The Senate still must pass the deal to avoid a default.

The Senate still must pass the deal to avoid a default. uschools / Getty Images

House Passes Debt Deal That Would Freeze Agency Spending

The Senate has just a few days to act to avoid forcing federal workers to miss paychecks.

The House on Wednesday took the first step toward ensuring the government continues to pay its bills—and employees—on time, passing the bipartisan bill that will freeze spending at most federal agencies next fiscal year. 

While dozens of lawmakers in both parties voted against the 2023 Fiscal Responsibility Act, it ultimately won approval from a majority of both Republicans and an even larger number of Democrats to move the measure, in a 314-117 vote, to the Senate. The upper chamber will take up the legislation as soon as Thursday, where it is expected to also receive approval. The bill would suspend the debt ceiling through Jan. 1, 2025, punting the next default crisis until after the next presidential election. 

The Senate must act by June 5 to avoid default, according to a warning from the Treasury Department, though some lawmakers—including Sen. Mike Lee, R-Utah—have threatened to impede swift passage unless their amendments receive votes. Senate Majority Leader Chuck Schumer, D-N.Y., appeared reluctant on Wednesday to grant those requests, noting that any amendment to the bill would likely force Congress to miss its deadline to avoid default. 

The agreement, while avoiding the more drastic cuts Republicans had sought and the Biden administration had warned would force agencies to furlough employees, will allow for discretionary spending at non-defense agencies to remain essentially flat in fiscal 2024. The bill carves out the departments of Defense and Veterans Affairs, where funding would meet President Biden’s request. It would cap spending at 1% growth for fiscal 2025 for both defense and non-defense agencies.

To avoid deeper cuts, the measure rescinds some not-yet-spent funding provided for COVID-19 relief and claws back some of the $80 billion cash infusion Congress provided to the Internal Revenue Service as part of the Inflation Reduction Act. The bill specifically spells out $1.4 billion in rescissions, but White House officials told reporters there is an additional agreement to rescind another $10 billion in both fiscal years 2024 and 2025. The reduction is not expected to change any immediate plans for IRS, which is looking to hire 30,000 employees over the next two years to boost enforcement and customer service, as the agency could spend the remaining $60 billion in Inflation Reduction Act funds whenever it sees fit. White House officials said the provision does not “fundamentally change” IRS’ short and medium-term plans, but will require additional cash for the agency several years down the line. 

The deal also seeks to limit the threat of a shutdown for the next two years. If by Jan. 1, 2024, Congress has not passed all 12 annual appropriations bills, a continuing resolution would kick in that cuts discretionary spending for defense and non-defense agencies by 1% until such bills are passed. The provision is intended to incentivize lawmakers to pass line-by-line funding bills, as both Democrats and Republicans want to avoid a cut to their key priorities. The same contingency would be in effect for 2025. 

Current funding is set to expire Sept. 30, meaning a fall shutdown could still occur.

The bill includes a requirement for the Biden administration to offset the cost of regulatory rules it implements, but allows the Office of Management and Budget to easily ignore it. The measure also makes some reforms to the National Environmental Policy Act to hasten the federal permitting process for energy projects.

The agreement drew criticism from both the most progressive and conservative members of Congress. On the right, lawmakers said the spending freeze, as well as the changes to extend work requirements for the Temporary Assistance for Needy Families and Supplemental Nutrition Assistance Program, were insufficient. On the left, members noted the fiscal 2024 non-defense spending freeze and small increase in 2025 represented an effective cut in real dollars when accounting for inflation. The deal falls well short of the 7.3% increase to non-defense discretionary spending Biden had sought and eschews the parity in funding increases for the defense and non-defense sides of the ledger that Democrats typically demand.

While members of the conservative House Freedom Caucus derided the bill and sought to derail it, they were unsuccessful in convincing large swaths of their Republican colleagues to join them in voting against it. The measure survived a scare earlier Wednesday when more than two-dozen Republicans voted against the rule that preceded final approval. Those procedural votes are rarely bipartisan, but a sufficient number of Democrats broke with tradition to advance the bill to a final vote. 

The bill now moves to the Senate, where leaders Schumer and Mitch McConnell, R-Ky., have both endorsed the bill and called for their colleagues to support its quick approval. The exact timing of a vote will depend on what agreements they unanimously receive from their colleagues. Any one senator can cause a delay, though leadership may be able to convince members to speed up the process by allowing amendment votes expected to fail. 

If Congress fails to get the bill to President Biden’s desk prior to June 5, Treasury will be unable to make all of its payments and government operations would be upended. Federal employees could face delayed paychecks. Once the bill does make its way to the White House, Biden—who negotiated the deal after weeks of tense discussions with House Republicans—is expected to sign it.