The United States Senate is on deck to pass a controversial, bipartisan, and hard-fought deal to lift the national debt ceiling and avoid the country’s first-ever national default.
Drafted over weeks of stop-and-start negotiations between Biden Administration officials and Republican leaders in the House of Representatives, the deal suspends the nation’s debt limit of $31.4 trillion through January 1, 2025. This enables the government to continue paying its bills (and accumulating debt) without sending the nation (and by proxy, the global economy) into a never-before-seen situation.
If the United States were to go into default, it’s estimated that more than half a million jobs would land on the chopping block—and that’s just for starters. The larger implications on credit markets are simply incalculable, according to many economists, and would result in a cascade of credit downgrades and a near total freeze on access to capital.
‘Accommodations’ and ‘adjustments’ abound
While the negotiations have received significant attention for being a lightning rod of bipartisan drama—and for many, a chance to relitigate previously passed legislation like the Inflation Reduction Act (IRA)—the final package ultimately has fans and detractors on both sides of the political spectrum.
For everyday taxpayers and business leaders, for instance, the new bill aims to reallocate funds in a way that minimizes disruption across the public and private sector, tapping into unused cash reserves like holdover Covid-19 relief funds to cover spending gaps. This includes $11 billion in unobligated capital that can now be funneled toward the most pressing non-defense spending priorities.
But the new legislation also directly targets the Internal Revenue Service, shifting $10 billion in previously allocated funding away from the organization in 2024 and again in 2025. While these cuts are largely characterized by GOP lawmakers as a conservation measure to stem a hiring spree of auditors at the IRS, the allocations were originally described in the IRA as a means to modernize and “digitally transform” the agency to better serve taxpayers and expedite the filing process.
Caps non-defense spending through 2024
The deal ultimately caps non-defense spending—which funds things like public transit and education—for the entirety of fiscal year 2024. While, on its face, this limit presents a roadblock to many of the Biden Administration’s topline spending initiatives, Republican leaders are characterizing the compromise as a boon for government savings.
While non-defense spending can increase by 1 percent beginning in 2025, the new 2024 budget ultimately rolls back non-defense discretionary spending to 2022 levels. The topline federal spending budget would also be limited to 1 percent annual growth for the next six years, according to the agreement.
In total, the spending reductions are forecast to reach $1.5 trillion in savings over 10 years.
New deal could slow down IRS modernization
The agreement would also rescind $1.4 billion in IRS funding from the act, which is the full amount of funds included in the agency’s fiscal 2023 spending plan for non-taxpayer services. This means that any additional funding for the agency would need to be requested by Congress in subsequent budget discussions going forward.
While this measure doesn’t directly impact programs like the government’s R&D tax credit program, which itself is mired in bipartisan controversy stemming back from the 2017 Tax Cuts and Jobs Act, it will likely impede the IRS’s ability to quickly process claims.
Despite the various reallocations outlined in the new bill, it’s safe to say that things could be much worse—and certainly would be if a national default ultimately came to pass. While lawmakers will need to learn how to work within the new budgetary guidelines, business leaders and taxpayers can rest a little easier knowing that a global market disruption is less imminent.
That said, navigating tax claims and the evolving IRS tax code will remain an important priority for all businesses to understand how legislation could impact their access to capital and the availability of government funding going forward.
Stay tuned to the Boast AI blog for the latest and speak with the team today to learn how we can help streamline the R&D tax claim process and identify opportunities for non-dilutive government funding.