Investing.com – The US has narrowly avoided a government shutdown after Congress passed a spending increase until March 14, 2025, and $100 billion has been allocated for disaster relief and $30 billion for agricultural aid. But while the move averts an immediate crisis, Goldman Sachs warns that bigger financial issues lie ahead.
One of the main points of contention – raising the credit limit – was left out of the latest bill. However, Goldman notes that “Republican leaders are willing to raise the debt limit by $1.5 billion next year in a 'reconciliation' bill,” which could pass without bipartisan support. This can be combined with $2.5 trillion in spending cuts over the next decade, equivalent to 0.7% of GDP.
The Wall Street firm estimates that $1.5 billion in debt increases could push the deadline from July-August 2025 to early 2026. However, the exact timing depends on the Treasury's cashflows.
Despite this, the firm admits that reaching the $2.5 billion reduction will not be easy. “This is a clear commitment that will be difficult to achieve,” the article says, stressing that previous efforts to ensure such conservation have met with resistance.
Potential savings could target health programs, including Medicaid reform and Medicare payment reform, which could generate up to $1.7 billion. Expiring funding under the Affordable Care Act could cut another $300 billion over ten years, while repealing the Inflationary Reduction Act (IRA) could theoretically save about $500 billion over the same period.
However, Goldman warns that Republican lawmakers may not uniformly support such measures, limiting their potential impact.
“For example, we expect that support among some Republican lawmakers for some IRA provisions will prevent savings of about 100bn/10yrs (mainly by reducing electric car incentives),” the company continued.
Tax revenues could theoretically contribute, but Goldman stresses the difficulty in achieving the near-term support needed.
“The experience of the last few days shows how difficult it will be to get the close support needed to pass a fiscal package across the board, and there are likely to be many Republican lawmakers who oppose a tax increase.” the article adds.
Looking ahead, Goldman sees two possible paths for monetary policy in 2025. Another option is a two-step reconciliation process – passing a smaller bill focused on immigration and debt limits, followed by a larger package dealing with tax cuts and broader spending reforms.
The alternative involves one comprehensive bill. However, Goldman suggests that “a two-step process seems more feasible than a single comprehensive package,” as the incoming administration may prioritize immediate immigration success.
In that case, Republican leaders may begin preparing a two-step financial plan in January by initiating a budget resolution for reconciliation legislation. This process, however, will delay clarity on the full scale and details of the comprehensive financial package by several months, according to Goldman.