In response to a request from House Speaker Rep. Kevin McCarthy (R-CA), the Congressional Budget Office (CBO) has estimated the impact of the debt ceiling agreement. The analysis found that under the May 28 version of the bill, budget deficits would be reduced by about $1.5 trillion over the next decade, and interest on the public debt would decline by $188 billion.
About the CBO
The CBO is a non-partisan federal agency that provides budget and economic information to Congress—something they’ve done since 1975. The CBO does not make policy recommendations but instead issues reports and cost estimates, together with an explanation of the methodology used to arrive at the numbers.
The CBO notes that the estimates they provided in their analysis go beyond—at McCarthy’s request—those they typically use. Specifically, their estimates include effects on projections of discretionary spending and interest on the public debt that ordinarily would not be part of a cost estimate.
The CBO also points out that the overall impact of the bill on the deficit could differ from the CBO estimates due to future legislative, judicial, or executive actions—it is, after all, a bill that’s intended to affect coming years.
Overall Impact
The bill would suspend the debt limit through 2025. Non-defense spending would remain flat for the 2024 fiscal year and increase by 1% the following year. CBO projects that total discretionary funding under the bill would amount to $1.795 trillion in 2024 and $1.818 trillion in 2025.
Beyond 2025, there are no budget caps, only “non-enforceable appropriations targets.” You can read a summary of the bill here.
So how do the individual pieces of the bill measure up?
IRS
The bill claws back money promised as part of the 2022 reconciliation act. Most of those funds were targeted to enforcement and related activities. The CBO “anticipates that rescinding those funds would result in fewer enforcement actions over the next decade and in a reduction in revenue collections.” The result? A decrease in outlays by $1.4 billion and a decrease in revenues by $2.3 billion over the 2023–2033 period resulting in a net increase in the deficit of $900 million over ten years.
Work Requirements
The bill would modify work requirements for SNAP and TANF. The CBO estimates that those provisions would increase federal spending by about $2.1 billion over the 2023–2033 period.
When it comes to SNAP, in particular, expanding the work requirement period would reduce spending by $6.5 billion over the next decade. But, excluding several groups (like veterans) from those work requirements would lead to a spending increase of $6.8 billion over the same period, largely offsetting the savings.
Covid Funds
Under the bill, federal funds previously earmarked for Covid, and still unspent, would be returned. CBO estimates that would reduce outlays by $11.0 billion over the 2023–2033 period.
Student Loans
The bill would write into law the end to the pause on federal student loan payments, interest accrual, and collections of loans in default, along the late summer timetable previously announced by the Biden Administration. The CBO estimates that enacting this provision would have no effect on federal spending.
Pay-As-You-Go
The bill would require the executive branch to follow pay-as-you-go procedures before finalizing certain administrative actions. That means that discretionary administrative measures that would increase direct spending by more than a certain threshold would be required to be fully offset by decreased spending. As a result, the CBO estimates that this provision will have a minimal effect on spending and revenues.
Energy-Related Projects
According to the CBO, implementing the energy-related provisions in the bill would have “an insignificant net effect on direct spending and revenues stemming from fees federal agencies would collect to issue permits and amounts the ERO would collect and spend to carry out the study.” The CBO did not evaluate the potential economic effects of the bill’s changes to federal permitting rules.
Biggest Impact
The most significant impact on the budget in the bill is the result of caps on discretionary funding. Of the projected $1.5 trillion in reductions over the next decade, discretionary outlays account for $1.3 trillion. Net mandatory spending would decrease by $10 billion, and net revenues would reduce by $2 billion between 2023–2033.
You can read the letter from the CBO and view the projections here.
What Comes Next?
A vote on the bill is expected in the House on Wednesday, and McCarthy claims to have the votes he needs. If it passes, it will then move to the Senate.