Explained: What is in the debt ceiling bill passed by US Congress?

Months of back-and-forth and drama over whether the US will raise the debt ceiling or not are seemingly coming to an end. The US House of Representatives as well as the Senate voted in favour of raising the debt ceiling. After receiving what was largely a bipartisan approval, thelegislation is now headed to US President Joe Biden. It is expected that the bill would be approved before the June 5 deadline, also known as the 'X-date'.

But what is the language of the deal? What are the compromises made by both parties and most importantly, what is the debt limit and how did the US come so close to plunging the entire globe into an economic crisis with the spillover effect?

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What is the debt limit?

A debt limit is the amount of money that the US government can borrow to meet its financial obligations, such as social security, military salaries and Medicare benefits payments.

Congress, earlier this year, extended the statutory debt limit to $31.4 trillion. However, the weak economic fundamentals and overflowing expenditures meant that the US reached precariously close to breaching the limit. Consequently, Congress was engaged in a fierce tussle to raise the limit.

Prior to achieving a breakthrough, even the White House conceded that an actual breach of the US debt ceiling was likely to cause severe damage to the economy.

"If the US government were to default on its obligations - whether to creditors, contractors, or citizens - the economy would quickly shift into reverse, with the depth of the losses a function of how long the breach lasted," said the White House in a statement.

What is the text of the bill?

The deal ensures that USA's borrowing cap is extended till January 2025, which means thatit will be a non-issue, at least during the hotly contested US presidential electionsscheduled in 2024.

Overall, the Congressional Budget Office projected that the bill would reduce budget deficits by about $1.5 trillion over the next decade.

Non-defence spending capped

The bill has capped spending in non-defence areas, such aspublic education and transportation in 2024, before increasing it by one per cent in 2025. According to a CNN report, non-defence discretionary spending for fiscal 2024 will be approximately $704 billion, of which $121 billion would be for veterans' medical care.

Notably, veterans who have been exposed to toxic substances or environmental hazards will receive support under the PACT Act. Though Biden sought $20.3 billion for the toxic exposure fund in his budget, the bill brings it down to nearly $15 billion for fiscal year 2024.

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Covid-related fundings rescinded

According to House GOP lawmakers, the deal ensures that $28 billion in unobligated funds from COVID-19 relief packages, approved by Congress, is rescinded. However, $5 billion in funding would be retained to focus on the development of COVID-19 vaccines and funding for other vaccines and treatments for the uninsured, as well as the Indian Health Service.

WATCH |US House passes debt ceiling deal, bill heads to Senate for nod before June 5 deadline

IRS money

One of the biggest demands of Republicans was to cut down the money allotted to IRS last year by the Democrats to crack down on tax fraud. The bill language states that $1.4 billion in funding has been rescinded. Moreover, over the next two years, $20 billion will be taken away from the IRS and used for funding other non-defence programmes.

Some experts, however, are of the view that the change would increase deficits by $900 million because fewer IRS officers mean less revenue coming into the Treasury.

Environmental projects

For the first time in nearly four decades, a single lead agency has been designated to develop and schedule environmental reviews in hopes that it will streamline the lengthy regulatory process. The biggest beneficiary has been the controversial Mountain Valley Pipeline project, brought forward by SenatorsJoe Manchin and Shelley Moore Capito. Under the bill, all outstanding permit requestsconcerning the project have been approved.

Student loans

Republicans wanting to stop the Biden administration from waiving $10,000 to $20,000 in debt for nearly all student borrowers could not get their way in the bill. Biden, however, agreed to put an end to the pause on student loan repayment. The true test of Biden's resolve regarding the policy will be tested in the Supreme Court where a decision is expected before the end of June.

GOP lawmakers could not get their way to repeal many of the clean energy tax credits Democrats passed in party-line votes last year to boost the production and consumption of clean energy.

So what's next for the US?

Congress must ensure that the approved deal reaches President Biden's desk before June 5. After Bidens signs it, the limit is raised and it is business as usual before the cycle repeats in roughly two years' time.

(With inputs from agencies)

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