Essentials of the Debt Limit deal
From the beginning of this year, we began to read and/or hear that the U.S. was fast nearing its “debt limit.” Like an approaching drumbeat, that concern got louder and louder with each passing week. If it were not raised, policy wonks warned, the U.S. would not have enough money to pay all its legal obligations. Then all hell would break loose, economically.
Eventually, on June 3, after rounds of negotiations, the White House and the Congressional Republicans struck a deal. The economy was pulled back from the edge of the looming cliff of “default.” The product of that agreement was the Fiscal Responsibility Act of 2023, which suspends the debt limit until January 1, 2025 and increases it the next day.
Speaking at an E.M.S. media event, Rachel Snyderman, Senior Associate Director of business and economic policy at the Bipartisan Policy Center, Washington, D.C., said, “The bill reflects the hard work of compromise.” It’s the outcome of an “eleventh-hour deal.”
The “debt limit,” a.k.a. the “debt ceiling” is the maximum amount of money that the U.S. Treasury can borrow from the public and governmental accounts. The legislature sets limits on the total amount of debt that can be incurred. Under Article I, Section 8, only the U.S. Congress can green-light the borrowing of more money on the credit of the U.S. It’s not a nod to new spending but allows the government to borrow funds to pay for existing obligations, such as Social Security and Medicare benefits.
Political kerfuffles mar debt negotiations
During Biden’s first two years in office, as both the House of Representatives and the Senate were controlled by the Democrats, the debt limit was increased without a political kerfuffle. It was increased by $480 billion in October 2021 and then again to $2.5 trillion, to a cap of $31.4 trillion. That was expected to carry the government through to mid-2023. But the U.S. hit that debt limit sooner than expected—on January 19. By then, the Republicans had taken control of the House.
That’s when raising the debt limit turned into a game of political brinkmanship. The White House wanted the legislature to pass a clean debt limit increase as has been done in the past. But the Republicans said that they would need it to come with some fiscal restructuring packaging, one of them being curbing expenditure.
In recent years, the debt limit has become a hostage-taking tool, due to the very nature of politics itself, said Snyderman. Suggesting that the budget process needed reform, she added, “There’s got to be a better way to do this.”
Before 1917, the U.S. had no debt limit. It was the Second Liberty Bond Act of 1917 that set the debt limit. Over the past 40 years, it has grown from just above $1 trillion to more than $31 trillion.
SNAP exemptions now more generous
One of the biggest changes the new legislation will bring about is in a longtime federal program called SNAP, which provides monthly funds to low-income families to supplement their grocery budget so that they can afford better food.
At present, individuals between the ages of 18 and 50, who are deemed eligible for work and do not have dependents can get food stamps for no more than three months within a 36-month period unless they either work or attend a training program for 20 hours per week at the minimum.
The F.R.A. expands that range through to the age of 54. Veterans, people experiencing homelessness, and individuals between the ages of 18 to 24, who were in foster care, would be fully exempt from work requirements.
These exemptions are more generous than what exists now. But Shannon Buckingham, senior vice president for communications, at the Center on Budget and Policy Priorities, said that increasing the age bracket will make it difficult for many in that group to meet the work requirements, for many are in poor health. Consequently, they will be forced to drop out of the program altogether.
Republicans had the goal of reducing federal spending. But numbers crunched by the Congressional Budget Office show that the changes to SNAP represent a net increase in federal spending—of about $2.1 billion between 2023 and 2033.
The F.R.A. also requires that the pause on student loan payments be lifted no later than August 30 of this year.