The Treasury Department last week warned that the government could breach the debt ceiling — the limit on how much the U.S. can borrow to pay its bills — as early as June 1. That could cause the government to default, unleashing economic havoc that could plunge the country into another recession.
Even though Republicans say they do not wish to default, the party only has hardened in its resolve to exploit the key fiscal deadline for political leverage. Democrats, meanwhile, vehemently opposed the House GOP legislation, arguing it could inflict considerable harm on American families’ finances.
The president has maintained that Republicans should increase the debt limit without conditions, saying that a miscalculation that triggers a default could push the economy into a recession. And he has pointed out that Democrats repeatedly aided Republicans in raising the borrowing cap, even when the party opposed policies enacted under President Donald Trump.
Here’s what the GOP bill would do:
Raise the debt ceiling into 2024
At the center of the fight is the debt ceiling, the legal limit on how much the United States can borrow to pay its bills.
The United States hit its current limit — set at $31 trillion — in January, prompting the Treasury Department to start making special maneuvers to continue paying federal bills and stave off a fiscal calamity. But the Biden administration may run out of options as soon as early June.
House Republicans would raise the debt ceiling by $1.5 trillion, or suspend it until March 31, 2024, whichever occurs first. That would prevent a default, but it would also tee up a return to the same battle in just over a year — right before the next presidential election. Behind the scenes, GOP leaders have touted that time frame as a selling point with their members, because it may give them another opportunity to make more demands of the White House.
Massive spending cuts
The GOP proposal would slash the federal budget back to levels adopted in the 2022 fiscal year, then cap federal agencies’ future budget growth at 1 percent for the next decade. In total, the spending reductions could achieve more than $3 trillion in savings over the next decade, according to the nonpartisan Congressional Budget Office, which scored a version of the legislation this week.
The cuts probably would target federal health care, science, education, climate, energy, labor and research programs, while leaving untouched the Pentagon and services for veterans. But the bill does not specify the exact agencies or programs on the chopping block, leaving the task to lawmakers on congressional appropriations committees who craft spending bills that keep the government running and stave off a shutdown.
Highlighting the harm of such cuts earlier this year, Biden administration officials predicted more flight delays, slower Social Security checks, reduced college aid for needy students and significant reductions in the number of people served by affordable housing programs, according to letters they sent to Congress earlier this year.
The missives, which analyzed an earlier version of the GOP plan, said cuts back to 2022 levels would also hamstring government agencies that respond to extreme weather, eliminate 170,000 slots in a key federal preschool program, and impact the IRS and its ability to provide timely refunds.
New work requirements for welfare
Millions of low-income Americans who receive food stamps and health insurance from the federal government would have to work longer hours in exchange for benefits under the new GOP bill.
First, the bill targets the Supplemental Nutrition Assistance Program, or SNAP. It would subject adults without children to new work requirements until they reach age 56, replacing current law, which only imposes those rules until age 49.
The GOP bill would also make it harder for states to spare certain families on SNAP from federal work requirements — a flexibility some states have used to help lower-income people during times of high unemployment.
With Medicaid, meanwhile, Republicans proposed a rule requiring the low-income recipients of federal health insurance to satisfy certain income or work thresholds. That includes, for example, participating in 80 hours per month in employment or community service — otherwise states could remove these enrollees from the safety-net program. The rules would cover beneficiaries from age 19 until age 56, with some exceptions, such as for those who are pregnant or caring for young children.
In late tweaks to the bill meant to satisfy far-right conservatives, GOP leaders agreed to speed up implementation of their new work requirements, which would take effect starting in the 2024 fiscal year. With SNAP, they also included new language that says the “purpose” of the program is to “assist low-income adults in obtaining employment.”
The work requirements may save the government money, but they threaten to come at the cost of millions of families’ financial well-being, according to some outside estimates. Analyzing the GOP proposal, the left-leaning Center on Budget and Policy Priorities predicted that 10 million people in states that have expanded Medicaid coverage are at a “significant risk” of losing benefits if the bill became law.
Block student debt cancellation
The GOP plan officially aims to block Biden’s forthcoming program to cancel thousands of dollars in college debt, a program long sought by cash-strapped students that the Supreme Court is also examining.
Biden announced in August his plan to wipe out $10,000 in debt for Americans who earn less than $125,000 annually, and $20,000 for lower-income borrowers. Republicans quickly blasted the financial relief as unfair, claiming that it is wrong to use taxpayer dollars — paid, in part, by those who did not attend college — to ease the debts of Americans who did.
With it, Republicans also included a provision that would block one of Biden’s programs meant to lower student’s monthly loan bills. That initiative essentially shielded more of Americans’ income from calculations on what they owe under a repayment program known as IDR, which applies to federal loans.
Claw back IRS funds
The GOP bill targets at least some of the $80 billion set aside to improve the Internal Revenue Service and help the government pursue unpaid taxes.
Democrats originally approved the money last year as part of the Inflation Reduction Act, a centerpiece of Biden’s economic agenda that aimed to lower health-care costs and boost clean energy. They saw it as a critical way to ease a backlog at the tax agency while empowering it to investigate wealthy Americans and corporations that fail to pay what they owe — a disparity known as the “tax gap” that may cost the government $1 trillion annually.
But House Republicans have charged that the influx in funding would empower the IRS to hire thousands of new agents to audit innocent Americans. Earlier this year, they voted to undo the budget boost, though the legislation has no chance of passage in the Senate.
In its own analysis, the CBO found that the new IRS spending would have a significant return on investment, helping to reduce the deficit by $120 billion over the next decade. As a result, the GOP repeal would wipe out those savings before Washington can take advantage of them, essentially adding to the deficit in the process.
Repeal green energy programs, including some EV tax credits
Republicans have made no secret about their opposition to the Inflation Reduction Act’s investments to fight climate change.
The GOP debt ceiling legislation would repeal broad swaths of the tax policies meant to cut greenhouse gas emissions and incentivize the deployment of green energy. That includes a partial end to tax credits for electric vehicles: It would ax the $4,000 credits for used vehicles and phase out some of the $7,500 credits for new EVs.
But Republicans ultimately dialed back some of their original plans, under pressure from moderate lawmakers — particularly those in Midwestern states — who balked at unwinding tax credits meant to boost ethanol and solar energy. GOP leaders updated their bill in the hours before debate to allow some of those investments to continue.
Take back unspent covid aid and other measures
The GOP bill would claw back unspent money authorized in previous coronavirus aid packages. In prior appearances on Capitol Hill, federal officials have estimated that amount is probably less than $100 billion.
GOP leaders also included a slew of additional policies, such as the adoption of what is called the Reins Act, which would grant Congress major new authority to review and overturn health, labor and other rules issued by federal agencies. And they tacked on permitting legislation that could ease the way for more oil and gas drilling.
Maxine Joselow and Rachel Roubein contributed to this report.