28-5-2023 (Washington) US President Joe Biden and top congressional Republican Kevin McCarthy have reportedly reached a tentative agreement to raise the federal government’s debt ceiling, bringing an end to a months-long impasse, according to a source familiar with the negotiations on Saturday (May 27).
The White House and negotiators representing House Republicans have reached a preliminary deal aimed at averting a potential debt default, the source added.
Earlier on Saturday evening, Biden and McCarthy engaged in a 90-minute phone call to discuss the terms of the agreement.
If successfully passed through the closely divided Congress before the Treasury Department faces a shortage of funds to cover all obligations by June 5, this deal would prevent an economically destabilizing default.
Republicans, who hold control of the House of Representatives, have been advocating for significant spending cuts and additional conditions, including new work requirements for certain benefit programs assisting low-income Americans and stripping funds from the US tax agency, the Internal Revenue Service.
Their objective is to curtail the growth of the US debt, which currently stands at approximately equal to the country’s annual economic output.
While specific details of the final deal were not immediately disclosed, sources informed Reuters earlier that negotiators had agreed to cap non-defense discretionary spending at 2023 levels for a two-year period in exchange for raising the debt ceiling during a similar timeframe.
Both sides face the challenge of finding a compromise that can pass through the House, where Republicans hold a 222-213 majority, as well as the Senate, which has a slim Democratic majority of 51-49.
The protracted standoff has unnerved financial markets, resulting in stock market fluctuations and record-high interest rates in certain bond sales for the United States. Economists warn that a default would have severe consequences, likely triggering a recession domestically, rattling the global economy, and leading to a surge in unemployment.
Biden had previously refused to engage in negotiations with McCarthy regarding future spending cuts, insisting that lawmakers first pass a “clean” debt-ceiling increase without any additional conditions. He also demanded the presentation of a 2024 budget proposal as a countermeasure, which he had issued in March. Two-way negotiations between Biden and McCarthy commenced earnestly on May 16.
Democrats accused Republicans of playing a dangerous game with the economy, while Republicans argued that increased government spending in recent times has fueled the growth of the US debt, which is now on par with the nation’s annual economic output.
The nation came close to defaulting once before in 2011 when a Democratic president, a Democratic Senate, and a Republican-led House were in power. While default was ultimately avoided, the economy experienced significant shocks, including the first-ever downgrade of the United States’ top-tier credit rating and a major stock market sell-off.
This time, House Speaker McCarthy strengthened his position by overseeing the passage of a bill in April that combined $4.8 trillion in spending cuts with a $1.5 trillion debt-ceiling increase. Although the bill stood no chance of passing the Democrat-controlled Senate, it demonstrated McCarthy’s ability to maintain unity within his slim majority just four months into his top leadership role.
Nevertheless, their work is far from complete. McCarthy pledged to allow House members 72 hours to review the legislation before bringing it to the floor for a vote. This will test whether enough moderate members support the compromises in the bill to overcome opposition from both conservative Republicans and progressive Democrats.
Subsequently, the bill will need to pass the Senate, where it requires at least nine Republican votes to succeed. Along the way, there will be multiple opportunities in each chamber to slow down the process.
Both sides have grappled with finding common ground on spending levels. Republicans had advocated for an 8% reduction in discretionary spending in the upcoming fiscal year, followed by annual increases of 1% for several years.
In contrast, Biden proposed maintaining flat spending in the 2024 fiscal year, beginning on October 1, and a 1% increase the following year. Additionally, he suggested closing certain tax loopholes, a proposal that was rejected by Republicans.
