Politics and policies, US economy Washington Weekly: Difficult negotiations remain on debt ceiling deal

Debt Ceiling Extension Slog. Some progress was made this week as congressional leaders and President Biden met and pledged to negotiate toward a bipartisan solution. That pledge is not a breakthrough, but it is an indication that each side knows that its preferred solution is a non-starter with the other and that a third way must be found. Until now, each side has focused more on criticizing the other’s position. However, with more regular and frequent staff meetings, the two sides have identified a few issues that could receive bipartisan support, such as energy infrastructure permitting reforms, the recission of unused Covid funds and a cap on federal spending for two or more years. Those issues sound to us like a good basis for a meaningful compromise, but the details of those plans are not close to being resolved.

If the closed-door staff meetings don’t make clear progress over the next week, the level of urgency surrounding this issue will rise considerably unless the X-date is revised to a later date.

X-Date Urgency. Treasury Secretary Janet Yellen reiterated this week that the X-date could be as soon as June 1, but she also indicated that she would provide another forecast by Monday. Indeed, many lawmakers with whom we spoke this week believe the X-date will be pushed back to the end of June (or later).

We don’t have an exact sense of when the X-date will be, but, if it remains June 1, the negotiators are going to be in a real time crunch.

House Democrats’ “Secret Plan.” A week ago, the media reported on a “secret plan” by House Democrats to try to resolve the debt ceiling problem. The plan is to force the House to vote on a clean extension of the debt ceiling through the use of a discharge petition, which allows for a majority of the House to force a vote on a bill that is bottled up in a committee. To make this process work, House Democrats must get a majority of House members to sign the discharge petition and then get a majority to vote for it. It then must be approved by the Senate. House Democrats began the process of lining up support for the petition this week, but they are likely to fall short of a majority in the House given that at least a few Republicans would need to support it. Additionally, even if Democrats were able to pick up enough Republicans to force a vote on the discharge petition, there may not be enough time for it to be acted upon.

While there are many House Republicans who would support a clean extension of the debt ceiling under different circumstances, they currently prefer waiting to see what sort of compromise could emerge from the ongoing negotiations.

IRS Filing Your Taxes for You? The Internal Revenue Service (IRS) is exploring the cost and feasibility of offering a free electronic service that would allow certain taxpayers to prepare and file tax returns directly. The IRS released a study this week extolling the benefits of such an offering and plans to launch a pilot program before the next filing season. Firms (like H&R Block and Intuit) that already perform such tax services are opposed to this initiative (called “Direct E-File”). Additionally, many Republican lawmakers have their own concerns with the tax-collecting agency and its ability to accurately tell taxpayers what they owe.

Nonetheless, the pilot program should take effect next filing season, and its future will to a certain degree depend on how it works and whether it can survive Republican attempts to reduce funding for the agency.

For much more Under the Dome, see Washington Weekly , 19 May, 2023.

Approval Date: 5/19/2023

Expiration: 5/31/2024

Review Code: IS2303204