Negotiators on both sides of the political divide were close in on a deal on the tax package that will finally please both sides. While the GOP will get its way on reduction in spending, the ruling Democrats can say that they had prevented any significant cuts from the tax package.
Top White House officials and GOP lawmakers said that they have finally agreed to raise the debt limit for two years and have at the same time imposed strict caps on discretionary spending on the tax package that are separate from military spending for the same period.
Officials on both sides were racing against time as they struggled to avert a federal default that is looming just a week ahead.
The tax package would allow the opposition Republicans the right to say that they have forced the Democrats to make significant cuts in spending. But military and veteran program spending remains untouched and continues to grow. The Democrats on the other hand have the luxury of saying that most domestic programs have been spared from making any significant cuts.
Republicans Speaker Kevin McCarthy Admits Negotiations On Tax Package Have Been Tough
Representatives from both parties negotiated late into the night and have started to draft legislative text. But some issues of the tax package remain to be sorted before the first draft is ready.
Republican Speaker Kevin McCarthy spoke to reports and said that both parties negotiated on the tax package all day at the White House, and they have been going back and forth on the deal. He admitted that the tax package negotiations had not been easy.
If both parties finally arrive at an agreement on the tax package, and it is enacted, it would give the government breathing space on the borrowing limit for two years, well past the coming presidential elections in 2024. This was disclosed by three people who are familiar with the negotiations and the deal. They insisted on remaining anonymous and said that both sides were still hammering out the final points of the tax package.
The federal government was stopped by the legal limit which currently stands at $31.4 trillion in January 2023. Since then, it has been relying on accounting maneuvers to avoid default. The Treasury had warned that it was close to exhausting its ability to pay bills on time and set June 1 as its final limit unless a tax package was worked out.
The Democrats have made several concessions to the Republicans in exchange for their cooperation. They would meet the GOP demand to bring major cuts in federal spending. But these will be mostly achieved with the aid of accounting jugglery. This would give both parties the political breathing space for an agreement. The tax package deal is likely to be quite unpopular with large sections of the voter base.
Understanding the national debt and the tax package
President Biden and Republican Speaker Kevin McCarthy are close to clinching a tax package deal that will suspend the debt limit of the US for over eighteen months until January 2025. This would give the ruling democrats the breathing space to continue to borrow money to pay their bills.
But pushing the tax package though has been a tough and exhausting exercise for the ruling democrats. The Republicans have succeeded in pushing through their demands on a range of concessions. The main among them are caps on some spending that will stay in effect for the next two years past the 2024 presidential elections. The deal also cuts down on IRS spending by $10 billion.
The Republicans have also managed to place additional work requirements on older Americans receiving support through the Supplemental Nutrition Assistance Program. But the homeless and veterans would have additional access to food stamps under the tax package.
The tax package would also officially bring to an end the freeze imposed by President Biden on student loan repayment by end-summer. Further, the president cannot issue a last-minute reprieve, something that he has done several times in the recent past.
One major drawback has been environmental issues with both parties concurring over getting new energy projects approved rapidly. The deal is a win for wayward West Virginia Democratic Senator Joe Manchin. He has been more Republican than the Republicans themselves and has been a strong advocate of more use of fossil fuels. He has also been instrumental in striking down the immensely successful Child Tax Credit stimulus tax that helped millions move out of poverty in 2021. The enhanced Child Tax Credit payments that year almost doubled the annual child support payments from $2,000 to up to $3,600 per child.
Caps On Discretionary Spending In Tax Package
The tax package will also lead to restrictions for two years on discretionary spending. But the rules will be different for the military than on discretionary spending on non-defense spending. The spending on defense is set to grow next year. So would the expenditure on veteran care that is part of non-defense discretionary expenses. There will be a slight fall in the non-defense discretionary spending, and in some instances, it will stay flat for now.
The tax spending deal would also cut back $10 billion of the $80 billion that was approved by Congress last year to enable a crackdown on corporate and high-earning tax evaders by the IRS. it is part of the old Republicans‘ policy to shield high-income tax evaders.
While Democrats have been strongly behind this initiative, the Republicans have strongly opposed any action to rein in the GOP core support base. Neutral scorekeepers have said that by cutting back on the spending, the government would lose out as it would forego an opportunity to go after the tax evaders.
The Republicans have long claimed that taxing the rich and the corporates would have an adverse effect on faster economic growth and private investment. This would prevent a trickle-down effect on American workers in the form of higher wages.
The Democrats have blasted the GOP for supporting even more deficit-busting tax giveaways for giant corporations. On the same note, the Republicans have supported severe, job-killing austerity measures on low and moderate-income earners.
The Republican tax cuts for giant corporations and the wealthy have added trillions to the deficit. On one hand, they have demanded trillions in additional tax breaks for the rich while pushing through cuts to critical programs for working-class Americans.
