 30. And while that provision was intended to reduce spending, because of the exclusions the CBO expects it to actually increase spending by US$1.8 billion over the next decade.

The bill also contains some additional work requirements for welfare recipients for the temporary assistance for needy families program, but the changes are relatively minor.

2. Cap on nondefense discretionary spending .

The main way the agreement restricts federal spending is through the temporary cap on nondefense discretionary spending. Spending on everything other than defense, entitlements like Social Security, and veterans benefits will stay flat in next year’s budget relative to the 2023 amount and increase 1% the following year, with no limits after that.

But ultimately, the caps apply only to a fraction of total federal spending – this category accounts for about 16% of discretionary spending, compared to more than two-thirds for defense. It’s likely the defense spending caps won’t be significantly affected.