• Products
  • Insights
  • Practice Management
  • Resources
  • About Us

The passage of the debt-ceiling bill, the Fiscal Responsibility Act (FRA), marked a rare moment of bipartisan compromise among Republicans and Democrats, with 78% of Democrats and 68% of Republicans voting yes.

Yet a breakdown of the House vote by my colleague and demographer Neil Howe suggests that these moments may become even more rare. Among Republicans, the vote was clearly split by age and tenure in office. Younger and less-experienced members were much more likely to vote against the bill. Of the Republican members over age 70, only 19% voted no. This increased to 31% among those age 50 to 70 and to 40% among members under 50.

Similarly, just 17% of Republicans who have served five or more terms (i.e., entered office before 2016) voted no. This jumped to 41% among those who were elected more recently. Democrats, on the other hand, showed no such split.

The striking age divide among younger and older Republican members may explain why there was less correlation (than among Democrats) between their level of electoral support and how they voted. Traditional political wisdom dictates that members of Congress who live in competitive districts are more willing to compromise out of fear of losing moderates. This held true among Democrats: Among those who won their 2022 races by less than 10 percentage points, only 6% voted no. This soared by 5x or more among those who won their races by 30 points or more. But among Republicans, the differential was much smaller (only 2x).

The gap is even more obvious when analyzing the debt-ceiling votes according to the 2020 presidential election results. In districts where former President Donald Trump or President Joe Biden won with at least 60% in 2020, similar shares of Republicans and Democrats voted no. But in districts in which neither candidate reached 60%, 28% of Republicans voted no vs. only 7% of Democrats.

Although House Democrats’ votes largely didn’t reflect these patterns, they did line up in one respect. The youngest Democrats (that is, millennials) were as willing to buck their own elder party leaders as the youngest Republicans were to vote against the bill. Among the House Democrats under age 40, 26% voted no.

This pattern doesn’t necessarily predict a worsening partisan gridlock as trends show that some members will become more willing to strike deals the longer they serve in office. Nonetheless, there’s concern on both sides of the aisle that, with Election Day 2024 around the corner and the political temperature climbing every week, finding compromise may be tougher than ever before.

 

Dynamics of the Debt Deal

Now that the debt ceiling is suspended until after the 2024 elections, Congress and the Biden administration have agreed on discretionary spending limits, including defense spending, that will impact the federal budget. Washington will be adjusting to fiscal austerity for the foreseeable future, reversing the past four years of the pandemic paydays. In the following, we distill the major components of what passed so we can better understand the budgetary dynamics at play for the next two years:

 

Fiscal Responsibility Act Highlights:

  • Debt limit: The debt limit is suspended until January 1, 2025. 
  • Sets discretionary spending caps for 2024 and 2025: For 2024, the defense limit is $886.3 billion and non-defense limit is $703.7 billion. Spending limits grow by 1% in 2025 to $895.2 billion for defense and $710.7 billion for nondefense. (In prior years, defense and non-defense spending typically reached parity.)
  • The auto-continuing resolution (CR): If all 12 appropriations bills aren’t enacted by January 1 of the following year (2024), discretionary spending will temporarily operate at a maximum of 99% of current levels, a provision drafted by Rep. Thomas Massie (R-KY).
  • COVID rescissions: Approximately $28 billion in unobligated COVID-19 funds were rescinded.
  • Internal Revenue Service agents: The bill rescinds $1.4 billion in funding to hire new IRS agents.  
  • Student-loan repayment pause will end: The Biden administration is barred from extending COVID-era student-loan repayment rules.
  • Reforms elements of the Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF) programs: The deal includes new work requirements for able-bodied adults without dependents.  
  • Permitting reforms: The quest for energy-permitting reform continues as this  deal includes the BUILDER Act, which reforms the National Environmental Policy Act. The new act includes project thresholds, interagency coordination, limits impact study length, refines review deadlines to prevent project delay, limits what qualifies as a major federal action, and imposes limits to prevent agencies from missing statutory deadlines. We anticipate continued work on these measures over the summer.

 

The Congressional Impasse

The Republican House and Democratic Senate will continue to move legislation in their respective bodies throughout the summer, but the bills they pass will largely remain incongruous and likely won’t become law. Frustration is mounting for both sides as six months of messaging bills appealing to base voters is not a winning governing strategy. Having said that, prepare for additional skirmishes over the FBI, Department of Justice, IRS, and immigration/the border.

 

FIGURE 1

Bills That Became Law by June 15 in the First Year of a Congressional Session

Chart data: 2001-2023. Data sources: Quorum, Kira Wang/Axios Visuals.

 

Now Back to Our Regularly Scheduled … Crisis

The centerpiece of the FRA that raised the debt ceiling until January 2025 was a two-year deal on the federal government’s discretionary spending levels. A government funding bill and/or stopgap (CR) will be required by October 1 to keep the government from shutting down. The FRA discretionary-spending deal contained a 3.2% increase for defense and flat funding for non-defense programs for fiscal-year 2024. 

Despite passage of the budget caps in the FRA, Washington is bracing for opposition over agreed-upon spending levels. Conservatives in the House are pressuring appropriators to come in well under the caps that Speaker of the House Kevin McCarthy (R-CA) and Biden agreed on. While McCarthy has indicated his willingness to play ball, he’s going to run into a brick wall with Democrats led by Senate Majority Leader Chuck Schumer (D-NY). From the onset, Democrats balked at Biden’s acquiescence to caps on spending in exchange for the debt limit, and they intend to come in as close as possible to the caps to protect domestic programs across the board.

Unfortunately, a government shutdown isn’t the only worst-case scenario we could be facing. There’s a provision in the debt-limit deal that triggers an automatic overall 1% cut to discretionary spending programs if Congress doesn’t pass all 12 appropriations bills for 2024 by January 1, 2024. 

 

Trouble on the Horizon?

Looking ahead, Congress is up against a number of reauthorization deadlines, including the expiration of the Farm Bill and Federal Aviation Administration authorization—both converging with federal spending drying up at the end of the fiscal year on September 30. But just as the debt-ceiling drama engulfed the country for the first half of the year, hope springs eternal that progress will be made on critical issues before a full-fledged fiscal food fight breaks out within the corridors of power.

 

Talk to your financial professional to help make sure your portfolio is prepared for whatever happens in Washington D.C. 

 

 

The views and opinions expressed herein are those of the author, who is not affiliated with Hartford Funds. Hedgeye Potomac Research is not an affiliate or subsidiary of Hartford Funds.

POLWP013 2994855

About The Author
Author Headshot
Senior Policy Analyst, Hedgeye Potomac Research

The material on this site is for informational and educational purposes only. The material should not be considered tax or legal advice and is not to be relied on as a forecast. The material is also not a recommendation or advice regarding any particular security, strategy or product. Hartford Funds does not represent that any products or strategies discussed are appropriate for any particular investor so investors should seek their own professional advice before investing. Hartford Funds does not serve as a fiduciary. Content is current as of the publication date or date indicated, and may be superseded by subsequent market and economic conditions.

Investing involves risk, including the possible loss of principal. Investors should carefully consider a fund's investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund, or ETF summary prospectus and/or prospectus, which can be obtained from a financial professional and should be read carefully before investing.

Mutual funds are distributed by Hartford Funds Distributors, LLC (HFD), Member FINRA|SIPC. ETFs are distributed by ALPS Distributors, Inc. (ALPS). Advisory services may be provided by Hartford Funds Management Company, LLC (HFMC) or its wholly owned subsidiary, Lattice Strategies LLC (Lattice). Certain funds are sub-advised by Wellington Management Company LLP and/or Schroder Investment Management North America Inc (SIMNA). Schroder Investment Management North America Ltd. (SIMNA Ltd) serves as a secondary sub-adviser to certain funds. HFMC, Lattice, Wellington Management, SIMNA, and SIMNA Ltd. are all SEC registered investment advisers. Hartford Funds refers to HFD, Lattice, and HFMC, which are not affiliated with any sub-adviser or ALPS. The funds and other products referred to on this Site may be offered and sold only to persons in the United States and its territories.

© Copyright 2023 Hartford Funds Management Group, Inc. All Rights Reserved. Not FDIC Insured | No Bank Guarantee | May Lose Value