The bipartisan budget deal reached over Memorial Day weekend by the Biden administration and House Speaker Kevin McCarthy, R-Calif., will leave the next Congress and a possible new president facing a race to raise the debt limit.
Congress is expected to vote on the Fiscal Responsibility Act this week as lawmakers look to raise the debt ceiling before June 5, when the Treasury Dept. may run too low on cash to pay the federal government’s bills.
The legislation temporarily extends the debt limit until January 1, 2025 – just two days before the 118th Congress draws to a close and the newly-elected 119th Congress convenes and less than three weeks before the presidential inauguration.
That timing will immediately put congressional lawmakers and a potential new administration in the White House on the clock to reach a new budget agreement that raises the debt limit.
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Once the debt limit is reached, the Treasury Dept. uses accounting tools it calls “extraordinary measures” to draw on existing cash balances along with incoming tax receipts to pay the government’s bills.
These measures typically last several months, as has been the case in the current debt limit saga: Treasury began using extraordinary measures in mid-January and has projected those will be exhausted as early as June 5.
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Assuming that the Treasury is forced to deploy extraordinary measures in January 2025, the 119th Congress – which will be composed of members elected in 2024 – will have to hit the ground running and reach an agreement by spring or early summer on a debt limit hike and budget agreement.
It’s possible that such a deal could involve an extension of the Fiscal Responsibility Act’s spending caps.
The bill includes mandatory caps on discretionary spending for fiscal years 2024 and 2025, and although it does outline spending levels for an additional four years that a future Congress can choose to adopt, ignore, or revise.
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That could allow Congress and the president to negotiate an entirely new budget framework – the composition of which would likely hinge on how Democrats and Republicans fare in the 2024 elections.
Congress’s recent track record with spending caps suggests lawmakers will eventually look to lift them.
The last major discretionary spending caps were implemented after a debt limit impasse in 2011 when the so-called “sequestration” automatic spending caps were implemented and were to remain in effect for a decade. Congress and the Trump administration agreed to raise the caps in 2019 and allowed the caps to expire in 2021.
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