At the eleventh hour, lawmakers rallied to pass a deal that suspends the nation’s debt ceiling and allows the U.S. to continue paying all of its bills.
The Fiscal Responsibility Act, passed Wednesday by the House of Representatives and late Thursday by the Senate, is now on President Joe Biden’s desk, where it awaits his signature. But the deal affects much more than just the debt ceiling — it also includes several provisions that could impact your money.
“We may be a little tired, but we did it,” Senate Majority Leader Chuck Schumer, D-N.Y., told reporters shortly after the deal passed. “Default was the giant sword hanging over America’s head ... but we’re not defaulting.”
The debt deal comes after months of squabbling between Democrats and Republicans over how and when to address the debt limit as the U.S. crept dangerously close to running out of money to meet its financial obligations. Biden and House Speaker Kevin McCarthy, R-Calif., lead a series of intense negotiations throughout May, ultimately hammering out a rough deal last week.
(Technically, the U.S. hit the debt limit of $31.4 trillion in January. Afterward, the federal government had taken "extraordinary measures" to ensure it had enough cash on hand to meet its financial obligations, but if that money had run out, the U.S. would have defaulted on its debt. Cue devastation.)
While the deal primarily suspends the debt ceiling until January 2025, it includes several unrelated provisions like government spending cuts, officially ending the student-loan payment pause, expediting a major gas pipeline in West Virginia and more.
Here’s a look at a few major ways the debt deal could affect your wallet.
Averts economic meltdown
Foremost, the debt ceiling deal narrowly avoids a self-imposed economic catastrophe that had the potential to affect the finances of just about every American in one way or another.
The U.S. is largely believed to have never defaulted on its debt (though Reuters reports that it did technically once in 1979 due to check-processing glitches). If a default were to have occurred, experts say the adverse effects are difficult to overstate.
For starters, federal payments could have been delayed for programs like Social Security, Medicare, Medicaid, SNAP and others, affecting the benefits and cash flows of millions of Americans. The unemployment rate could have spiked to somewhere between 5% and 8% depending on the length of the default, according to projections from Moody’s Analytics.
Moody’s also projected that stock prices could have cratered by one-fifth, wiping out about $10 trillion in household wealth.
Meanwhile, the already tattered housing market would have gone into a “deep freeze,” according to Zillow, with home sales plummeting and mortgage rates climbing as high as 8.4%.
Codifies the end of student loan payment pause
Since March 2020, federal student loan payments have been paused for more than 40 million borrowers.
After a combined eight extensions by then-President Donald Trump and Biden, the pause is officially coming to an end either 60 days after the Supreme Court issues a decision on Biden’s student loan forgiveness plan or by Aug. 30 — whichever is sooner.
If this sounds familiar, it’s because this is the exact timeline already in place for the pause to end that was previously set by the Biden administration. Logistically, not much changes for borrowers, but many people were confused as the details of the debt ceiling deal emerged, with some articles
and advocates incorrectly stating that payments would restart sooner under the plan.
What the debt ceiling deal does is codify the current timeline and remove the executive authority from the White House to make another payment extension unilaterally.
Going forward, if legislators decide the payment pause needs to be extended a ninth time, it would have to be done through an act of Congress.
Expands work requirements for some federal benefits
Under the new rules of the debt ceiling deal, more Americans will need to provide proof of employment to receive benefits through two federal programs — the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF) program.
Changes to SNAP
SNAP, formerly known as food stamps, helps more than 40 million Americans afford food. Under the previous rules, certain able-bodied SNAP recipients between ages 18 and 49 without dependents had to meet the program’s work requirements of working at least 80 hours a month (or about 20 hours per week) in order to qualify.
Now, that age range will be increased to 18 to 54. There are new exemptions to those work requirements, however, that exclude veterans, people without homes and some young adults in the foster care system.
Anti-hunger advocates are overall not happy with these changes. The nonprofit advocacy organization Food Research and Action Center called the expansion of work requirements “cruel, harsh and arbitrary,” arguing that it would increase poverty and hunger for older Americans for whom working may be difficult. Republican lawmakers in favor of the expansion say it would help Americans get jobs.
Changes to TANF
The deal also increases work requirements for TANF, albeit in a less direct way. TANF is a federal-state partnership program that provides payments to low-income families with children. It operates similarly to the public health care program Medicaid in that each state has leeway on how exactly to run the program and benefits range widely from state to state.
For example, a single-parent family with one child in Mississippi may receive a maximum monthly payment of approximately $146, whereas a similar family in Alaska could receive upwards of $821.
The federal government provides funding for the state programs, and in exchange, each state must ensure that a certain percentage of beneficiaries are working. The debt ceiling deal will increase that percentage, though how exactly that will pan out for each state remains to be seen. According to the Congressional Research Service, if a state does not meet these benchmarks, its funding is in jeopardy.
Takes back funding from the IRS
The debt deal will claw back billions of dollars of funding that was slated to go to the IRS.
Last August, the Inflation Reduction Act infused the IRS with $80 billion over a 10-year period. The IRS recently released details on how it plans to spend that money, such as putting it toward improving customer service, cracking down on wealthy taxpayers and possibly even releasing its own free-to-use tax filing system.
Conservatives have long railed against the increased funding, arguing that the IRS will use it to unleash an army of tax auditors on everyday Americans. While the IRS does plan to ramp up tax enforcement measures, the agency has repeatedly said it will not disproportionately increase audits on Americans earning under $400,000.
The debt ceiling deal pares back about $20 billion, or about 25%, of the funds promised. The money taken from the IRS is in lieu of spending cuts for other domestic benefits programs that many Republicans were pushing for.
It’s not yet clear exactly how these funding changes will affect the IRS’s recently announced plans to use the money, but the White House has suggested that the IRS could continue full steam ahead — and just run out of money sooner than previously expected.