President Biden has signed the Fiscal Responsibility Act into law, which suspends, as opposed to raises, the debt ceiling until 2025. The Congressional Budget Office (CBO) projects the law will reduce the federal deficit by about $1.5 trillion over 10 years.
The Main Provisions
The new law primarily addresses discretionary spending, including:
- IRS Funding: The Inflation Reduction Act (IRA), enacted in 2022, included an additional $80 billion in funding for the tax agency with much of it designated for heightened enforcement activity against wealthy taxpayers. The FRA immediately rescinds $1.39 billion and pares back the funding by about $10 billion each year for 2024 and 2025. However, White House officials have indicated that they expect the funding cuts to make little difference in the IRS’s pending expansion plans.
- Spending Caps: The law will freeze non-defense discretionary funding for programs such as scientific research, domestic law enforcement, forest management, environmental protection, air traffic control and nutritional assistance for mothers. The spending will drop by about $1 billion in the 2024 fiscal year, compared to this fiscal year, with a 1% increase slated for the 2025 fiscal year. As inflation is expected to grow at a rate greater than 1%, the change in spending is viewed as a cut. The final non-defense figures are $704 billion for 2024 and $711 billion for 2025.
- Defense and Veterans Affairs Spending: The FRA provides Biden’s budgeted funding for the military and veterans affairs for 2024, adjusted for inflation. Total defense spending will grow to $886 billion in 2024 and $895 billion in 2025.
- Student Loan Debt. The new law codifies Biden’s previous announcement that the moratorium on student loan payments precipitated by the COVID-19 pandemic won’t be extended beyond this summer. His plan to cancel student loan debt for many borrowers is not included in the law but is still under review by the U.S. Supreme Court.
- Work Requirements: Certain recipients of Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF) benefits will face new work requirements. The FRA raises the top age at which adults without children living in their homes must work to receive SNAP assistance from 49 to 54 phased in over three years. The law includes exemptions for the homeless, veterans and individuals aged 24 or younger who were children in foster care. It also includes provisions that could increase the number of individuals who must satisfy work requirements to receive TANF benefits from their state programs. Medicare recipients are not affected.
- COVID-19 Clawback: Much of the remaining unspent COVID-19 relief funds, estimated to equal $30 billion to $70 billion, will be “clawed back.” Portions of that funding will be retained, though, including a certain amount for vaccines.
- Permitting for Energy Projects: The FRA includes rules designed to make it easier for new energy projects, including fossil fuel projects, to obtain permit approval.
Additional bills related to appropriations, what the parties have referred to as “agreed upon adjustments”, are expected in coming months, which could reduce the effects of some of the spending cuts. We will continue monitoring the law and its implications and will report any updates.