President Biden has signed into law the new debt ceiling agreement that he reached with U.S. House of Representatives Speaker Kevin McCarthy (R-CA). The Fiscal Responsibility Act (FRA) suspends — as opposed to raising — the debt ceiling until 2025, after the next presidential election.
As noted, the original House debt ceiling bill was much more aggressive. Republicans sought larger spending cuts and tighter work requirements. They also aimed to repeal hundreds of billions in tax incentives in the IRA intended to increase the use of renewable energy and combat climate change.
On the other side of the aisle, Democrats hoped to raise taxes on corporations and taxpayers who earn more than $400,000. In addition, they wanted to institute measures to reduce Medicare spending on prescription drugs.
None of these priorities are included in the new law.
Experts have noted that the outcome of the latest debt ceiling challenge largely resembles the likely outcome of budget negotiations in a divided government, albeit with much more drama and more drastic potential implications for the global economy. Moreover, additional bills related to appropriations — what the parties have referred to as “agreed upon adjustments” — are expected in coming months, which could reduce the effects of some of the spending cuts.
Please feel free to reach out to your ELO Tax Advisor for more information or clarity on these changes.