The United States Senate has passed the Federal Responsibility Act Of 2023 which will help avert a possible debt crisis in world’s biggest economy.
After passing both House of Representatives and Senate, the bill will now head to President Joe Biden’s table. The bill will become a law after receiving President Biden's signature.
The bill came after several weeks of negotiations between President Biden and Republicans over a deal to raise the US debt ceiling. The US government had warned that if the debt ceiling is not raised, it will run out of funds to meet its financial obligations.
For now, the bill resolves the crisis and ensures that the federal government doesn’t run out of funds.
So What’s In The Deal?
The US Congress has decided to suspend the debt ceiling till January 2025, beyond the 2024 presidential election. This means that the federal government can continue to borrow and spend money without a limit for some time. The debt ceiling currently stands at $31.4 trillion.
However, a key demand of Republicans was to introduce checks on government spending. The Republicans had also initially passed a debt ceiling bill, which introduced several key spending cuts on US government programmes. Democrats had opposed the spending cut demand and President Biden vowed to not sign the bill.
However, after several rounds of negotiations, both the sides have been able to reach a deal.
According to the latest debt ceiling bill, non-defence spending of the government will remain flat for next year. The bill has capped the rise to 1 per cent for 2025. The effect of tightening of spending remains to be seen.
However, defence spending will be allowed to rise by 3 per cent. In a move seen as victory for President Biden, funding for military veterans’ medicare will also be allowed to increase.
The bill mandates unspent Covid relief money to be returned. According to the available estimates, around $30 billion will be rescinded from public funds.
One of the key demands for Republicans was increasing work requirements for the food stamp programme. Under new requirements, the maximum age for able-bodied workers under the programme has been increased to 54 from 49.
Commenting on the effects of the bill, the Congressional Budget Office predicts that the bill will reduce $1.5 trillion in budget deficits in the next decade.
The bill comes as a relief for President Biden administration ahead of next year elections.Treasury Secretary Janet Yellen had warned that the government can run out of funds as early as June 5. The crisis for now has been resolved which comes as a sigh of relief for global markets.
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