Key Takeaways
  • President signs debt ceiling budget bill.
  • Members of the House and Senate on both the far left and right opposed debt/budget deal.
  • Congress now starts work on budgets for new fiscal year with goal of avoiding a government shutdown on October 1.
  • Defense, border protection and natural disasters could get more funding in supplemental appropriation bills.

On Saturday President Biden signed the legislation that was negotiated between the President and Speaker McCarthy.  The debt/budget deal was passed in time to avoid the crisis of a US Government default which Secretary Yellen said would occur on June 5.

The politics of getting the bipartisan bill passed showed how Washington can work as the legislation passed both Chambers with large bipartisan majorities.

In the House the final total was 314 YES and 117 NO, and in the Senate the margin was 63 YES to 36 NO.  Viewing the vote from a political and policy point of view it made the point that the political spectrum can often be a circle rather than a straight line where the far left and right meet.

In both the House and the Senate the NO votes came from the most extreme on both sides of the political spectrum.  In the House half of the NO Republican votes came from Members of the Freedom Caucus and on the Democratic side 40 of the 46 NO votes came from Members of the Progressive Caucus.  Most of the Republicans that voted NO came from districts that went overwhelmingly for Trump in 2020; these are solid R seats.  From my personal experience working on House campaigns I know that there are Republican Representatives who don’t worry about the general election but think about how a vote might impact a Republican primary.  A vote to increase the debt ceiling can be hard to explain in a Republican primary and therefore some just vote NO on debt increases.  On the other hand Republicans from competitive districts wanted to stick with the Speaker and the President and voted to pass the bill. Indeed 17 of the 18 Republican Members who sit in seats that Biden carried in 2020 voted to pass the bill.  The only NO vote from this group came from the ever interesting George Santos.

Suspended for two years

The President was able to take the threat of a government default off the table for the rest of his term.  The deal struck by the two leaders suspended the debt ceiling until January 1, 2025.  While the suspension ends on 1/1/2025, as we saw this year the Treasury can use their “extraordinary” procedures to postpone the “X date” for months, hence the new Congress should have several months to deal with the debt issue.

Get rid of the ceiling!  During this year’s debate there was a great deal of conversation about whether or not the 14th Amendment to the constitution overrides the debt ceiling.  With the two year suspension there has been some talk in DC of trying to test the theory in court and perhaps end the default debate.

Budget implications

The Biden/McCarthy agreement caps budgets for most departments at current fiscal year levels.  The exception is defense which will get the 3% increase proposed by President Biden earlier this year.  That will mean a defense budget of $886B.  But this increase would not keep pace with inflation and many defense hawks want to see more money for defense.  As part of the talks to get the bill passed leaders in the Senate agreed that they would support a “supplemental” appropriations bill that would provide more money for defense.  Items that got specific support were Ukraine, the US border and strengthened forces in the Pacific rim to deal with the growing concern with China.

Supplemental spending bills happen yearly to appropriate money for unexpected emergencies that range from a natural disaster such as a major hurricane or an unexpected global event like Russia’s invasion of Ukraine.

Another major budget goal in the deal was an incentive to have Congress pass the 12 appropriation bills on time by the October 1 deadline.  In recent years rather than look carefully at the major budget categories, the Congress has failed to pass the bills and defaulted to a massive Continuing Resolution (CR) that funds most if not all the government in one massive bill.  This year Speaker McCarthy and Senate Leader Schumer are committed to act on the 12 bills.  During the debt ceiling negotiations Speaker McCarthy insisted putting in language that any budget that is not approved on time will be cut by 1% in any CR.  The hope is that this will lead to more thoughtful spending decisions.

Government shutdown

The failure to pass the 12 budget deals is what has led to government shutdowns in recent years.  Unlike the debt default issue highlighted by the debt ceiling, the annual government funding process requires that the Congress approves budgets for every department in government by the new fiscal year that begins on October 1.  Failure to pass either a new budget or a CR leads to a government shutdown as the various agencies lack spending authority after September 30, of each year.  Government shutdowns occur when there is divided government, and this year could see a replay.  The hope is that the 1% automatic cuts that would be imposed under the Biden/McCarthy deal will be an incentive to get budgets passed on time, but it will require a Part 2 of the bipartisanship we saw last week and many are skeptical.

Disclosures (show)

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