Your Financial Future: Debt ceiling impasse explained
This week will be a major test for both parties in Washington. Treasury Secretary Janet Yellen has warned that the government may be unable to pay its bills on June 5. Without Congress approval and signature by the president to extend the debt ceiling, the government will not be authorized to pay its bills. This is money that has already been spent, but often done so without any support from the minority party. If this is not approved on time, the government credit rating will be lowered, which will cause borrowing costs to rise. It could also delay Social Security checks, government payroll checks, cost millions of jobs and have a major negative affect on the stock market.
Since we now have a divided government with Democrats controlling the presidency and Senate while the Republicans control the House, a compromise is necessary. President Biden and Speaker Kevin McCarthy have been holding intense discussions about how to come to an agreement. Both sides have been trying to gain as much benefit as possible. While both parties realize how important a solution is for the country, both want to benefit their own side.
Let蘑菇视频 discuss why we are in this position before we look at details and challenges in getting this legislation approved. In our homes or businesses, we are in major trouble if we continue to spend more than we have in income. The government incurs a deficit when spending exceeds revenues. It has spent $925 billion more than was collected in fiscal year 2023, increasing the national debt. To get a view of how much this is, visit www.usdebtclock.org. If we had a balanced budget, we would not be in this situation.
On Tuesday, the legislation cleared a key House committee. It was scheduled for a vote in the full House Wednesday when column was being written. If it passes, which will require bipartisan support, it will go to the Senate. There, it could be slowed down by a filibuster by a senator or two. This could be a big issue with June 5 only days away.
The country got into this situation by continuing to spend more than it takes in. This has been going on for a long time. The president said he would not negotiate this issue, and any other items discussed should be a separate action. He knew that the Republicans would not give up this leverage, just as he wouldn鈥檛 if the situation were reversed. He has to be careful not to lose votes from his progressive side of the party, and McCarthy had to get as much as possible without losing his conservative right.
What they are voting on is to suspend the debt ceiling until January 2025, which will be after the next election. There will be some slowdown in government spending, but it will not be close to balancing the budget. Student loan repayment will resume again after being suspended for three years since COVID became an issue. The bill would also rescind $28 billion of unspent COVID relief funds. There are also some additional work requirements for some food stamp recipients.
While both sides are giving up some things, it is important to pass the legislation and then get serious about working toward the permanent solution of a balanced budget. We cannot put the future of later generations at risk.
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, 鈥淵our Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.鈥�
If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.