Overview

On Saturday, May 27, House Speaker Kevin McCarthy (R-CA) and President Joe Biden reached an agreement to suspend the debt ceiling until January 2025 in conjunction with new spending reforms intended to reduce the federal deficit. Text of the 99-page bill, called the Fiscal Responsibility Act (FRA), was released the following day, beginning the countdown imposed by a House rule that requires legislation to be made available to lawmakers for at least 72 hours before it can be considered on the floor.

The bill would rescind $1.4 billion of the supplemental funding provided to the Internal Revenue Service (IRS) by the Inflation Reduction Act (IRA). The cut is significantly reduced from Republicans’ initial proposal included in the Limit, Save, Grow (LSG) Act to repeal $71 billion in IRS funding—nearly 90% of the total IRA allocation. However, in addition to the small statutory clawback, the White House informed lawmakers on Sunday of its “handshake agreement” with House Republicans to redesignate an additional $20 billion of the IRS’s pot of IRA funding for “other non-defense priorities” (more below).

The FRA does not include any tax provisions, despite last-minute requests from the Biden administration to increase federal revenue by eliminating perceived “loopholes” and tax subsidies used by the fossil-fuel industry. Notably, none of the proposals included in the LSG Act to repeal most of the IRA green-energy tax incentives were embraced in the final FRA agreement.

Key Provisions

1. Spending Limits. The most significant deficit reduction would result from the establishment of proposed binding caps on discretionary spending for FY2024 and FY2025.

Discretionary Spending Limits (adjustment compared to prior FY)

The bill would also impose overall discretionary spending targets for FY2026–FY2029, although these additional proposed limitations would not be enforceable. In conjunction with new spending caps, the FRA includes a provision to incentivize lawmakers to pass appropriations bills by imposing a 1% cut to discretionary spending if a continuing resolution is enacted for FY2024.

2. IRS Funding Repeal and Redistribution. The bill rescinds $1.4 billion of the $80 billion in above-baseline funding provided to the IRS over the next decade by the IRA. The section allows the IRS to cut the funding from any portion of the IRA appropriation, with the exception of the $8 billion designated explicitly for taxpayer services and business-systems modernization. Moreover, the White House agreed to pair this 2% cut with an agreement to “repurpose” $20 billion in out-year IRA appropriations to fund other short-term Biden administration priorities. Reportedly, appropriators will split this funding between FY2024 and FY2025 to negate a portion of the FRA’s proposed 5% cut to non-defense discretionary spending. With this move, the White House predicted that the remaining $58.6 billion in supplemental IRS funding will fully support new tax-administration objectives only through 2029—instead of 2031, as initially intended by the IRA.

3. Permitting Reform. The bill includes several reforms to the National Environmental Policy Act (NEPA) approval process expected to expedite the permitting timeline for energy and infrastructure projects. Among other changes, the section would require federal agencies to furnish environmental impact statements within two years of the date that the agency determines the reviews are necessary for applicants. The section would also require regulators to complete the environmental assessment process within one year. Beyond NEPA reform, the bill would instruct the Federal Energy Regulatory Commission to submit a report to Congress concerning current U.S. interregional energy transmission capabilities and recommendations to improve electricity infrastructure. Another provision would expedite the construction of the Mountain Valley Pipeline, the proposed natural gas project that has long been a priority of Sens. Joe Manchin (D-WV) and Shelley Moore Capito (R-WV).

4. Unspent COVID-19 Funds. The bill would rescind an estimated $28 billion in unobligated funds made available through myriad COVID-19 relief legislation. The plurality of the sum would come from about $10 billion held in the Public Health and Social Services Emergency Fund. The bill would not rescind unobligated amounts provided to state and local governments through the $350 billion State and Local Fiscal Recovery Funds Program.

5. Administrative PAYGO. The bill would enact a temporary administrative pay-as-you-go (“PAYGO”) rule requiring the executive branch to offset any significant discretionary administrative actions with equivalent reductions in direct spending. The rule would apply to any actions with direct spending costs of more than $100 million in any given year or $1 billion over 10 years. However, the director of the Office of Management and Budget would be permitted to waive the PAYGO rule for any action deemed “necessary for effective program delivery.”

6. Modified Work Requirements. The bill would make certain amendments to the Supplemental Nutrition Assistance Program (SNAP) and the Temporary Assistance for Needy Families (TANF) Program designed to incentivize more Americans to seek employment. The changes to the TANF Program would modify the state-allocation formula and require the Department of Health and Human Services to collect data on the work outcomes of individuals in the program. Temporary changes to SNAP would increase the phase-out age for work requirements from 50 to 55, while exempting the homeless, veterans and individuals aging out of foster care.

Public Reactions and Next Steps

Following the announcement of a deal on Saturday, several members of the conservative House Freedom Caucus have announced their opposition to the agreement. Four members of the group had previously voted against the House-passed LSG Act last month. Additionally, some progressive Democrats, including Reps. Pramila Jayapal (D-WA) and Raúl Grijalva (D-AZ), have signaled their displeasure with the proposed work requirements and permitting reforms included in the FRA.

Notwithstanding the opposition from both parties’ ideological extremes, most lawmakers will likely support the bill. Yesterday, the leadership of the New Democrat Coalition—comprised of about 100 moderate Democratic lawmakers—released a statement in support of the bill. On the GOP side, Speaker McCarthy told reporters over the weekend that “more than 95% of [Republicans] in the conference were very excited” about the agreement.

The House Rules Committee is expected to meet this afternoon to consider the FRA. If it is favorably reported by the committee, the rule will likely be on the floor Wednesday afternoon, with bill consideration following that night. After the expected House passage, the Senate will likely take up the legislation later this week, ensuring President Biden has sufficient time to sign the bill before the impending June 5 “X-date.”