What’s in the Financial Responsibility Act?

June 2, 2023

The debt ceiling compromise, aka the Financial Responsibility Act, is headed to the President’s desk for signature. The House of Representatives approved the measure 314-117, with 71 Republicans and 46 Democrats voting against the deal. The Senate approved it by a vote of 63-36. The bill was the culmination of a deal struck between President Joe Biden and House Speaker Kevin McCarthy (R-CA) to suspend the $31.4 trillion debt ceiling through early 2024. It came as the Treasury Department announced an updated “X date” of June 5 when the government could default on its debts. President Biden and Democratic lawmakers had urged a “clean” raising of the debt ceiling, while House Republicans argued for spending cuts tied to the raising of the debt ceiling. The package represents a compromise that allows both sides to claim some victories. Republicans can claim they secured spending reductions. Democrats can argue that large portions of the Inflation Reduction Act were untouched. The agreement does not include any changes to Medicare, Medicaid, or Social Security. According to the Congressional Budget Office, the bill would reduce the federal deficit by $2.1 trillion over the next ten years, including $240 billion in lower deficit payments.

What’s In It

The Fiscal Responsibility Act contains an array of spending reductions and modifications to various federal programs in an effort to achieve some savings in exchange for a debt ceiling increase.

  • DEBT CEILING SUSPENSION – Suspends the debt ceiling through January 1, 2025.
  • SPENDING REDUCTIONS – The agreement caps discretionary spending for two years, allowing a small increase in defense (+3%) and cutting nondefense funds (-0.1%). Administration officials have said the latter will be fairly even, and some provisions will be added to appropriations bills. In FY24, defense spending is limited to $886.3 billion (3.3% increase from current levels), and nondefense spending is limited to $703.7 billion (5.4% decrease from current levels). FY25 sees defense spending limited to $895.2 billion and nondefense funds limited to $710.7 billion.
  • POTENTIAL AUTOMATIC SPENDING REDUCTION – As an incentive to complete spending bills in a timely way, the bill includes a provision that would automatically trim spending by 1 percent below current-year levels as part of stopgap funding or Continuing Resolution (CR) needed to avert a partial government shutdown if appropriations bills don’t become law by January 1. The provision applies only to fiscal 2024 and 2025 spending measures.
  • RESCINDS UNOBLIGATED COVID MONEY – The bill rescinds approximately $30 billion in COVID-19 era funds that had not yet been spent by federal agencies. No state or local dollars already obligated will be impacted.These recessions come from programs within the Department of Health Human Services, the Department of State, Department of Labor, EPA, Department of Justice. These include activities of the CDC and FDA, global vaccine programs, educational and cultural exchange programs, rental assistance programs and small business loans.
  • PERMITTING REFORM – The agreement includes rules facilitating permits for energy projects.
  • RESCISSION OF IRS IRA FUNDS – The bill reallocates $20 billion of the IRS’s new $80 billion from the Inflation Reduction Act.
  • WORK REQUIREMENTS – It imposes work requirements for SNAP benefits eligibility. It would expand work requirements of 80 hours per month to those aged 18-54 by 2025 (up from age 49), and work requirements would expire in 2030. There are exemptions for homeless people, veterans, and former foster children under the age of 24. The agreement does not include work requirements for Medicaid which were part of the House-passed debt ceiling bill.
  • MISCELLANEOUS – The measure includes approval of the Mountain Valley Pipeline, a key project championed by Senator Joe Manchin (D-WV) and requires the Biden administration to resume collecting student loan payments and charging interest.

 

Text of the bill is here; a fact sheet from House Republicans is here; and a statement from President Biden on the agreement is here.