Over the Memorial Day weekend, Congressional leaders and the Administration reached an agreement to extend the debt limit, also agreeing to make various changes to the federal budget process. The legislation, H.R. 3476, “The Fiscal Responsibility Act of 2023,” carried a sense of urgency and moved rather quickly, as Treasury Secretary Yellen indicated the federal government would default on its obligations and run out of money by June 5, 2023. The House passed this legislation on May 31, 2023, by a wide bi-partisan margin, and the Senate followed suit on June 1 by approving the bill with nearly a two-third margin. The bill was signed into law on June 3 by President Biden.
Periodically, Congress needs to raise the debt ceiling in order for the federal government to borrow money. The Fiscal Responsibility Act suspends the current debt ceiling of $31.4 trillion until January 1, 2025, which is just after the 2024 presidential election. This is not new spending – rather, it represents debt the government has accumulated over the years that still needs to be repaid. As current budget deficits are added to this debt, the country is pushed toward its debt ceiling, and Congress must increase the debt limit.
Let’s put some of these amounts into perspective:
Assume you owed someone $1 trillion dollars. If you paid them back $1 million a day without factoring in any interest on this debt, it would take you over 2,700 years to pay the $1 trillion in full. Again, this does not factor into account interest.
The deal announced a number of measures to control government spending in an attempt to curb the budget deficit. However, the agreement limits the controls to discretionary non-defense related spending and imposes a 1% annual growth over the next six years. Note that the bill does not limit non-discretionary spending (or entitlements), which are the largest part of the overall government budget. Below are several other selected provisions:
It should be noted that there are no new taxes under this debt and budget deal. While the Administration had sought to impose new taxes on businesses and individuals, this was not included in the final package.
Even though there were no tax provisions in this legislation, tax matters are still on the minds of many in Washington. Before the ink is barely dry on the Fiscal Responsibility Act, members of Congress are set to roll out a tax bill, perhaps as early as this week. Here are some of the key provisions expected in this legislation:
A new tax bill has many supporters, but it is uncertain when and how it will move forward this year. As always, it has the possibility to be a stand-alone bill, or it could be attached to other must-pass legislation later this year. Watch for details on this bill in upcoming tax alerts from our team. Please contact your Sikich tax advisor with any questions. Stay Tuned…
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