Debt Roulette

Though the situation remains somewhat fluid and subject to change in the next hours or days, a debt limit deal—at least in principle—as soon as later this week appears likely.

The administration and congressional negotiators are feeling the combined crush of two clocks – the government running out of money as soon as early next month coupled with the time needed for legislation once drafted to work its way through the House and Senate. For example, under House rules – which Speaker McCarthy continues to insist on – members will be given 72 hours to review the final product and Senate consideration absent consent of all senators could take a week or more.

Ideally for all parties, this entire process would be wrapped up by June 1. But to be safe, McCarthy prefers the House pass a short term– a couple of days – debt limit extension after it has passed the deal so it can send both to the Senate. 

Basic components:

  • Discretionary spending caps. It looks like negotiators will agree to spending caps for two years on a single top line number for defense and non-defense discretionary spending below last year’s level. This will give Republicans talking points they need. But even if we avoid the debt limit cliff now, the sheer number of outstanding spending and policy issues that must be addressed later in the appropriations process —and the gulf between the parties—raises the odds of a shutdown this fall.
  • Permitting. McCarthy signaled last night that a deal to streamline energy permitting is very much on the table but he may not be able to reach agreement on the entire package of permitting proposals. So it could require revisiting in a stand-alone package later this year.
  • COVID clawback. The House-passed bill clawed back about $56 billion in budget authority from unobligated balances remaining in previous COVID bills. The final deal is very likely to scale this back by perhaps $5-10 billion.
  • Work requirements. The House-passed bill placed work requirements on three entitlement programs – Medicaid, the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF). The final deal seems likely to just include work requirements on TANF—and according to the Congressional Budget Office, these requirements seem unlikely to save very little if anything.